Author Tian Tian
Editor, Joe Yu
"You should put yourself in my shoes, think from my standpoint, and have a global vision and a business mind." Entrepreneurs often say this to their subordinates. In reality, managers at all levels are often fragmented, and it is difficult to create great achievements under effective coordination.
How to break the game? Ram Charan, the author of "CEO said: Everyone should think like an entrepreneur" and a world-renowned management consultant, put forward "business wisdom", that is, the ability to use the universal laws of business.
Ram Charan pointed out in his book that the common basic elements of enterprise management include: cash, profit, turnover rate, growth and customers. They are the "common language" of the business world.
Ram Charan analyzes the basic elements of enterprise management at the beginning of the book. In the next chapter, he tells how to improve the methodology of basic factor indicators, including how to understand the company as a whole, how to build a team and enhance strategic execution.
Learn from street vendors
The theoretical basis of Ram Charan's writing "CEO said: Everyone should think like an entrepreneur" comes from his childhood growth experience and his long-term observation of the world's best CEO during his 30 years of consulting work.
Ram Charan was born in a small town in northern India on 1939. When he was a child, his father and uncle ran a family-run shoe store. Without experience and formal training, my father and uncle can only compete head-on with other small shops in the town that strive to make a living. Ram Charan helped in his shoe store, and he also learned simple business wisdom by osmosis.
As time goes by, other small shops in the town rise and fall, but Ram Charan's own shoe store has established a famous brand and won the trust of local farmers. The shoe store also paid for Ram Charan's education and supported him to pursue his dream in a distant place.
After entering the society, Ram Charan's business talent was further revealed, and the CEO of the company he worked for encouraged him to go to Harvard Business School for further study. After receiving MBA and PhD from Harvard Business School, Ram Charan had the opportunity to give advice to CEOs around the world and exchange business wisdom.
After contacting companies of different scales, different industries and different cultural backgrounds, Ram Charan was shocked by the similarity of outstanding company leaders. "A good CEO can always find a way to break down the most complicated company problems into some basic elements-exactly the same as what I learned in a family shoe store in India."
Ram Charan found that those great CEOs and street vendors have the same way of thinking. They can always see the essence through complex appearances, simplify the complex and grasp the basic elements of enterprise management. Moreover, many successful CEOs had similar experiences with street vendors in their early years, which became the source of their business wisdom.
For example, a vendor selling vegetables and fruits may not have heard of management vocabulary such as inventory management and improving turnover rate, but he instinctively doesn't want to take the unsold fruits home. He has been weighing whether and how much to reduce the price according to the change of demand. At the end of the day's work, he knows that having cash in his pocket means doing a good job-he not only needs to earn cash to support his family, but also needs to consider how to buy vegetables and fruits the next day with cash to make his business run.
The survival instinct of street vendors makes them particularly sensitive to business changes. Cash, profit, turnover rate, customers and suppliers deal with these elements every day.
In fact, from self-employed individuals to companies, enterprise management contains this truth. This is an era of lack of common sense, and it is precisely those simple and obvious things that reflect the essence of enterprise management that are most easily overlooked by people.
Why do people easily ignore common sense and get into management dilemma? Ram Charan believes that it is the "functional axis" that limits people's vision and affects decision-making and judgment.
Most people's career begins with a certain functional department of the company, and his rising path in the company is usually promotion within the functional department. The way of thinking developed in such an environment, when applied to decision-making, may make the best plan for the department, but it may not be the most beneficial for the company as a whole.
To think like an entrepreneur, we must learn to break the barrier of "functional axis", regard the company as a whole, and talk to people at any level in the company with common business language.
Learn the common language of business.
Let's analyze the basic elements of enterprise management item by item.
When two businessmen talk, they must be very concerned about each other: does their business make money? How to make money? How can this way of making money be better?
In fact, any money-making business that sounds complicated can be divided into three basic elements: net cash inflow, return on assets and business growth. Coupled with customers, it constitutes the core of enterprise business, and any other elements in enterprise management are generated from this.
1, net cash inflow
The net inflow of cash refers to the difference between the total inflow and outflow of cash in a period of time, which reflects the actual ability of enterprises to create value and the freedom of enterprises.
For vendors, the net cash inflow is basically equal to income; However, for most companies, it may take some time for the products sold today to receive payment, which leads to the problems of accounts receivable and accounts payable. The number of these two accounts greatly affects the net cash inflow.
We often hear the phrase "cash is king". How important is the net cash inflow to a company? Let's take a look at Dell, known as the "cash machine".
Dell sells personal computers directly. Customers must pay by credit card when ordering computers and before receiving goods. Dell usually pays the supplier's loan 30 days after receiving the computer accessories, and the company only keeps the inventory for 6 days. Under this operating mechanism, in a certain period of time, Dell's cash inflow will be greater than its cash outflow, and the greater the business volume, the more cash it will generate.
