The basic model that Bossidy and Charan present for confronting reality has three components:
1. The externalities, or external environment
2. The internalities, or the internal capabilities and resources of the organization
3. The desired financial results that the organization wants to achieve
The externalities include several components that impact all businesses, such as: their market and their competitors. Externalities also include such factors as: the health of the economy, changes in technology, changes in the social world, the capacity of the industry, increasing globalization, the increase of regulation, the consolidation in an industry, etc. These factors have an extraordinary influence on the success of the organization. A rigorous confrontation with reality requires that these external components be identified and analyzed, using direct current information, to help understand the root causes of the dynamics of change.
Another important issue in analyzing the externalities requires looking at how these factors may affect your clients.
They may not be affecting you directly, but are affecting you through them. There are three critical questions for you to ask as you look at your analysis of the externalities: What's happening to the growth of your industry? Is there room for profitable growth? Is your industry becoming commoditized?
Internal realities are the assets and capabilities of a business: its people, systems, strategies, and passions. As you look at the internal elements of the model, once again, reality must be confronted. Many organizations touch on these when they do a traditional SWOT analysis for their strategic planning, in which they list their strengths. Too often businesses create an overblown list that includes just about everything they're doing as strengths; confronting reality requires that you be a lot tougher. Usually there are two to four areas of real strength that have gotten your business to where it...