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1-Page Summary of What the CEO Wants You to Know
A Comprehensive Understanding of the Fundamentals
When CEOs identify the fundamentals of their business and communicate those ideas to their employees, everyone benefits. People understand what they’re doing and why it’s important. Sales improve as do profits. Employees have an opportunity to grow while the company thrives. Smart CEOs know that these factors apply to any business regardless of size or location.
Leaders who really know the basics of business can understand how a company makes money. They have “business acumen.” The next step is to make sure everyone else in the company understands these fundamentals, because that will help them succeed.
The Insights of Acumen
When Ram Charan was growing up in India, his father owned a small shoe shop. Although his father had no formal training, he built a solid reputation and earned enough money to educate Ram. When the author’s nephews took over the family business, they made many decisions without sophisticated analysis because they were running their own business. The family would gather each night after work on their rooftop to discuss what happened at their shop that day. They talked about who came in and who didn’t; who received credit and what the best shops in town were doing. Their biggest competitor ran the shop next door. He often tried to convince customers to return shoes bought from them and buy from him instead.
Charan eventually left home to earn a degree in engineering. He took a job with a gas company and was recognized for his business talent by the CEO, who encouraged him to apply to Harvard Business School. After earning his doctorate, Charan became an advisor. He saw that regardless of size or type of business, good CEOs had similar ways of bringing complex businesses down to their basic parts and helping those parts work together. This experience helped him develop the concept of business acumen.
Charan notes that he learned these skills from running his family’s shoe shop: “I saw that regardless of the size or type of business, a good CEO had a way of bringing the most complex business down to…the same fundamentals I learned in the family shoe shop.”
Universal Factors
The basic concepts of any business are pretty much the same, no matter what the type or scale. They include inventory, sales forecasting, cash flow, merchandising and product mix. The core factors that determine a business’s health are customers (along with “cash generation”, return on assets and growth).
When people take corporate jobs, they tend to start within departments that fulfill specific functions (i.e. accounting, logistics and finance). They generally continue to work within vertically integrated departments called “silos.” This narrows their perspectives so they get distorted views of how the overall company operates. People become good at what they do but not necessarily good business people as a whole. Enable your employees to see your business in its totality by providing them with an overview of how it works beyond their silos and allow them to understand its workings better than before so that their performance will improve as well as their outlook on the company’s future prospects.
Most businesspeople have a general understanding of business. For example, the owner of a fruit stand may not have gone to school for it, but he still can make sales forecasts and price his products competitively. He also manages his cash flow so that he can continue to operate and merchandises his goods by putting out the most attractive items first.
