609: How Proactive Leadership Can Navigate Inflation, with Ram Charan

Dec 19, 2022

Ram Charan, a bestselling author and advisor to CEOs, shares his insights on navigating economic turbulence. He discusses the critical role of proactive leadership during inflation, emphasizing the need for effective cash management and strategic pricing. Ram highlights the importance of partnerships across the supply chain and the benefits of implementing smaller, frequent price changes over large adjustments. The conversation also touches on enhancing financial literacy and the necessity of swift decision-making in uncertain times.

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ADVICE

Cash is King

Prepare your team mentally and psychologically for recession.
Manage finances based on cash flow, not earnings per share, during inflation.

ADVICE

Inflationary Illusion

Understand that inflation creates an illusion of growth with increased revenue but the same units sold.
Use both nominal and inflation-adjusted figures in reporting and planning for a clearer picture.

ADVICE

Proactive vs. Reactive

Be proactive by anticipating price increases and adjusting your business accordingly.
Trim customers and products, lower your break-even point, and focus on maintaining a healthy gross margin.

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Ram Charan: Leading Through Inflation

Ram Charan is a bestselling author, teacher, and world-renowned advisor to CEOs and other business leaders of some of the world’s best-known companies. His work is often behind the scenes and focused on highly sensitive and fate-making issues. Fortune magazine published a profile of Ram in which it called him “the most influential consultant alive.” His book Execution, lauded for its practicality, spent more than 150 weeks on the New York Times bestseller list.

Ram’s energetic, interactive teaching style has won him several awards, including from GE’s famous Crotonville Institute and Northwestern. Ram was elected a Distinguished Fellow of the National Academy of Human Resources and was named one of the most influential people in corporate governance and the board room by Directorship magazine. He has served on the Blue Ribbon Commission on Corporate Governance and serves or has served on a dozen boards in the U.S., Brazil, China, India, Canada, and Dubai. He is the author with Geri Willigan of Leading Through Inflation: And Recession And Stagflation.

In this conversation, Ram and I explore the changing macroeconomic environment and what leaders can do to address it. We discuss the importance of managing cash well and how pricing decisions can be made effectively. Plus, we discuss the critical nature of partnerships throughout the supply chain — and where the opportunities may be in the midst of challenge.

Key Points

Inflation consumes cash. Cash management is the number one risk to an organization during this time.
The way to get ahead of the curve is to be predictive vs. reactive. This may be a time the existing business model needs to change.
Inflation creates an illusion of growth. It’s important to adjust for this in all reporting and planning.
Work with all sides of the value chain. Help customers deal with rising costs while also working closely with suppliers. Regular communication is essential.
Smaller, regular price adjustments are better than less frequent, larger increases. Resist the temptation to offer less for the same price.

Resources Mentioned

Leading Through Inflation: And Recession And Stagflation* by Ram Charan and Geri Willigan.

Interview Notes

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