May 19, 2021 • Sam Grabel
Featured Podcast Guest: Ram Charan
The following is an excerpt from the transcript of a conversation on History Factory’s podcast, History Factory Plugged In, between host Jason Dressel and noted bestselling author and corporate advisor Ram Charan. In it, they discuss Charan’s new book, “Rethinking Competitive Advantage: New Rules for the Digital Age.”
Jason Dressel: Ram, welcome to History Factory Plugged In. Thank you so much for joining our podcast.
Ram Charan: I am honored and delighted to do this. You’ve got a great venue for people to learn new things, new ideas, building the future.
JD: Well, Ram, it’s always a pleasure to talk to you. And I’m excited to talk about your new book. In the new book, you identify six rules that help explain the dominance of big tech, but you say are also critical and adoptable for any company in this digital age. So maybe we can begin with what are the six rules?
RC: Yes. These rules are based on being a great business. I’m modifying them as I’ve been researching them. The first, most critical rule is personalization. Each individual customer or individual consumer. You link with them, you look at their end-to-end journey, you engage them multiple times a day, a week, a month. You create data. That data is used to create recurring revenues. If you create a partner ecosystem, it will give you adjacent revenues. This is now the new essence of business. It is business savvy, and you cannot do it without machine learning, without data, without algorithms, without software.
The tools have existed for centuries, but in 1997, a young man called Jeff Bezos figured out how to apply them to large business and changed how business makes money. That’s No. 1. Ninety-nine percent of the companies don’t yet have the algorithms, don’t yet have the software. They are beginning to do that. And Walmart woke up in the last three years under Doug McMillon. It’s great to see how in the last three years it has moved. It has broadened the sources of revenues. It is using the Walmart stores as a place people can pick up. They’ve got data on more than 100 million customers. They’re going into healthcare. They’re going to advertising. They understand the concept of getting adjacent revenues, recurring revenues. The additional cost of additional revenues is much lower, so they are going to increase their gross margin.
Item No. 2 that we could not do before is the algorithms or machine learning in the digital age helps you to be predictive. That helps you in managing inventories, creating new kinds of products. Your products can be very, very fresh simply because the cycle time to produce new products has been cut.
A vaccine decision this last year was made in two days by Moderna. They did that in parallel, something that took seven, eight years is done in less than a year. That is a competitive advantage. For those who could not do it, they are not in the game. And they’re suffering. So that’s principle No. 2.
Principle No. 3 is, if you are managing your business alone, you will not get there. You must have an ecosystem, because you see what the customers’ total life needs are. And with your platform, with your last-minute delivery, with your data, you satisfy more needs than one, and therefore you are crossing several industries because you have one machining platform. And that’s huge. People have to change their habits.
No. 4: All the core competencies are old, obsolete. We have learned for the last 50 years to build your own core competencies. You can go 2 or 3% per annum, but you will be obsolete.
So, you need to define what core competencies you need and which ones you want to keep and shed. Do it fast because they become resistances in the company. They prevent the new thing coming in. If you don’t do it, you’re going to regret it. In this game, the speed is so high that if you are left behind, you may never be able to come back.
The next one is a culture of learning. Things are so fast. Obsolescence is daily. So your company, your organization with the ecosystem must have a culture of learning. I have one company, Fidelity, in Boston, in one part of the company. They all have a skills requirement tied up to the compensation. One new skill every year for their people.
The next one is that every business must be made complex. Let me explain. For a hundred years we had a phrase, “the span of control.” It must go. You’re going to have 10 people reporting to you, seven people reporting to you, 13 people reporting to you. It must collapse. Instead of control, it is a span of empowerment, of coaching. Eighty percent will be done by algorithms.
Amazon does it. They have data. They have algorithms and machine learning to find deviations continuously. They find sources. They predict. You don’t have a human being controlling it; you have a human being training, coaching, expanding people’s relevant ability.
And the last one, the most important, machine learning has helped you to imagine the size and the scope of demand of market space in a way that you’ve never seen before. So, Jeff Bezos rightly shows that his total market online alone is a minimum of one-and-a-half trillion because of internet penetration. Total sales when he said that were 200 billion. The market share was very small. He’s on that path, he’s fighting for market share in India. India will grow. Indonesia will grow. And imagining the extended market space will help you take your company 10 times, 20 times, 30 times.
That is how you create market cap. I want people to know that Amazon has hard-nosed, embedded customer base data. Would you believe its market value is five times its revenues? Apple: five times plus the revenues that customers and hardware would bring. It’s not fluff. It’s not ether. If you do your business right, you master each individual customer’s end-to-end experience. There is no reason why you couldn’t do that.
But get ahead of the curve. Ninety-nine percent of companies still don’t have it. Those who have it first, the basics, they will lead the others. This is the window of time to do that. That’s what this book is about.
If you found this excerpt interesting, you can listen to the entire interview below:
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