A Noted Management Theorist Tells Why Indecisive Leaders
Put Their Companies at a Competitive Disadvantage

Ram Charan

In his 30-plus years of advising CEOs of every kind, from Fortune 100 corporations to emerging venture capital funded firms, Ram Charan has amassed a wealth of knowledge about what makes a successful chief executive. He has also observed what can happen when a CEO becomes overwhelmed by the complexity of his or her job. They do not set clear priorities, they lose their focus, they become indecisive. And as a consequence, the whole organization loses energy.

"People don't align with visions," Charan said. "They align with priorities, with those who can deliver results, with those who can grow people's capacities. You can change visions, change strategies, change structure, but if you don't execute consistently over time, you're not going to be a winner."

Charan speaks with unmistakable authority. In addition to being a management theorist, consultant and educator, he is a prolific writer. His presentation at the Spring Seminar drew heavily on his latest book, What the CEO Wants You to Know, which has been described as "a book that shows how business really works."

To make his case for "Conquering the Culture of Indecision," Charan began with several observations. The first was that the price earnings multiple, or P-E multiple, is still alive. Shareholders and employees with stock options expect the CEO to create wealth for them. Since the P-E multiple represents the expectations about the company's current and future money-making ability, everyone with a stake in the company obviously wants the P-E multiple to be as high as possible. Missing an earnings goal can cause the P-E multiple to plummet; delivering consistently over time can enhance it. Charan knows CEOs are keenly aware of the importance of the money-making formula. The question is, can they make good decisions and deliver on their money-making commitments?

Charan's second point was that there are lots of companies with indecisive leaders at high levels. "What happens in an indecisive culture?" he asked. "They have one meeting after another, they rework and rework everything. They call in McKinsey to do a new structure. They design a new compensation system. They re-do values. They rewrite the vision. But none of it takes hold.

"And so they bring in more consultants and try new systems. Twenty years ago, the change process guys - yours truly included - came in. We got some things done, but three years later they were back where they started. Meanwhile, management had lost credibility, people were confused, and the energy had drained out of the organization."

Eventually, Charan said, the light went on. "I began to observe what, in fact, changes the culture. I was fortunate that I was able to make these observations over time; it's not something that you do in a two-hour interview. Given the opportunity, you can begin to see how the culture is changed by the leaders of a company."

Charan said there is framework for conquering the culture of indecision.

The first item in that framework is what he described as the "social operating mechanisms" that exist in every company. Strategic planning and operations reviews, even something as simple as a conference call, are examples of social operating mechanisms. "They are 'social' because everything gets done by people," he said. "It involves interaction, dialogue and decision-making. No company can function without people working together. And if you change how they work together, you change the culture going forward. So social operating mechanisms become one of the levers for creating change inside the business."

Dialogue is the critical element of a social operating mechanism, Charan said. In these dialogues, information is exchanged, decisions are made, and priorities are discussed. "It is the leader's job to guide the dialogue and reach closure," he explained. "As in any dialogue, there are different behaviors that have to be dealt with. Frequently the leader will ask questions about the business, and the questions asked can actually reorder the thinking and the data that comes out."

Feedback and follow-through, Charan said, are other steps in creating a decisive culture. Successful leaders use feedback to help subordinates perform better in their jobs and to re-direct or change behavior. Rewards and sanctions function the same way. "Are you really administering rewards and sanctions properly," he asked, "that is, on the basis of the performance that underlines each social operating mechanism?" Social operating mechanisms along with dialogue, feedback, rewards and sanctions, and good communications, Charan said, form the engine of cultural change.

Charan turned next to his belief that execution is the point of differentiation between successful companies and those that are not. The successful companies, he said, are those that have credibility, reliable growth and productive social engines. "Productive social engines are those where work really gets done, decisions are made and dialogue is a unit of that work." In short, they execute.

As far as vision, strategy and structure are concerned, he said, "somebody has to link them. And the linkage is in the social operating systems and the dialogue within those systems. What happens in the dialogue and the follow-through is what shapes behaviors and business decisions."

Using General Electric as an example, Charan said they use their meetings to ask the tough questions. What talent will we require two years out? Who are the A players? What are we going to do about the C players? Is there honesty in our dialogues? Are our leaders strong enough? What is the linkage between next year's strategy and the previous one? "When you ask questions like that," he said, "what begins to happen to your culture of decision?"

The major sources of indecision, Charan said, are meetings that take place without any clear priorities. It's when there is no differentiation between rewards and recognition, no consequences for failure to perform. The dialogue-killers in indecisive organizations, he said, are dangling dialogues, information clogs and piecemeal perspectives.

On the other hand, he said, "The earmarks of decisive dialogue are candor, openness, informality, toughness and closure. And the last is the most critical. If a meeting has no closure, what happens to the whole energy of the assembled group?"

Follow-through is also essential, Charan said. You have to specify who, what, when. But the most important question to ask, he said, is "how are you going to do that? Most people talk about the 'what.' The moment you do the 'how', you alter the nature of the dialogue." And, Charan added, "You also change the culture of indecisiveness."

Charan, a strong believer in coaching, believes he can help people channel their skills and develop their abilities. He used several examples from his book, What the CEO Wants to Know, to show how coaching can provide feedback and change behavior. The examples were disguised versions of real letters that a CEO had sent to a subordinate, in this instance, a division head who was considered one of the best executives in the business.

As is typical in this company, Charan said, the letters were handwritten and sent within 24 hours of a meeting. There is nothing in the letter that hadn't been discussed at the meeting. "The message in the first letter (shown to the audience) was specific and clear," he said. The CEO complimented the division head for being an important part of the team but thought he was missing the point that there had been a fundamental, structural change in the business. He wanted him to focus on it. He also wanted to make sure that sufficient resources were being devoted to the future. "This was coaching on both the business side and the people side, a rare skill in leaders," Charan said.

A second letter followed another meeting, he said, and again provided specific points that he wanted the division head to think about. It was obvious that not much progress was being made and the CEO specifically asks, "How can I help you?" What we are seeing here, Charan said, is a leader who knows that feedback delivered in the right way with the right rewards and sanctions can provide direction, set priorities and encourage decisiveness.

The lifeblood of an organization is information flow, Charan said. No company can work without it. But the information must be relevant and timely. "You must make sure there are no blockers, no information hoarders," he said. "They can have a negative effect on the whole group so coach them, take them out of the flow, put them in another role of some kind."

In everything that Charan said, it was obvious that strong leaders are the key element. They must practice discipline. They must do things consistently. They must have the emotional fortitude to confront reality. And they must provide their organization with an edge in execution that translates to a competitive advantage.

So what makes a decisive company? Charan's criteria formed a series of questions that every organization should ask of itself. Do decisions stick? Are they generally good decisions? Are they made quickly? Is information shared openly? Does information get distorted? Do people know exactly what they are supposed to do? And by when? Finally, does performance really matter?

"These things are applicable to any leader," Charan said, "and remember, you don't have to be a CEO to be a leader."