D. Murali

Chennai: Costs and prices always decline. Competitive position determines options. Customers and profit pools don’t stand still. Simplicity gets results. These are the four laws that ‘Breakthrough Imperative – How the Best Managers achieve outstanding results’ discusses in detail. A mastery of these apparently simple-sounding laws can be the foundation on which to build your management strategy, advises Mr Mark A. Gottfredson, a co-author of the book, and Partner, Bain & Company, Inc., US.

Is the book a bit time-warped, coming as it did about a year ago, or can the laws be contextualised to the current economic situation, I ask him, during a brief interaction in Business Line. No, ‘the Four Laws are timeless concepts,’ he avers. “They work in economic boom times and in times of downturns.”

But, in terms of interest and timeliness, they are most interesting during a downturn, continues Mr Gottfredson. “When the market is growing rapidly, it has a tendency to raise all boats, and everyone seems to do fine. But when the market turns down, companies with weak strategies, weak positions, and poor cost management are exposed and suffer the greatest.”

It is during a downturn that a hard-edged diagnostic of the business is critical to determine weaknesses and capability gaps, he recommends. “A performance improvement diagnostic using the four laws will identify the key imperatives for surviving the downturn and for gaining advantage as the market turns back up.”

Mr Gottfredson foresees that the best CEOs will lead their companies with surgical precision to cut costs in the right places while investing in customers in a way that will engender loyalty and increasing share of wallet, particularly as the market begins to grow again.

Excerpts from the interview.

There is a view that the good thing about the financial meltdown will be the weeding out of the inefficient enterprises when a recovery eventually happens. Would you suggest that on an ongoing basis we should be able to identify the bad performers by hinging our analysis on metrics that go beyond the reported financial numbers?

Financial reporting metrics are largely driven by accounting standards which are designed to help understand liquidity, and systemic risk held by a company. They are not and cannot be (because they are so general across industries) effective at measuring strategic strength, inherent organisational capabilities, customer preference, focus or complexity, etc.

The twelve must-have facts that we offer in the book ‘The Breakthrough Imperative’ provide a mutually exclusive and collectively exhaustive set of metrics and analyses that will uncover the real strength or weaknesses of any given business.

Every general manager should be looking at his position and his competitors’ positions in terms of the four laws to formulate his strategy. Outside observers can glean much by doing an external analysis as well.

What are your thoughts on the way CEOs are generally coping with the crisis?

Of course, CEOs are not a monolithic group. Some are ready to jump out of the window while at the other end of the spectrum, some are calmly and confidently taking pre-planned steps, confident that they are in control of their own destinies and that their position is secure with their customers and relative to their competitors.

The confident CEOs understand exactly where they stand relative to competitors and in the eyes of their customers and they have a clear plan to close any gaps or to wrest strategic advantage by beating the competition where they are weak.

Talking of complexity, is there also a case to reduce the complexity in corporate disclosures that are becoming too unwieldy and elaborate to understand from the perspective of an ordinary investor?

There has been a significant increase in regulation and corporate disclosure. Fulfilling the regulatory requirements is very expensive for most companies, and these activities add no value to customers. On the other hand, some do add value to investors and provide a mechanism for avoiding fraud.

The problem is that many of the regulations have been written by individuals who do not really understand business and have tried to cover every eventuality, even when many of the things that have to be gathered are irrelevant. Yes, these things could be streamlined and still accomplish the set out goals.

Do you think the economists are worryingly being overrated by policymakers for any possible solutions to redeem the economy from crisis? Also, your take on the way the media has talked about the meltdown.

In this crisis, we are in many ways in uncharted waters. Right now you can find an economist on either side of just about any issue. We simply don’t know what we don’t know.

Policymakers need to ensure that they hear all sides and then act on the basis of the greatest good, and not on the basis of politics or providing money to constituencies. My biggest worry is less about listening to economists than it is listening to politicians who are using the crisis as an excuse to get their pet programs implemented in the name of ‘stimulus’ or crisis management.

In terms of the media, they have a legitimate role to play. The size of the crisis is largely determined by the psychology of the moment. If everyone believes things will get worse, they are likely to delay decisions, investments, and purchases. The impact of that psychology is to worsen the situation. When the situation worsens, the general psychology can get even worse.

The problem with the media is that crises and bad news sell newspapers and increase ratings on television and radio. The temptation to describe how bad everything is can be overwhelming. The impact of doing that, however, is to make things worse for the majority of the population.

I believe that the media can, and in fact has a moral obligation to try to, help reverse the downward spiral by injecting some positives into the equation. All is not doom and gloom. There are growing businesses, there is hope, and together we can turn it around. The onus is on the media to make this news worth reading or watching.

What are the challenges to consulting during recession? Are the demands of clients too many and too urgent to satisfy?

The biggest challenge to consulting is to find ways to help our clients get a rapid return. One of the difficulties for most companies is that when they are facing the most demands and the most challenging problems, they have the least resources to focus on them. We can succeed by providing services that have a rapid payback while simultaneously solving the most vexing issues.

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