9/8/2014 Forbes India Magazine - Cash is King. Cash is Blood Supply: Ram Charan

http://forbesindia.com/article/real-issue/cash-is-king.-cash-is-blood-supply-ram-charan/36901/1 1/4

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Cash is King. Cash is BloodSupply: Ram Charanby R Jagannathan, Vivek Kaul

Author and business adviser Ram Charan underlines the criticality of cash andhigh management intensity in times of business uncertainty

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9/8/2014 Forbes India Magazine - Cash is King. Cash is Blood Supply: Ram Charan

http://forbesindia.com/article/real-issue/cash-is-king.-cash-is-blood-supply-ram-charan/36901/1 2/4

AImage: Madhu Kapparth for Forbes India

fter 2008, the world economy has largely entered uncharted territory. Businessesare grappling with multiple uncertainties. What kind of leadership do we need insuch 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 yearsworking with many top companies, CEOs and boards. The companies include GE, Bankof America, DuPont, Novartis, 3M, Verizon, Aditya Birla Group, Tata Group, GMR, MaxGroup and Grupo RBS. Since 1998, he has authored many books that have sold morethan 2 million copies in over 12 languages. His latest book Boards That Lead: When totake Charge, When to Partner and When to Stay Out of the Way (Harvard BusinessPublishing) has just been released. In this interview with Forbes India, he talks aboutleadership 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 thesame time, we have an increasing level of uncertainty. Those leaders and businesspersons who can gear up to the uncertainty will progress. And those who don’t will findit very difficult.

Q. What are the unstoppable forces? There are two major unstoppable forces. (There are many other forces, but I would liketo put forth two that business leaders need to be cognisant of.) One is the instability ofthe global financial system. It is uncoordinated and uncontrolled, with so many movingparts that we do not have total transparency of information to dismantle it. At the sametime, the central banks and regulators are not fully equipped to prevent this. Hence, youare going to have fluctuations of currency flows. Countries that do not have foreignexchange reserves will need to have certain kinds of controls on the inflow and outflowof money.

Q. Which is the other force?The other one is digitisation. It is the sensors, the web revolution, the internet, themobility. A combination of all this is going to cause an impact on just about everyindustry. So leaders have to see how they adapt to it, take advantage of it, and maketheir organisation more flexible and agile.

Q. How would you define uncertainty for a business because, in a sense, allbusiness is uncertain. You don’t know when a new competitor will emerge.You may get taken over, policy and regulatory changes may happen. Is therea 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, thedemand for something that a company makes may be 100 tonnes; tomorrow it might be105 tonnes and the day after, 95 tonnes. For these uncertainties, we now havemathematical models.

Then there is the other kind of uncertainty that can change the whole structure of theindustry or [that] of demand. And that is the kind of thing you can see in the personalcomputer 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] arethere and they [leaders] need to face up to the reality.

Q. In the immediate aftermath of the Lehman crisis, you wrote a book calledLeadership in the Era of Economic Uncertainty. What are the key thingsthat 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, thecost of debt is very high. This has a deep impact on the company. And then you manageyour businesses for cash, not for accounting earnings. Cash is king. Cash is the bloodsupply.

Q. Can you expand on that? When you look at Amazon in the United States, its whole management is cash per share.It doesn’t go for accounting methods. So companies and their leaders need to ask a fewbasic questions: Where is the cash being 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

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uncertainty? What would you do in that uncertainty?

Q. What about companies which already have high debt? How can theytackle the situation? Companies need to figure out their good assets; if the debt is high and they cannot repayit or pay the interest on it, they have to decide on how to go about restructuring it. Theywill have to figure out which assets they may have to sell, or get into a joint venture witha partner to get cash and, thereby, get the company on an even keel.

Q. You talk about how CEOs should practise management intensity inperiods of uncertainty. Can you explain that? Management in the era of uncertainty needs to first focus and assess what is happeningat 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 thebottom to the top.

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This article appeared in the Forbes India magazine issue of 24 January, 2014

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

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9/8/2014 Forbes India Magazine - Cash is King. Cash is Blood Supply: Ram Charan

http://forbesindia.com/article/real-issue/cash-is-king.-cash-is-blood-supply-ram-charan/36901/1 4/4

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Vikas Mohan Jan 21, 2014

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

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