Confronting reality

Some Impressionistic Take away from the Book of
Ram Charan & Larry Bossidy
Confronting Reality
( Doing what matters to get things right)
Ramki
ramaddster@gmail.com

 Larry Bossidy, credited with transforming AlliedSignal into
one of the world’s more admired companies (as chairman
and CEO from 1991 to 1999) is recently retired chairman and
CEO of Honeywell International, Inc. Before joining
AlliedSignal, he served in a number of executive and
financial positions with General Electric Company.
 Ram Charan is a highly sought adviser to CEOs and senior
executives in companies ranging from start-ups to the
Fortune 500. He is author of What the CEO Wants You to
Know and Boards That Work, coauthor of Every Business Is
a Growth Business and The Leadership Pipeline, and has
written numerous articles for Harvard Business Review and
Fortune.
About the Authors

 You can no longer count on a return to “normal” competitive
conditions. The business world is flat, with capital & knowledge
able to move anywhere instantly.
 Brands are losing value, regulations are increasing &
competitors can come out of anywhere. Filtered information,
selective hearing, wishful thinking, fear and emotional
overinvestment can all act to prevent an organization from
confronting and dealing with reality.
 As a way to understand reality, the authors put a high premium
on business savvy – the ability to understand the fundamentals
of a business, and the connections between them.
 The book presents a model and process to help leaders learn
business savvy – to recognize the position of their business in
wider external realities and to take action based on that
understanding
Prelude

 Any plan for business has to answer 3 questions
 What is the nature of the game we are in ?
 Where it is going?
 How do we make profits /Money in it ?
 These questions go the heart of what business is all about;
they are the fundamentals of business thinking.
 The gap between people’s successes & failures originates
with the very nature of how people conceive the purpose &
direction of their businesses.
 People don’t analyze and link the 3 fundamental components
that determine a business’s success or failure: the
environment it operates in, the financial targets it needs to
meet & the internal activities & capabilities that it depends on
in the given environment to meet the financial targets.
Breaking the Past

 A business model makes it possible for you to gain a comprehensive &
realistic understanding of how to make money.
 The analysis of business savvy shows that its essence is the use,
intuitively or explicitly, of the business model in choosing where & how to
make money. People with a well developed sense of business savvy
seldom have strategy ahead of time. Instead, they devise their strategies
as a means of meeting their financial targets, not the other way around.
 To confront reality is to recognize the world as it is, not as you wish it to
be and have the courage to do what must be done, not what you’d like to
do.
 Leaders with business savvy confront reality as a matter of course.
Business savvy is the art of understanding the fundamentals driving your
business and the connections between them. That is what author’s
business model enables you to do. It gives you a new way to develop an
integrated picture of your business reality, calculated at the very beginning
of any effort to plan your course & recalculated regularly as circumstances
change.
Breaking the Past

We are in a new business era. It is 5th distinct era of
structural change since the end of World war II.
Each of the previous ones spawned new
management theories & practices and this one will
no exception.
The old ways don’t work in this age of lightning-fast
change, high volatility, hyper- competition, declining
process & compressed margins.
The tools, practices and behaviors that will
distinguish success from failure can be summed up in
on phrase – relentless realism
Why Confront Reality

 The most widespread unrealistic behavior when the game changes
drastically is to violate the First Law of Holes (when you’re in one, stop
digging). They often achieve heroic results — which are, alas, almost
as often pointless, because they fail to confront the new realities.
 To lead successfully in today's environment, you need to employ a
business model based on the world's new reality. Such a business
model answers the following questions:
 Is the “how” of making money in my business and industry
changing?
 Who is winning in my industry, who is not winning and why?
 How, specifically, are winners making money?
 If my business is a winner, what do I need to do to stay on top?
 If I change my game, what, specifically, should I be doing?
 Am I in a growth industry or not? If not, and I want to continue
playing in the game, how do I change or play it better than the
competition?
 Is my organization moving quickly to spot and take advantage of
growth opportunities generated by these changes?
The Six habits of Highly Unrealistic Leaders

