At a time when geopolitical uncertainty and talks of a possible economic slowdown have resulted in many big firms laying off employees and cutting costs, management guru Dr Ram Charan says that companies should manage their business on a cash basis rather than on an earning-per-share basis. He advices businesses to follow the path of the likes of "Birlas, Modis, Bharat Ram, and Tatas."
Speaking to ABP Live, the top advisor to global CEOs said, "In the past, businesses like the Birlas, Modis, Bharat Ram, and Tatas used to manage their businesses on a cash basis rather than on an earning-per-share basis. Cash is cash, and if you manage your business in cash, you can't go wrong unless there is fraud."
"Jeff Bezos and Amazon manage their business in a similar way. Although he has shown losses in accounting, he has a ton of cash in hand. This is the new way, which is the very old Indian way of managing a business," Dr Ram Charan said.
The Harvard researcher has adviced 12 top billionaires in the world, including Kumar Mangalam Birla and the late Jack Welch, for their businesses. He was in India to speak about his new book, 'Leading Through Inflation: And Recession And Stagflation.' Talking about what companies should do at a time when RBI is tightening its monetary policy to fight inflation.
Dr Ram Charan said, "The first thing every business must do is to look at how much the cost will increase cumulatively over three years. I sit on the board of a couple of companies, and they tell me that the cost increases by 10 per cent each year. If it reaches a cumulative increase of 35 per cent in three years, then plan for it now."
"If your cost is going to increase by more than 30 per cent, then the first thing to consider is the price of your product, product development, customer behavior, logistics, and how you can reduce them to maintain cost and productivity. Also, identify which particular segment your product should go into," Dr Charan added.
He also said that it is important to make a capital plan in coordination with future costs increase.
"So reprioritize and redesign. Kill some capital projects and have some cash to build new, more suitable products and innovations, and keep some cash because some companies will not have enough cash, so they can be your acquisitions. They can be your acquisitions," Dr Ram Charan said, adding "When you hire people in your company, you get talent. The job at this time is to increase good talent in your company and become better."
Advice To Laid-Off Employees
However, with the demand for high-skilled jobs, there is also a trend of mass layoffs in big tech firms. Management guru Dr Ram Charan advice laid-off workers to take up projects and rejuvenate with abundantly available information.
He said, "If they (laid-off employees) have nothing, they should take on a project. Today, every piece of information is available. Keep this in mind and say, 'I am going to do this project, search this. Maybe this is the business I will do.' This is the time to rejuvenate your brain because information is abundant. We did not have this 30 years ago."
"Do something every day," Dr Charan added, "Whether it's studying or taking on a project, to enhance their knowledge with everyday experience. Because they know their profession and what they want to do in their profession. Go around your local area and solve someone's problem. For example, I know someone who is now retired. I advised him to go to the hospital and see what problems people are facing, and offer his services pro bono."
"So, I took on a business that only has $4 million in sales in America, and I am solving their problem pro bono. Why did I do that? I learned a lot. The business owner does not have staff like a hundred-million-dollar company. I learned how to solve his problem. He is not an MBA graduate; he is struggling. Let me solve the problem," Dr Charan explained.
Advice To SMEs And Start-ups
For mid-level SMEs, Dr Charan said that the first thing they need to do is to get low-cost funds and help in marketing-selling. "No country is built without two items. FDI and SMEs. So I have a list of imports from China. Would you believe 3 items account for 60 billion of the total 90? Rest of the list which 100 items… 10 million 2 million or less. They don’t have to come here, our people can produce," Dr Charan said.
He takes the example of 4 companies, TCS, Infosys, Wipro, and HCL.
"Nobody competes with them. We dominate the world. Splitting them is not a good idea. The world looks at them. And more to come. I have 2 companies for $250 million. They have Indian people working and they market only to America. Cost is Rupee and revenue is Dollar. And I am there to take them to a billion dollars. Grow middle-level companies. They have been through the experience. What do they need? Low-cost funds and ability to sell in the markets. That’s all they need. We should do that," he said.
For Start-ups Dr Charan has two important pieces of advice "Execution and strategy."
"Part one is do you have the right team? No mercy. If you have right team, you can go forward. Second, if you are in business the task needs to be done well. Keep learning and go again and go again. It's all through executing learning, developing, and building your strategy. Because at a startup you have a high-level strategy. You don’t really know what is useful until you execute something. So these people don’t think that way – strategy or execution. That’s why they succeed. Change what didn't work," he added.