Olivia: Most business leaders see inflation as a monster that eats profits. It’s this unavoidable, terrifying force that shrinks margins and creates anxiety. Jackson: Absolutely. It feels like you're just trying to bail water out of a sinking boat, and the holes keep getting bigger. You’re just trying to survive. Olivia: But what if that’s the wrong way to look at it? What if inflation is actually a once-in-a-decade opportunity to leapfrog your competition? Today, we're exploring the playbook that turns economic chaos into your greatest strategic advantage. Jackson: Okay, that is a bold claim. Turning a monster into a pet dragon sounds great, but how? This feels like the kind of thing that’s easy to say and impossible to do. Olivia: It’s definitely not easy, but it is possible. We’re diving into the brilliant and incredibly practical book, Leading Through Inflation and Recession and Stagflation by Ram Charan and Geri Willigan. Jackson: And Ram Charan isn't just some theorist writing from an ivory tower. This is the guy Jack Welch at GE called in during the massive inflation crisis of the 1980s to literally write the playbook for them. So this isn't academic; it's a set of strategies that have been tested in the fire. Olivia: Exactly. And that battle-tested wisdom starts with a fundamental mindset shift, moving from a place of fear to what Charan calls a 'war room.'

Jackson: A 'war room'? That sounds incredibly intense. I'm picturing generals huddled over a map with little pushpins. What does that actually look like for a normal business, not a global giant like GE? Olivia: That's the perfect question, because the name is meant to convey urgency, not panic. It’s not about creating another boring weekly meeting. A war room is a company's central nervous system, designed specifically to detect early warning signals and drive a coordinated, rapid response. Most companies, Charan argues, are reactive. They hear about inflation on the news and then scramble. A war room makes you proactive. Jackson: I see. So you’re trying to see the storm coming before everyone else is getting rained on. What kind of 'early warning signals' are we talking about? Is it just watching the stock market and news headlines more closely? Olivia: That’s part of it, but it goes much deeper. Charan points to the importance of leading indicators, not lagging ones. For example, he quotes the economist Mohamed El-Erian, who pointed out that everyone was watching the Consumer Price Index, the CPI. But the real signal was the Producer Price Index, the PPI, which shows the costs for manufacturers. The PPI numbers are a leading indicator for the CPI, so if you were watching that, you had a heads-up. Jackson: Huh. So you're looking at the cost of the ingredients, not the final price on the menu. Olivia: Precisely. And it's also about internal signals. The book gives the example of Walmart in 2022. On an earnings call, they noted a tiny shift in consumer behavior. People were buying slightly less general merchandise and, within groceries, they were shifting from brand names to private-label goods. To an outsider, that seems minor. To the war room, that's a massive flare going up. It signals that consumer budgets are tightening, which will affect everything from inventory to marketing. Jackson: Wow, okay, so it’s about connecting these seemingly small data points. The book must have a great example of a company that did this well. Olivia: It has a fantastic one: DuPont. When the pandemic hit and supply chains went haywire, their CEO, Ed Breen, already had a weekly leadership meeting in place. They transformed it into a war room. The Chief Procurement Officer began briefing the entire top team every week on the latest trends in air and ocean freight costs, raw material prices, everything. Jackson: So the information wasn't stuck in a silo with the supply chain guys. It was getting to the very top, every single week. Olivia: Exactly. And because of that, they could be predictive and preemptive. They saw costs rising for specific materials, so they immediately looked for alternate sources, alternate regions, even alternate modes of transportation. And, crucially, they didn't hesitate to raise prices on the products that were affected. They were riding the curve, not behind it. As one of their executives said, they moved to "not lose time in going after price." Jackson: That makes so much sense. They had the data, so they had the confidence to act. They weren't guessing. Olivia: And that's the core of the war room. It converts anxiety into focused action. You stop worrying about the vague threat of "inflation" and start solving concrete problems: "The cost of polymer X is up 15%, what are our three options?" It’s a total shift in mindset from victim to strategist. Jackson: Okay, so you've got your war room, you're seeing the signals. But seeing a problem and fixing it are different things. The book gets really provocative when it talks about what you do with that information, especially when it comes to pricing, right?

