Ram Charan What Every Company Should Know

From mom-and-pop shops to regional manufacturers to vast Fortune 500 corporations, the range of disparate businesses that make up the global economy is almost mind-boggling.

Yet for all of their diversity, businesses of every size, shape, and location have one vital thing in common: the need to make money.

Taking a Position

If you're not generating cash, covering your expenses, and providing a financial return to banks or investors, you're not likely to be in business for long.

When your business can't achieve those simple things, you may be failing to execute. But equally likely today, your business may need to be repositioned.

Positioning means creating an unmistakably clear central idea for your business that does two things: meets customers' needs better than other options, and makes money.

Out with the Old

Positioning and repositioning a business is the most difficult know-how to master. Maybe that's why it's in such short supply at a time when it's so desperately needed.

Positioning methods that worked for decades are crumbling with increasing regularity. Think of the U.S. auto industry or of the troubled newspaper industry.

Think, too, of Wal-Mart, which is wrestling with slowing comp sales growth (sales at stores open for at least one year) largely because consumers' lifestyles are changing. Meanwhile, Target appears to be in the mainstream of changing lifestyles and its comp sales are growing faster.

Given this external context, should Wal-Mart think hard about repositioning its business?

Unforeseen Changes

Some leaders try to stem declining profits, revenues, or market share with a one-time, one-dimensional fix, such as cutting prices or dumping more money into advertising to enlarge the company's "slice of the pie." They think, or hope, that the downturn is temporary.

Too often, more profound action is needed. In today's environment, leaders can expect to have to reposition their companies four or five times over the course of their careers.

For instance, repositioning may be required when:

• Technology changes

For over 100 years Kodak was a stable, profitable business, selling photographic equipment, supplies, and film at high margins. The emergence of digital photography, however, caused sales to decline, and the company went into a long period of deep soul-searching as it tried to reposition itself as a player in the digital imaging market.

In doing so, it introduced digital photography products for consumers and more recently moved into inkjet printers, pitting itself against highly successful and extremely well-embedded Hewlett-Packard.

Newspapers used to think they competed against each other. But ever since the Internet, they've lost readership to web sites and advertising to major search engines and online job boards.

Today, the traditional newspaper business model is universally broken. No one as yet has successfully repositioned their business to take advantage of the proliferation of media and changes in how consumers use it.

• Competitors change

Positioning is a fast-evolving game in which players act and react to one another. Just when you find a great way to reposition your business, a complacent competitor wakes up and changes the game.

Any time a competitor changes its positioning, it can affect yours. If Wal-Mart successfully repositions itself around providing value to slightly more upscale customers, for instance, will it cause blurring and confusion between Target and Wal-Mart?

While Kodak is focused on repositioning itself as a better alternative for photo printing, HP isn't likely to sit idle. This battle is going to continue for some time. If Kodak succeeds and HP doesn't pay attention to it, will HP then have to reposition its printer business?

Mental Agility Required

Tighter profits may indicate that your positioning is slipping, but tracking external trends will help you detect any threats to your positioning much sooner. You'll have more time to adjust. (See my earlier column "See Your Business from the Outside In" for more on this.)

As you see external patterns taking shape, keep asking yourself, "In light of what I see, can the company continue to make money the way it has in the past? If not, why not?"

Then it may be time for the mental challenge of figuring out a new positioning, preferably a game-changing central idea that can transform a whole industry, as Google did. This is a matter of taking many factors into consideration and going through many iterations until things click.

Don't think your work is done when you come up with a way to position the business that appeals to consumers. You must know for sure how you'll make money at it.

Down to Specifics

You have to think at multiple levels for this. Some leaders are particularly gifted at creating visions for their organizations. They think expansively and conceptually, and often possess the communication skills to gain support for their ideas.

But leaders who master the know-how of positioning also understand the importance of ground-level specifics: Exactly why will customers prefer our offerings? How will the sources of revenue and cost structure change? Will we be more or less capital-intensive? How will cash flow be affected? How are competitors likely to respond? And do we have, or can we get, the capabilities to actually make it happen?

Concrete answers to such questions are necessities if an organization is to be successfully repositioned.

The Psychological Challenge

Repositioning a business is a test of a leader's psychological toughness. It's one of the greatest challenges a leader can take on, and it can prove time-consuming and require a great deal of perseverance.

You need to be open, receptive, and perceptive, actively seeking out the signs that point to the need for the business to be shifted. And you need to willingly surround yourself with people who will challenge your assumptions and help you to take a brutally honest view of the business and its future prospects.

After all, even though repositioning a business can mean introducing exciting new products, adopting cutting-edge technology, or making a splashy entrance into a new market, it also can mean shuttering divisions, laying off workers, and answering to skeptical analysts and investors.

A Risk Worth Taking

Repositioning is definitely risky, but so is failing to reposition a business when the world is changing. It's been proven many times that delays can deeply damage a business.

Not every leader will have what it takes mentally and psychologically to make and follow through on such difficult decisions -- only those who can set aside emotion, be comfortable with the risks, think creatively and at many levels, and do what's ultimately best for the business.