 People often fall short in confronting both their external & internal realities.
 External realities – Behaviors of others who can impact the business
outcomes-
 Customers, markets,
 Traditional / untraditional industry competitors,
 Policies of governments & regulators
 The expectations of Capital markets
 Host of other players whose roles may not be obvious
 Surprise of change is magnified by the speed of change in the increasingly
real-time global business world.
 Internal Realities includes
 Organizations capabilities & behaviors
 People often miss the external realities because they are overly
focused on internal processes, policies & politics.
 Overestimate their capabilities & underestimate the difficulty in
achieving their goals.
 They believe people in the organization are behaving in one way when,
in fact , they are behaving quite differently.
The Six habits of Highly Unrealistic Leaders

1. Filtered Information -They may get information only from
people with the same point of view. Or the information may
be distorted by people because of their own biases or
agendas.

2. Selective Hearing — Leaders practice selective hearing for
several reasons. The most common reason for this is
preconceived notions or past experience, e.g., looking into the
rearview mirror, the arrogance of success and refusal to
confront a problem because they can’t see a solution

3. Wishful Thinking — This is the root of much selective hearing
and seeing, e.g., the acquisition will work because we need it to.
Information to the contrary doesn’t make it through the screen.
Wishful thinking can take the form of rhetorical statements based
on experiences, such as “The market will come back — it always
does.”

4. Fear — Fear may be embarrassment over saying the wrong
thing at a meeting, or a necessity in a culture of fear. Some
tyrants fire people for disagreeing with them. More common and
pernicious in companies that force-rank executives, people who
make superiors uncomfortable risk being downgraded to a
lower performance percentile.

5. Emotional Overinvestment — People can accomplish great
things with deep commitment. The downside is that emotional
investment in a project may blind them to its weaknesses. Some
of the most poignant victims of emotional overinvestment are
companies with great histories of innovation. Nobody has the
courage to say that the splendid history is just that — history.

6. Unrealistic Expectations of Capital Markets — It’s vital to
create value for shareholders. The downside: Many leaders
become captive to unrealistic performance expectations,
notably the pressure for steady, predictable quarterly
improvements. They respond by making unrealistic

Upended: Why the World is changing

Virtually every business is now a player on the global stage.
Understanding how the world business environment affects
you starts with distinguishing between cyclical and structural
change.
While cyclical changes are a part of business life's normal
ups and downs, structural changes are fundamental, long-
term alterations in the basics of making money.
Structural changes are usually hard to differentiate from
cyclical ones in their early stages — when you really need to
see them. By the time they’re obvious, your odds of adjusting
well to them are sharply lower.

3 structural changes drive today’s explosion of intensifying
worldwide competition:
 Increasing integration of business activity across
borders, accelerated by the Internet with its instant
communications & vast repository of ideas & dialogues.
Its most tangible aspect is the rapid growth of supply
chains that stretch from the US & Europe to all part of
the globe- not only for goods, but now for services as
well.
 Worldwide overinvestment, fueled by a vast credit
expansion and immense free flow of risk capital.
 A global buyer’s market that has shifted power from
owners and managers of capital to consumers & giant
retailers.

 Also, beware of the wild card: Government regulators
around the world are getting more aggressive and
coming at different issues without coordination or
rationalization of their policies.
 The debate over economic globalism has traditionally
been in terms of free trade, the exchange of goods
between countries. As trade becomes freer, through,
something else has come along; a much broader
dissolution of boundaries.
 The factors that matter most today are knowledge &
capital. And they know no barriers. Just as supply
chains stretch across oceans, capital, ideas and new
technologies flow around the globe almost as freely &
quickly as they would in New York or Silicon valley.

