What Essential Actions A CEO Must Take - Entrepreneurs by Harshzad

Hey! Do you want to know "what essential actions a CEO must take" for leading through inflation?

Note: This is just not only for the CEO, it's for every entrepreneur

With the changing times, the role of the CEO becomes more critical.

If you look into the failures of CEOs, there is no common reason why a CEO fails and why his deliverables didn't work out for that organization.

Most of the time, one can reduce the problem by matching CEOs' roles with specific trade at a particular time.

What I have learned studying 200+ top successful CEOs across the world is that a CEO and Street Vendor think exactly the same. I am planning a complete series on this soon after this "inflation series" because it's high time to get ahead of the inflation bogeyman.

• [Ray Williams, one of Canada’s top Executive Coaches says, Leadership has been a heavily researched topic for over 50 years. As a result, over 15,000 articles and books have been published on this topic.
• That means we know a lot about the characteristics of successful leaders. And based on this knowledge, organizations spend an estimated $50 billion a year on the development of leaders (Fulmer and Conger, 2004).
• In spite of this knowledge and investment, most organizations feel they have a shortage of effective leaders.
• It has been estimated that between 50 and 75 percent of leaders are not performing well (Hogan and Hogan, 2001).
• The number of leaders that get fired for failing to perform has increased over the past decade and the tenure of organizational leaders has steadily dropped (Hogan, 1999).

(Image source from https://raywilliams.ca)

• The American based Institute for Policy Studies publish annual “Executive Excess” reports (based on 241 CEOs in the 25 highest paying jobs over 25 years) called?Bailed Out, Booted and Busted?found that 22% had been Bailed Out (ceased to exist or received taxpayer bailouts), 8% were sacked (lost their jobs involuntarily) and 8% Busted (paying significant fines or settlements).In other words, 38% were seriously poor performers.
• JUST WATCH THIS BELOW VIDEO FOR FIRST 40 SECONDS

Looking into the past failures of CEOs, an outstanding CEO today may not be a great CEO tomorrow because the situations change. (It applies to every role in the organization, our focus here is mainly on the CEOs role)

It is very important to refine and figure out precisely what should be CEO's role by the changing times or what type of CEO you need if you're going for a new hire.

If it's a new hire, it is very important to be very much aware of what they will bring on to the table which helps in understanding organizations' growth, future, and how he or she can bring in more success.

The CEO plays a very primary role.

By the changing times, the board needs to clearly understand and articulate the critical issues very deeply that the organization is facing at that exact time to avoid the potential roadblocks to know "what essential actions a CEO has to be taken".

For a proper evaluation, it is very necessary to go by external assessment taking outsider advantage.

When a CEO fails, it's just not a CEO fails, the entire organization to customers to alliances to ecosystem suffers in some other way. It's may not be the CEO's fault, but a CEO is responsible and blamed.

So, it is very important to rework the role to take essential action for leading through the inflation.

Often I have observed many C-Suites think, oh it's not my role or they just wait for the command.

If you're an entrepreneur owning a business or a C-Suite Officer this still can help you share the insights or discuss the insights with your CEO or MD or who's more responsible for the Chief Execution of your organization.

Different SMBs will have different names who head the organization and oversee the execution.

So let's pivot to CEO and look into the most essential actions a CEO must take for leading through the inflation because my envisioner and mentor Dr. Ram Charan says "there is nothing more urgent than getting ahead of inflation bogeyman for a business leader"

So, it's high time and also if you look into the attitude of any successful C-Suites, they will be positive, hopeful, aggressive, and leaning towards one objective in any good times: EPS (Earnings Per Share).

They know what essential action to be taken.

On the other side, many CEOs don't pay attention to the balance sheet - Working capital, cash, loans, financing and refinancing, and Capex.

If you're a CEO or any head of the organization, are you paying attention to the balance sheet? Trust me many don't even know how to read a balance sheet. If you don't know how to read a balance sheet, learn it now.

Because in the entire organization at any given time CEO is the only one who faces a greater challenge in successfully managing in an inflationary atmosphere other than C-Suites.

So, the CEO must not only oversee a key shift in the way company does business, but also should oversee a key shift in the attitude and focus of every employee.

