9/8/2014

Forbes India Magazine - Cash is King. Cash is Blood Supply: Ram Charan

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FEATURES/REAL ISSUE | Jan 15, 2014 | 10927 views

Cash is King. Cash is Blood

Supply: Ram Charan
by R Jagannathan, Vivek Kaul

Author and business adviser Ram Charan underlines the criticality of cash and
high management intensity in times of business uncertainty
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Forbes India Magazine - Cash is King. Cash is Blood Supply: Ram Charan

Image: Madhu Kapparth for Forbes India

fter 2008, the world economy has largely entered uncharted territory. Businesses
are grappling with multiple uncertainties. What kind of leadership do we need in
such a scenario? Some answers emerged during a conversation with Ram Charan,
a world-renowned business adviser, author and speaker. He has spent the past 35 years
working with many top companies, CEOs and boards. The companies include GE, Bank
of America, DuPont, Novartis, 3M, Verizon, Aditya Birla Group, Tata Group, GMR, Max
Group and Grupo RBS. Since 1998, he has authored many books that have sold more
than 2 million copies in over 12 languages. His latest book Boards That Lead: When to
take Charge, When to Partner and When to Stay Out of the Way (Harvard Business
Publishing) has just been released. In this interview with Forbes India, he talks about
leadership in uncertain times.
Q. What are the biggest challenges that businesses are facing today?
There are a number of unstoppable forces that are changing the global economy. At the
same time, we have an increasing level of uncertainty. Those leaders and business
persons who can gear up to the uncertainty will progress. And those who dont will find
it very difficult.
Q. What are the unstoppable forces?
There are two major unstoppable forces. (There are many other forces, but I would like
to put forth two that business leaders need to be cognisant of.) One is the instability of
the global financial system. It is uncoordinated and uncontrolled, with so many moving
parts that we do not have total transparency of information to dismantle it. At the same
time, the central banks and regulators are not fully equipped to prevent this. Hence, you
are going to have fluctuations of currency flows. Countries that do not have foreign
exchange reserves will need to have certain kinds of controls on the inflow and outflow
of money.
Q. Which is the other force?
The other one is digitisation. It is the sensors, the web revolution, the internet, the
mobility. A combination of all this is going to cause an impact on just about every
industry. So leaders have to see how they adapt to it, take advantage of it, and make
their organisation more flexible and agile.
Q. How would you define uncertainty for a business because, in a sense, all
business is uncertain. You dont know when a new competitor will emerge.
You may get taken over, policy and regulatory changes may happen. Is there
a new kind of uncertainty lurking beyond the normal business ones?
There are two kinds of uncertainty. One is the normal day-to-day one. Like today, the
demand for something that a company makes may be 100 tonnes; tomorrow it might be
105 tonnes and the day after, 95 tonnes. For these uncertainties, we now have
mathematical models.
Then there is the other kind of uncertainty that can change the whole structure of the
industry or [that] of demand. And that is the kind of thing you can see in the personal
computer industry, which is now declining in size, and things like tablets are coming up.
For these situations, leaders need to look for early warning signals. They [signals] are
there and they [leaders] need to face up to the reality.

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Q. In the immediate aftermath of the Lehman crisis, you wrote a book called
Leadership in the Era of Economic Uncertainty. What are the key things
that a CEO needs to do when he sees so much uncertainty around?
They need to ensure that they do not put high debt on the balance sheet. In India, the
cost of debt is very high. This has a deep impact on the company. And then you manage
your businesses for cash, not for accounting earnings. Cash is king. Cash is the blood
supply.
Q. Can you
expand
on that?
You
might also
want to read...
When you look at Amazon in the United States, its whole management is cash per share.
Neuroscience
And and
Leadership:
It doesnt go for accounting methods.
So companies
their leaders need to ask a few
basic questions:The
Where
Promise
is the cash
Of being
Insights
generated? Where can you have some
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9/8/2014

Forbes India Magazine - Cash is King. Cash is Blood Supply: Ram Charan

uncertainty? What would you do in that uncertainty?

Q. What about companies which already have high debt? How can they
tackle the situation?
Companies need to figure out their good assets; if the debt is high and they cannot repay
it or pay the interest on it, they have to decide on how to go about restructuring it. They
will have to figure out which assets they may have to sell, or get into a joint venture with
a partner to get cash and, thereby, get the company on an even keel.
Q. You talk about how CEOs should practise management intensity in
periods of uncertainty. Can you explain that?
Management in the era of uncertainty needs to first focus and assess what is happening
at the customer level: Where is the information that customer behaviour is changing?
Are consumers under pressure? The management must have a first-hand feel from the
bottom to the top.

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Keywords: Cash, Leadership, Ram Charan, Forex reserves, Business uncertainty, Digitisation

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Forbes India Magazine - Cash is King. Cash is Blood Supply: Ram Charan

All comments are moderated

Comments (1)
Vikas Mohan Jan 21, 2014

With regards to India - where inflation (influenced by external forces) and a sluggish
economy are taking a heavy toll, it pays well to be cash rich. It is only in such times as
these; you realize that the only way to increase your asset base is by letting your cash
negotiate a good deal for you. In bad times, cash is the only thing that earns you respect.
Reply

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