 Challenges to you business model, your strategies, and
the very existence of your organization arise in
improbable quarters. So you have to understand not just
the usual suspects, but also what can be called your
extended industry, which includes all of the players who
influence the industry’s behaviors & economics.
 Change can be friendly for people who embrace it. But
in this environment , you will have to be alert & move
fast to capture the opportunities that change creates.
 To beat them, you will have to really know your
customers & end users with more depth & intensity than
ever, and to speed up your own responses to their
needs.

 Planners typically put their time into studying strengths
& weaknesses of important rivals, which are usually
traditional competitors in their home markets, and
seeking ways to beat them.
 This is far too narrow a focus & may allow other players
to set the direction of the game.
 You are dealing with something very close to the
hypothetical butterfly of chaos theory, whose beating
wings in China can ultimately generate a tornado in
Iowa.
Why don’t companies see these things coming?

 The Challenges of a changing environment inferred by the
butterfly beg the questions:
 Can you see growth in your industry?
 Is it profitable?
 Are supply and demand in balance?
 How far are the products of your industry from being
commoditized?
 Is it structurally defective or heading that way?
 How do you stand in relation to your competitors?
 Where is the technology going? Can you foresee making
breakthroughs with either one product or a series of
products or a division?
 How does your talent compare with that of your competitor,
and is it equal to what the customer needs
 Do you have legacy costs that can sabotage your
competitive advantage?
Why don’t companies see these things coming?

Redefining the Basics of Management

 Rising competitive intensity forces a return to basics, but in
a far more fundamental way than the operationally focused
1980s.
 Getting down to basics today means focusing on how you
can create intrinsic or fundamental value for your business.
 Fundamental value is a combination of real profit, real
return on investment, appropriate cash generation & growth
that is sustainable based on continuing differentiation of
your products in the market place.
 Your ability to create fundamental value rests on how good
you are at finding the right balance between your external
and internal realities and your financial aspiration — how
skillfully you develop and use your business model.
Redefining the basis of Management

 Leaders hoping to grow their way to success through
mergers and acquisitions had better think again.
 Studies repeatedly show that companies that grow mainly
through acquisitions are less successful than those that earn
most of their growth organically. Consolidation cannot return
an industry’s dynamics to “normal” if the player’s business
models have been overtaken by structural change.
 The only good reason for an acquisition is to enhance the
fundamental value of an enterprise. In other words, it must
complement and strengthen the business model.
 Another old practice ready for the scrap heap is that 1990s
holdover, maximizing shareholder value in the short run. As
the dot-com phenomenon made clear, market valuations
aren’t necessarily connected to the fundamental value of a
company.
Redefining the basis of Management

2
Confronting the reality with Business
model

The New model of Confronting Reality

The business model proposed in this book offers an
organized, rigorous way of looking at the health and
profitability of a business, now and in the future.
It is a statement of your current reality and its
probable — as opposed to hoped for — future
direction.
It is also an early warning system for real-world
changes that pose threats or provide glimpses of
opportunities.
Finally, the model is a blueprint for taking action.
By using it to test the actions you want to put in
place, you gain a better understanding of what will
and won’t work
Model for Confronting Reality

 The model starts with a logical breakdown of many
elements that make up a business, from its markets
to income statement to leadership development
programs.
 These group into three components:
 The environment you business lives in
 Your financial targets; and
 Business activities.
How does a Business Model work?