There should be a high focus now on real volume and real income, not inflationary income.

That's why understanding the balance sheet in this inflation period may require.

Because of cash flow needs, to release resources those not achieving productivity i.e cash-inefficient customers or market share, that means focusing on certain segments of your market that are more profitable and letting other go those aren't productive and serving.

In this period chances are there that most profitable segments will generate less cash than before, so you need to think about how this will impact capital allocation.

• Psychologically it would be difficult for many CEOs

Remember the objective is not market share gains for the sake of market share gains, but cash-efficient market share gains that are durable.

So, considering the above insight, let's create an essential action plan for leading through inflation and to get ahead of the inflation bogeyman.

MINDSET RESET:

• Take all your top C-Suites for an offsite meeting to discuss and learn the lessons of what inflation has taught throughout history, especially in the 1970s in the US as one of the biggest mistakes majority of the organizations had done is not increasing the price, and who increased the prices have not brought any fresh value to the market place.

The objective here is to help everyone transform their thinking to a world where the cost of capital and the cost of doing business are both going up at the same time.

As a result, you will have two choices: To take the hit or to rethink the business model.

• When you narrow down on the insights, you will have greater possibilities to work on Pricing, receivables, inventories, in necessary further narrowing the product scope, far more carefully selecting your customers to whole lot necessary areas.

LEAN AND MEAN:

• You may need to intentionally minimize or discontinue cash-inefficient businesses and become lean and mean to further increase more focus.
• Reprioritize and change the way an organization measures performance like market share gain and pure revenue growth.
• Focus on real volume against revenue because price increase gives a different figure and mislead that volume.
• Relook into all the key contracts and change those which can lead you to a cash shortage situation to safeguard profitability.

Once you relook into key contracts and changes, Create three scenarios for the FY: 2022 - 2023.

One doesn't make any difference, two are never a choice to choose, three will give you more options and insights compared to the first two. So create three scenarios

Relooking into long-term key contracts for inflation will be a very tough task, but it's a must to do and it requires courage, common sense, and outstanding relationships with customers.

My envisioner Dr. Ram Charan says, "for public companies, there will be multiple reductions in the stock market as inflation comes along.

In parallel to that, investors will reduce for lower growth and separate those that have high debt that which cannot manage their capital, so,

• Focus on a capital allocation that did on 0% interest rate as interest rates will potentially rise beyond 7-8% interest.
• Focus on real volume, real margins, and real cash flow as your market cap will be increasingly based on those.

If you can top your competition with real volume, real margins, and real cash, you will have more capital gains and can also attract more investors.

• So, it is essential for you to focus on market cap and work backward on what is the right level of debt, right margins, the right level of receivables, the right level of costs, and real prices.

If you're a private organization and lack opportunity, it is even more important to dive into those details by getting examined by outsiders and investors.?

WORKING CAPITAL:

This is going to be mission-critical. Almost the majority of organizations need more working capital now.

In the last article "6 Essential Priorites" we have closely worked on this and by now you would have definitely realized how important to have cash and cash goals with thorough cash flow forecasting.

Not having working capital or cash goal will be dangerous now because the most dangerous part of inflation is 'what it does to working capital".

It will hold cash in inventories and receivables, this cash trap in an inflationary period will be very costly. Almost the majority of organizations need more credit time now. so,

Thoroughly complete cash flow forecasting.

• Get working capital.
• Rework now on "consumer Balance Sheet (explained in this podcast)" as customer relationship and working capital both need to be managed very closely while you ask for extending terms of payment from 60 days to 90 days to even 180 days or more.

This leads to rethinking relationships and working capital as it is interwoven with different alliances. Your vendors too will come up with their customer balance sheet. You can't avoid it, right.?

• Prioritize and brainstorm with CFO how it can be handled and adapted along with cash generation and capital allocation under various inflationary scenarios creating a way forward with a framework that could be measured for the upcoming 12 quarters, not for one first year, but successfully for three cumulative years.

This is not going to be an easy exercise and definitely could be stressful and stress-testing for CFO for liquidity purposes, as, for most organizations, there will be too many demands on cash.

