From notable CEOs to street vendors – they all share a common secret to success by developing business acumen and learning to apply these fundamentals to all types and sizes of business. What the CEO Wants You to Know How Your Company Really Works recognizes that every business is the same inside. More specifically, all CEOs focus on cash generation, return on assets, growth, and customers. Learning how to block and tackle with these tools and stay out of the weeds comes with experience. Good CEOs cut through the complexities and bring clarity and simplicity. They look at businesses like investors would – investigating inconsistent PE multiples by revisiting the fundamentals. And most importantly, CEOs know how to execute.
Therefore, if you want to truly understand what the CEO wants you to know, the first key to getting things done is putting the right people in the right jobs, not shying away from conflict, and knowing when to make step changes along the way. Coaching is also a key success factor to execution – both from a business and behavior perspective. Synchronization and integration of efforts along with building effective social operating systems are also keys to successful execution.
Cash generation is the difference between all inflows and outflows of cash into the business in a given time period. In larger organizations this concept become more complex with the introduction of credit but in the end the complexities can be distilled back to this simple concept.
Return on Assets (“ROA”), which is similar in concept to Return on Investments (“ROI”) and Return on Equity (“ROE”), “…tells you how much money is coming into your business from the use of your assets, from the investments the business has made, or from the investment shareholders have made in the company (equity).” The return is a function of margin and velocity – that is “the faster the velocity, the higher the return.”
What a CEO wants you to know is that growth is vital to prosperity. It should be profitable and sustainable. Many often measure growth by a concept called Shareholder Value Added (“SVA”). Effectively SVA measures whether the business through its management team is earning “…a return that is greater than the cost of using other people’s money.” However, to gain a true perspective of the quality of growth, you will need to drill down into the details of cash generation and return on assets. Focusing on business acumen is also how successful CEOs find opportunity for profitable growth when others cannot.
The last concept focuses on knowing your customers. What the CEO wants you to know is that knowing your customers means knowing their preferences and what they are dissatisfied with. Direct contact with the customer often provides greater insight then solely relying on focus groups and other market research.
Ram Charan also spends time focusing on the people side of the equation. This includes putting the right people in the right jobs and dealing with mismatches. With regards to coaching, “…a true leader of people expands their capacity by helping them channel their skills, develop their abilities, and release their positive energy.” The focus should be both on the business side and personal behaviors. What the CEO Wants You to Know also dives into the subject of how to make groups more decisive by designing social operating mechanisms to synchronize efforts and link them to business priorities.
For example, “in a small organization, everyone knows everything that is going on….but as an organization grows and you have dozens, if not hundreds, of people working together, synchronization becomes a greater challenge.” Structures are created to encourage social interaction increasing complexity. The challenge in larger organizations is simplifying communications and unify efforts and priorities. Order Now.