 When Michael Wisbrun was appointed head of KLM Air Cargo in 2000,
its management team foresaw that companies would develop more and
more worldwide networks and supply chains.
 The team wanted to position Air Cargo as a leader in this emerging
trend. But Wisbrun had serious reservations about the business model
he inherited.
 When he examined financial targets, he saw that the division had flat
revenues and was barely breaking even.
 Cash flow was negative and the return on investment was approaching
zero — not a great foundation for a bold, unproven strategy.
 Worse, his external analysis of the new model turned up a major flaw in
the vision.
 Large integrators such as FedEx and UPS were already serving the
market; not many customers were looking for similar service from an
airline, and those who were didn’t seem willing to pay for it. “The
business model clearly wasn’t anchored in reality; its parts didn’t mesh,”
says Wisbrun
Getting to Reality

 External Realities: The marketplace was not ready for the
logistic services the strategic planners hoped to offer. But there
was opportunity in the core air cargo business, where some of
KLM’s competitors were making money.
 Financial Targets: Cash flow was negative and return on
capital close to zero, revenues were flat and the division was
barely breaking even on margins.
 Internal Activities: The idea people who were advancing the
strategy lacked operating skills and didn’t pay enough attention
to their financial targets. Their huge, long-term logistics project
was consuming resources without generating growth.
 Iteration: Searching for the right mix of elements in the three
components, Wisbrun pinpointed flaws in the existing strategy:
It was out of step with current market realities and imposed a
prolonged drain on financial resources.
Modelling Solution for KLM

 In his first iteration he assessed prospects for a new strategy
— return to the core business — and focused on people,
creating a new management team to help him determine
requisite changes in people and operations.
 He and his team then established realistic financial targets and
revisited the model every six weeks.
 Within a year, cash flow and margins improved. By early 2004,
KLM Cargo was a leading player in the industry and gaining
market share. Improved financial performance allowed it to
acquire new and more efficient freighters to further increase
market share and improve margins, asset utilization and cash
flow.
 Because the management team practices the business model
drill regularly, all of its members are not merely masters of their
functional silos but well versed in the totality of the business.
Modelling Solution for KLM

3
What to change & What not to
change

 There is no one-size-fits-all plan of action. The ability to zero in on
precisely the parts of the business that need attention and leave the
rest alone is just as much a sign of great leadership as is
reinventing the business model when radical action is needed.
 The business model brings rationality to the issue of change. Use it
to identify and anticipate external realities and make realistic
positive change.
 Just as often, change is reactive. Many leaders are anxious to
making their mark by making bold, changes when the real problems
call for incremental solutions. Many others stay in their comfort
zone by applying what has worked for them in the past.
 The business model brings rationality to the issue of change. It is
the guide for when to change and when not to change, what to
change and what not to change.
 Use business model to identify & anticipate external realities &
make realistic, positive change .
What to Change & What not to Change

 External Realities: After the tech crash, purchasers of
storage systems cut back on expenditures and switched
from EMC’s high-cost products to cheaper ones.
Competitors were also developing machines for the high
end, at lower cost.
 Financial Targets: Revenues, margins, profits, cash flow
and ROI were all falling precipitously.
 Internal Activities: EMC was geared toward producing
premium-priced products with proprietary software and high
margins. Its technologists strove to design and build highly
sophisticated machines and its salespeople, operating as
loners, were aggressive because they had the most
desirable products on the market.
Modeling the solution for EMC

 Iteration: Tucci’s external analysis showed that the old strategy
was obsolete because market changes were structural. Financial
targets could not recover without a new business model.
 He started with a new strategy:
 Recapture and expand the customer base by selling lower-
cost hardware, software — open, not proprietary — and
solutions.
 He and his management team met often to iterate in the search
for solutions.
 The first iteration left too much high-end product to meet targets
for costs, margins & products, leading to further efforts to
produce for middle and lower markets.
 Subsequent iterations revealed the need to replace people who
couldn’t adapt to new conditions and to restructure the
organization. Financial targets were revised upward as the
action plan produced results.
Modeling the Solution for EMC

Modeling the Solution for Cisco
External Realities: Demand plunged as customers cut back on
purchases and confronted mounting industry overcapacity. But
Cisco’s cutting-edge products were still desirable.
Financial Targets: Revenue growth stalled, margins shrank and
cash generation slowed.
Internal Activities: Cisco’s operations and organizational processes
were designed for high growth. Product proliferation and controlling
costs were not a high priority.
Iteration: Chambers correctly analyzed the market downturn for
Cisco; it was cyclical, not structural.
He kept financial targets & strategy intact & modeled ways to align
them with new and future marketplace realities.
After establishing the likely volume of sales, he searched repeatedly
for ways to lower costs and get his desired margins. In subsequent
iterations, Chambers saw opportunities to get into new markets and
segments vacated by fallen competitors; with plenty of cash, he
moved to exploit them.