Net cash inflow contributes to business growth. Through reasonable investment, net cash inflow will also bring greater potential returns to the company.
2. Return on assets
Return on assets = profit rate * turnover rate.
If the rate of return on assets is not high enough, we should examine the two basic elements, profit rate and turnover rate, and take some measures to improve them.
Ram Charan talked about an example in his book. He once took MBA students to an open-air market for inspection. They talked to a woman selling clothes with a trolley. The money the woman bought was borrowed at a monthly interest rate of 2.5%. Through interest rolling, the real annual interest rate is as high as 34%, while the profit rate is only 5%.
How did the woman survive the usury? Ram Charan and his students raised this question. The woman held her right elbow with her left hand and drew several circles in the air. This action means that she must keep selling goods. The faster she sells, the more 5% she can accumulate.
The rate of return on assets must be higher than the cost of using one's own money or other people's money, which is the truth of enterprise management. If the money earned by some businesses, branches or production lines of the company is not enough to cover the cost of capital, then we must find ways to improve rate of return on capital, or simply cancel these businesses.
3. Enterprise growth
How important is business growth to the development of a company? If the business of the whole company or your department lags behind the competitors, your personal development will undoubtedly be affected.
Why can a high-growth company attract a large number of outstanding talents to join? Because high-growth companies have more opportunities and excitement brought by growth, they have more opportunities to make contributions, create new things and succeed.
It should be emphasized that business growth must be accompanied by the improvement of profit and turnover rate, and the ability of net cash inflow needs to be synchronized.
Striving for more turnover is not necessarily a good way to operate. You also need to consider whether the business growth generates cash or consumes cash, and whether the profit rate has improved or deteriorated.
4. Customers
That street vendor knows his customers very well. He knows whether customers like their fruits or not, and he also knows whether customers' preferences are changing. Many companies use questionnaires and other research methods to analyze customer needs, but it is far from enough to rely solely on analysis data.
Sometimes, direct and unfiltered contact and communication with customers can often find information and insight that market research methods can't provide.
Ceos of the best retail enterprises in the world attach great importance to direct communication with customers. Jack nasser, CEO of Ford Motor Company, spends a lot of time communicating with customers every year. When traveling around the world, he also specially designated places where young people gathered to observe the fashion trends of car colors and styles.
How to achieve the goal
Each of us can practice the business wisdom used by CEOs, simplify the complex business world and find out the priorities. For CEO of listed companies, besides making money, shareholders also hope that CEO can create more wealth for them.
Making money and creating wealth are realized by P-E (multiple of price-earnings ratio), which indicates the expectation of a company's current and future profitability. If a listed company can increase its sales revenue and profits without reducing its turnover rate, its P/E ratio will increase and its share price will rise.
When the CEO has established several basic indicators of the company's operation as a priority, how to better complete the work? Unless he runs a self-employed street vendor, he needs help from others to achieve his work goals.
Ram Charan pointed out that leaders should make full use of everyone's efforts to improve everyone's ability and cooperate with individuals to achieve their goals.
First of all, we should understand the skills, attitudes and talents needed to complete the key points and make a good match. If an employee feels that there is a serious mismatch between people and posts, he will feel insecure, don't know what to do, and probably don't want to express his opinions at work.
In addition, leaders also need to help their subordinates improve their abilities and discover the key characteristics that need to be discovered most. Every post has suitable employees, and leaders also need to link each employee's work with the company's work priorities to coordinate the work of different posts.
Ram Charan spoke highly of Wal-Mart's social communication implementation mechanism.
In the early 1990s, every Monday to Wednesday, about 30 Wal-Mart regional managers went to investigate 9 Wal-Mart stores and 6 rival stores. In addition to investigating the price of goods, we should also observe the way goods are placed, what consumers buy, the atmosphere of the store and the performance of employees. Every Thursday morning, Sam Walton holds a relaxing meeting. Participants include regional managers, logistics personnel, advertising department personnel, etc.
Through this meeting, information was exchanged and integrated, and decisions were implemented. Ram Charan summarized the characteristics of Wal-Mart's social communication execution mechanism: instant and synchronous information exchange, informal dialogue, zero information filtering, high frequency and no boundaries.
Write it at the end
It's not just the CEO who needs to think like an entrepreneur. You should see the connection between the part and the whole anywhere in the company.
Suppose you are the manager of a production line, evaluate the basic composition of production line operations and think about how to improve the efficiency of operations; If you already know what your work goal is, think about the people around you. Do they already have the relevant skills needed for production line work? How to stimulate their potential? How to design the implementation mechanism of social interaction, accelerate the flow of information and make better decisions?
Learn the "common language" of the business world, and then boldly practice it until these basic business principles become an instinct, and you will jump out of the "silo thinking" and take a big step like an entrepreneur.