That's why I asked to create different scenarios.

Keep note of these questions:

1. If the inflation rate goes from X to Y, how would it affect our cash position?
2. If the inflation rate goes from Y to Z, what would happen to our competitive position? This is most important as most of the CFOs don't bother about the competitive position as their main worry will be on cash position, but the indirect effect falls on cash position. That's why to closely work with CFO.
3. If the inflation continues, of-course which will definitely continue and will grow, then what are the risks to liquidity, if any?

• Hire an expert for a thorough study on "How inflation will impact the organizations end to end value chain" because no two organizations will be impacted exactly the same way by inflation.

Since many organizations are linked to one another, it will impact everyone in the ecosystem and it's very critical to understand how prices increase will affect receivables with our own operations.

For example, A company is buying fabrics that are supplied to different brands, and brands are positioned differently in the market. This fabric supplier has to procure raw material from different organizations. If any brand does well good sales and becomes the cream brand, and if the fabric supplier increases prices looking into the demand (reasons could be different for brands growth, still it's an advantage for the supplier, right),?it will affect your receivables and in a different scenario, "let's imagine the fabrics are supplied to one of the big which massive reach and name", if this brand fails", to bear his loss if it tries to increase the price or fails to meet required production capacity for your brand to whole lot other things, how will it affect to your receivables and also on inventory along with the entire ecosystem.

There are higher chances.

• So, it is essential to understand how an increase in price affects receivables and your organization's operations. This extends beyond the ecosystem architecture changes as whose leading and whose lagging not just in your sector, but in the context of many different sectors and subsectors.

The biggest problem is many entrepreneurs don't do proper homework and take action proactively.

CASH MANAGEMENT:

• Focus on where the cash is coming from and where it is going.

You need to have a clear picture of it, as cash management is the keystone to managing inflationary times.

• Create a clear dashboard of various ways to reduce cost, reduce cash break-even point and cash consumption.

While doing this exercise, share the information about other b2b customers' financial position, as we saw in the above case that how it will have a negative impact on the organization's business.

PRICING POLICY:

• Create a pricing mechanism dashboard that gives accessibility of the information to all the C-Suites and the board to get an instant update which helps everyone to monitor closely on the financial development and also helps to take quick action as and when necessary bringing the issue immediately on to the table.

This is very important for companies who have extremely low cash, the low margin in the business, and high debt with restrictive agreements.

INNOVATION:

• What fresh value are you bringing into market place along with a price increase? It is the most important area to focus on along with other innovations your team focuses on by the day.

TALENT DEVELOPMENT:

• Focus immediately on people's development with the necessary skills.
• Get mentors and coaches on board who can help to increase skillsets and mindset. Staying in the game is most important.
• Build a disciplined approach and ensure you add talent development to appraisal and new hires' role clarity document.

Innovation and Talent development will position the business to leap ahead once inflation subsides.

Those are the most essential action which a CEO needs to look into along with ongoing duties currently serving.

No matter what, you must carry on your duties and do business to build a future even as you focus strongly on the day-to-day urgencies as inflation will be there for the next 5 years.

On the final note, "How would I create a better organization with a better ranking in my industry? should be your essential question to keep in mind and ask yourself every day.

The above-shared essentials are the important considerations along with essentials and priorities am sharing in different articles.

Please do share this article with your loved ones so that as a community we can help as many people as we can.

This applies to the very small organizations to any big organization too.

If you need any help in restrategizing and creating a new playbook for leading through the inflation and quadrupling your business, do send me a direct message here on Linkedin or you can "WhatsApp me on 9742470175" or click on this link to directly land on my Whatsapp message to book a "15 Minutes Discovery Call" where you can clear your roadblock.

These exercises are being used in some of the best organizations (as per NDA norms, I can't share those, but doesn't matter where it is used or not effectively used, you got access to this information, LEAD NOW).

Do subscribe if you haven't done what helps you lead in a new better way.

Thank you, be awesome and prosper.

Remember: Implementing frameworks helps to transform the organization, not just by going through.

For your wealth,

Harshzad K

Let's BIE HUB

www.harshzad.com

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