Modeling the Solution for Sun Microsystems
External Realities: As with EMC, Sun’s customers deserted its
high-priced, high-performance products after the bubble burst,
seeking cheaper alternatives.
Financial Targets: Revenues plunged and margins collapsed.
Cash generation slowed drastically.
Internal Activities: Sun maintained its technological leadership
with intense R&D efforts. Its people and organizational processes
were geared to selling unique and demonstrably superior products.
Iteration: Judging the market change as cyclical, McNealy at first
stuck to his original strategy & focused on cutting costs. As it
became apparent that changes were structural, he went through
many iterations to find other ways to meet the targets, including
broadening his market with lower-priced models, pooling his
resources with other technology suppliers & moving toward open
architecture in some product lines.

Modeling the Solution for Sun Microsystems
 Simultaneously, he continued his traditional course, spending
heavily on R&D to develop dazzling new technologies.
 While Tucci, Chambers and McNealy responded differently to the
industry shakeup they faced, there are common lessons to be
learned from their experience:
 In times of crisis, it’s essential to understand the environment as
it has become and is likely to be, rather than what it has been.
 Thoroughly refresh your understanding of your customer base
before you decide what actions to take.
 Ruthlessly assess your organization.
 Be rigorous in measuring the progress of your turnaround,
keeping an eye out for any sign of slippage from the chosen
path.
 Approach any crisis without preconceptions. This is the time
when relying on the past or on conventional wisdom can lead
you rapidly to disaster

 Home Depot roared its way through the 1990s, but then the
rocket fizzled out. In 2000, same-store sales declined, the
company issued a profit warning and the stock plunged.
 Robert Nardelli was brought in to straighten out the company.
 Nardelli used the business model as his mental framework,
scrutinizing each of the three components.
 The external environment didn’t seem problematic, but the
financial component was badly out of balance. Home Depot
had relentlessly pursued top-line growth to make its earnings-
per-share targets.
 But cash was getting soaked up by inventories and capital
expenditures, and sales at stores open more than a year had
begun to decline. Expanding beyond 200 store openings a
year, he concluded, was not realistic unless cash and
recruiting of qualified store managers could keep pace.
Modeling the Solution for Home Depot

 Connections between financial targets and internal activities
gave Nardelli much to ponder.
 Home Depot was an operational free-for-all. The company
needed leadership development.
 As Nardelli iterated the model, connections between internal
activities and financial targets became clearer. He rapidly and
massively accelerated investment in information technology.
 Once he had the right kind of people in place, he made bold
moves in operations.
 Changes were anything but smooth. Between May 2001 and
early 2003 the stock price fell from $52 to $22. Acknowledging
that he’d made some mistakes, Nardelli stuck to his business-
model targets. By spring 2004, people were finally noticing his
accomplishments.
 In three years, annual sales, net earnings and cash had grown.
The stock price had climbed back to the $30s.
Modeling the Solution for Home Depot

Innovating for growth –The new 3 M
 When Jim McNerney became CEO of 3M in 2000, the
company had been ambling along with unremarkable
earnings, little revenue growth and a lethargic stock price.
 As a transplant, he could have brought in a prepackaged
solution, raising financial targets and driving people to meet
them. But he was a master of business- model thinking, so he
took a different course.
 3M had a basically sound model. McNerney recognized it
would be important not to damage a strong culture built on
innovation that did many things well.
 Defining the situation as “a build rather than a teardown,” he
concentrated on the third component of the business model to
uncover weaknesses in operations — the people and
organization processes that kept the company from realizing
its full potential

