Book Excerpt: Confronting Reality Business Supermodels

What should you change and what should you keep in your organization? The business model can guide you, helping managers uncover vulnerabilities and shore up strengths.

By Larry Bossidy and Ram Charan

From the book Confronting Reality: Doing What Matters to Get Things Right by Larry Bossidy and Ram Charan.

Copyright 2004 by Larry Bossidy and Ram Charan. Published by Crown Business, a member of the Crown Publishing Group, a division of Random House.

Reader ROI

• How global changes can quickly render business strategies obsolete
• A model for assessing an organization's strengths and weaknesses
• How to decide which improvements are right for your company

It's become commonplace to say that globalization has changed business, but the tectonic shifts run deeper than most businesses understand. These changes are permanent rather than cyclical; the fundamentals of how a business makes money have been altered by worldwide supply chains, instant communications and a surplus of readily available capital. More troubling to managers is the speed with which these factors can render products and processes obsolete, even endangering a business's survival. Larry Bossidy, the retired chairman and CEO of Honeywell International, and Ram Charan, acclaimed business guru and author, have followed up their 2002 bestseller, Execution: The Discipline of Getting Things Done. Their new book, Confronting Reality: Doing What Matters to Get Things Right, is a how-to guide for confronting change - how to spot vulnerabilities in your organization and scan for competitive threats, how to diagnose what needs to be changed and what to leave alone, and how to prepare your organization to cange rapidly. The authors' basic management tool is the business model. Though certainly not a new concept, this version of the business model is broken down into three components that leaders can act on: assessing the external environment that the organization inhabits, setting financial targets for profitability and gauging the adequacy of the company's internal processes and structures. Finally, say Bossidy and Charan, good leaders must regularly examine their business model and create new iterations as needed. This excerpt shows the business model in action. As a practical matter, virtually every business is now a player on the global stage. But it's still hard for most people to see the specific ways global forces affect their businesses. People tend to look at them in piecemeal or linear fashion, failing to see emerging patterns. What they see often looks bewildering: a chaos of volatile exchange rates, competitive dynamics that are hard to define and understand, and uncertainty about a host of other co mplexities. The result is that more and more business leaders are getting blindsided, with a speed that was almost unthinkable in the past . . .

The Linux operating system [that Linus Torvalds] designed as a college student in 1991 and posted online interested only geeks at first. But over the years, the free open-source software attracted more and more followers and developers. Now it's beginning to look like a genuine competitor to Microsoft's Windows . . .

The new rule is that almost any business activity is ever more likely to have a worldwide dimension. A new competitor can come from anywhere. The next Linus Torvalds - perhaps the one who could make life hard for your own business - may even now be developing his or her plans sitting at home in Bangalore, Shanghai or Prague. It doesn't matter if this person is operating on a shoestring; a good idea is increasingly likely to find financial backers. And once any new product or service hits the market, it can reach customers anywhere on the planet almost overnight.

The other side of the coin, of course, is that the new global game offers unparalleled opportunities for those savvy enough to find them. If you're the first to see a market opening or the implications of a shift in regulatory policies, you could be the new competitor who blindsides a complacent player.