Modelling the solution for 3 M
 External Realities: Markets in general were growing well,
and there were no dramatic threats on the horizon.
 Financial Targets: 3M was meeting all of them, but they were
modest and well below the company’s potential.
 Internal Activities: Talented people made the company an
innovation machine. But new product development was
disconnected from customers and took too long. Operations
lacked discipline.
 Iteration: During six months of meetings with senior
management, McNerney searched for ways to improve
financial results without damaging 3M’s culture of innovation.
 He repeatedly iterated his approach to change until he was
satisfied that he had the right mix and sequence of actions

Modelling the solution for 3 M
 He then set higher financial targets, transparent both inside
and outside the company, and began to change
organizational processes, combining many businesses and
centralizing things like purchasing.
 After conditioning his people for change by introducing a Six
Sigma initiative, he overhauled the innovation processes to
speed them up and connect them more closely with the
marketplace.
 The results have been clear: 3M shortened the new product
introduction cycle by a year and a half.
 Revenues grew by $1.5 billion from 2000 to 2003, and
operating margins rose several percentage points during that
period, just shy of the goal McNerney originally set. The stock
price has nearly doubled since he took over. McNerney is
admired both inside and outside the company.

The Thompson Corporation Transformed itself
 The Thomson Corporation didn’t appear in need of
transformation when Richard Harrington took over as CEO in
1997.
 The U.S. $8.8 billion business had enjoyed an almost
legendary status for its empire of newspapers and
professional publications.
 It also owned a travel and resort business in the U.K. Overall,
revenues were growing about 8 percent a year, compounded.
 But Harrington’s central question was whether a model
dependent on regional newspapers would run out of gas no
matter what new strategy might be conceived and executed.
 His analysis exposed a simple but crucial question: If the
model is not adequate for the future, what fundamentally
needs to change? What arena can we play in where the
business model will create long-term value?

Modeling solution for Thompson
 External Realities: The newspaper and travel
businesses were currently profitable, but the future
looked less promising. By contrast, Thomson’s
smaller professional publishing business appeared
to have enormous growth potential.
 Financial Targets: Thomson was currently meeting
its long-run targets. But with the newspaper
business, that would not necessarily be the long-
term case.
 Internal Activities: People, operations and
organizational processes were well harmonized for
existing businesses.

Modeling solution for Thompson
 Iteration: Harrington recognized that structural changes would erode
the newspapers’ profitability. He and his board agreed that Thomson
should create an entirely new business model that would achieve
desirable financial targets by publishing information for professionals
such as financial services people and lawyers.
 Harrington first modeled the relationships between different sale prices
for businesses to be sold and investment required to build professional
publishing.
 Arriving at a balance that would not require heavy borrowing, he
proceeded with the plan. Moving forward required continual changes in
people and organizational processes, with results weighed constantly
against the progress on financial targets.
 Over its transformation period, Thomson grew its total revenues at a
compounded annual rate of 7.4 percent and organic revenues at about
5 percent. Thomson was listed on the NYSE in 2002 with an initial
market capitalization of $19.5 billion; in May 2004 it stood at $21 billion.
It is widely recognized as the industry leader in transforming itself into a
provider of value-added electronic solutions.

Succeeding in today’s business world requires skills
and abilities that haven’t been given much weight in
the past.
Acute radar is one: You need to “look around
corners” and discern parts of the external
environment that will affect the future of your
business.
In most businesses, people put most of their time
into studying the strengths and weaknesses of major
rivals. They look for ways to beat competitors.
How to prepare for change ?

But you constantly have to ask bigger questions:
 Can you see profitable growth in the industry?
 What could commoditize it?
 Can you foresee a technology change that
could alter the rules of engagement?
 Who else might become a competitor?
 What government policies are brewing that
could affect you for worse or better?
 Is the industry structurally defective, or
heading that way?
 Most important, what do your customers think?
How to prepare for change ?

Getting ready : How to condition your
culture for Reality

The more change your organization can handle,
the more freedom you have in adjusting your
business model. The readily available tool for
conditioning your organization to change is the
initiative — a specific, high-impact project that
requires cooperation across the entire
organization, such as enterprise resource
planning, Six Sigma or digitization
Getting Ready: How to Condition Your Culture for Reality

 If an initiative is important enough to launch, it cannot be
allowed to fail. The leader’s follow-through keeps the initiative
alive and encodes it into the Organization’s DNA.
 Before you start, ask yourself:
 Do you understand the initiative well enough to develop
metrics to evaluate its implementation?
 Are you willing to commit necessary resources for
education?
 Do you have the focus and discipline to drive it through the
organization?
 Do you have the stamina to repeatedly convey the importance
of the initiative through your actions as well as your words?
 Do you have the courage to confront those who are standing in
the way?
 Is cynicism changing over to excitement?
How to Lead an Initiative

Companies are full of talented, hardworking people
whose time-honored leadership qualities have taken
them to the top but aren’t adequate for the task now at
hand. Two leadership qualities have become absolutely
indispensable:
Business savvy — People with business savvy know
how to make money. They have business models in their
minds and understand all three components and their
relationships. They have a gut feel for the external
environment.
A need to know — Leaders relentlessly pursue critical
information that can make all the difference to their
business prospects.
Leading for Reality

 The processes most companies use to spot potential leaders
aren’t geared to finding those with the qualities needed most
today. In addition to business savvy and intense curiosity, these
include flexibility of mind, perpetual adaptability, willingness to
change and courage to risk failure.
 What does the person you’re watching talk about in meetings?
What sparks her curiosity? How broad is her scope? Does she
have a natural tendency to search for root causes? Does she
shape a set of options before doing anything? You can learn a
lot about a person by watching how he solves problems. Does
he diagnose a situation based on what’s worked in the past,
resorting to familiar solutions, or search for new and creative
approaches?
 Are the people you’re looking at broad thinkers? Listen to the
options they propose and notice whether they sit or act on them
Identifying and Developing the Right Kind of Leaders

 Any plan for a business has to answer three questions:
 What’s the nature of the game?
 Where’s it going?
 How do you make money in it?
 Yet, in many organizations today, they rarely get asked —
much less answered — adequately.
 It takes unflinching realism to get such answers, but the
established methodologies for defining the purpose of a
business have drifted steadily away from realism. Many people
today are boxed in by dysfunctional practices and habits that
more often than not obscure reality, rather than expose it.
 Fewer companies will succeed in the future because the
business environment is becoming far less forgiving of
mistakes.

 In their previous book, Execution, the authors focused on the
gap between strategic plans and outcomes, pinpointing
execution as the missing element.
 In Confronting Reality they explain that the gap originates with
the nature of how people conceive the purpose and direction of
their businesses.
 This summary reveals how organizational processes are flawed.
 People don’t fully understand the game they’re playing because
they don’t look at it hard enough.
 Specifically, they don’t analyze and link the three fundamental
components that determine a business’s success or failure:
 The environment it operates in,
 The financial targets it needs to meet and
 The internal activities and capabilities it depends on to meet
those targets..

In addition, the learnings are
 How to implement the business model the authors developed
to achieve a robust, reality-based process for thinking about
the specifics of your business in a holistic way.
 How to use a process called “iteration” to debate &
harmonize your external environment and financial targets
with your internal capabilities.
 How companies like EMC, Cisco, 3M and The Thomson
Corporation used this business model to decide what they
needed to change.
 How you can anticipate future events, condition your culture
for the changes required and develop leaders who can
succeed in this tumultuous environment.

Thank you
Your comments
ramaddster@gmail.com

Confronting reality

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