Olivia: It really does. This is where the book flips the script from defense to offense. Most companies see pricing during inflation as a painful necessity—you raise prices just enough to cover your rising costs and hope you don't lose all your customers. Jackson: Right, that’s the fear. You raise prices by 10%, your competitor only raises them by 5%, and suddenly all your business walks across the street. Olivia: Charan argues that this is timid, defensive thinking. He says pricing is your single most powerful offensive weapon in a chaotic market. And he has this incredible story that illustrates it perfectly. It's about two lumber distributors, both owned by the same private equity firm, facing the same skyrocketing lumber costs in 2021. Let's call them Distributor A and Distributor B. Jackson: A business parable. I love it. What was the difference? Olivia: It was all in their pricing model. Distributor B used the traditional approach. Their salespeople would negotiate prices with each individual customer. When lumber costs shot up, they were constantly playing catch-up, trying to have awkward conversations and renegotiate deals. They were always behind the curve. Jackson: I can feel the stress just thinking about that. Endless haggling while your own costs are exploding. Olivia: Now, Distributor A did something different. They used an index-based pricing model. Their prices were automatically pegged to a lumber market index, with a fixed margin percentage built in. So, when the index showed lumber costs went up, their prices went up automatically, for all their customers, that same day. Jackson: Whoa. So they took the negotiation and the emotion completely out of it. It was just… the market price. Olivia: Exactly. And here’s the beautiful part. The pricing consultant in the book, Adam Echter, explains the magic of this. He says, "Because 40% of $100 is $40, but 40% of $200 is $80." Since their margin was a percentage, as costs went up, their actual dollar profit on every sale also went up. Echter says, "Money was just falling from the sky, and EBITDA blew up beyond the PE company’s wildest imagination." Jackson: That is stunning. So Distributor A was thriving, making more money than ever, while Distributor B was getting crushed by the same market conditions. That’s a powerful lesson. Olivia: It’s a perfect illustration of strategic pricing. Distributor A had the resources to go out and acquire weaker players, probably companies like Distributor B. They turned the crisis into a massive growth opportunity. Jackson: But hold on. That works for a commodity like lumber where there's a clear market index. What if you sell a service, or a unique branded product? You can't just point to an index. Won't customers just revolt if you keep raising prices? Olivia: A fair challenge, and the book addresses this. It’s about justification and communication. Look at the luxury brand Chanel. In 2021, they saw inflation coming and raised prices on their iconic handbags three times, with some increases as high as 20%. They didn't apologize. They acted preemptively, signaling the enduring value of their brand. Jackson: So they leaned into their premium status. Olivia: Yes, and for a more industrial example, look back at DuPont. Their executive, Raj Ratnakar, admitted it was hard. He said, "When we tell salespeople that we need to raise prices by 10% or 15%... it is not easy for the culture." But their approach was to be first, and to be honest. They went to customers and explained exactly why costs were rising—for raw materials, for freight—and assured them the increases were across the board. Jackson: So they were transparent. They brought their customers inside the war room, in a way. Olivia: In a way, yes. And customers understood. They knew their other suppliers were facing the same pressures. Switching to a competitor for a slightly lower price was short-sighted, because that competitor would inevitably have to raise their prices too. DuPont built trust by being direct and acting with conviction. They played offense. Jackson: And that's the offense. But you can't win without a rock-solid defense. Charan is almost religious about this next part: cash.

Olivia: He is. If the war room is the brain and pricing is the sword, cash is the shield and the lifeblood. The book’s message is stark: inflation consumes cash. It gets tied up in more expensive inventory, and it gets trapped when customers delay payments. A company can be profitable on paper but go bankrupt because it runs out of cash. Jackson: I’ve heard that before, "revenue is vanity, profit is sanity, but cash is reality." It sounds like that’s ten times more true during inflation. Olivia: Exactly. And the book highlights how disciplined companies become obsessed with it. At DuPont, they talk about watching cash on a weekly, even daily basis. They standardized metrics for how long it took customers to pay—their Days Sales Outstanding—and educated all their leaders on industry benchmarks. It became part of the culture. Jackson: So it’s not just the CFO’s problem. It’s everyone’s job to protect the cash. Olivia: Everyone's. But the most powerful story in this section is about how to think about the other side of the cash equation: costs. We think of cost-cutting as this grim, defensive, morale-killing exercise. But Charan shows how it can be a strategic art form. Jackson: You mean it’s not just about canceling the company picnic and switching to cheaper coffee? Olivia: Far from it. The book tells the story of a medium-sized footwear company in Southeast Asia. In mid-2022, their whole supply chain was in turmoil. Costs were up, demand was shaky. Their customers couldn't absorb big price increases. Jackson: A classic squeeze. Sounds like a no-win situation. Olivia: The CEO refused to accept that. He told his team to find cost reductions, but with a critical rule: the cuts could not weaken the business, their customers, or their subcontractors. The goal was to strengthen the entire value chain. Jackson: Wow. That is the opposite of the typical playbook, which is to squeeze your suppliers for every last penny. Olivia: Completely. So what did they do? First, they looked inward. They flattened their organization, cutting layers of management from nine to six. This made them faster and more responsive. Decisions that used to take weeks now took days. Their customers loved it. Jackson: So that was a cut that actually improved the business. Smart. Olivia: Then, they looked outward. They worked with their subcontractors, helping them improve their manufacturing processes to optimize capacity. And they urged their big customers to place seasonal orders earlier, which gave everyone in the chain more predictability. They even explored new sourcing frontiers in Mexico to be closer to the U.S. market. Jackson: This is fascinating. They're playing a completely different game. While their competitors are probably panicking and cutting off partners, they're building a stronger, more integrated system. Olivia: That’s the punchline. The CEO is quoted saying, "Competitors are 100% focused on reducing cost and generating cash internally just to survive. But if we strengthen the whole end-to-end value chain, we can win the game for the future." He saw the crisis as a chance to demonstrate his company's differentiation. Jackson: That’s a profound shift in thinking. They used the pressure of inflation to build a competitive moat that will last for years. It’s not just about surviving 2022; it’s about dominating 2025.

Olivia: And that really ties all three ideas together. It’s an integrated system. The war room gives you the foresight to see what’s coming. The offensive pricing strategy gives you the power to capitalize on the chaos. And the disciplined approach to cash and costs gives you the resilience to outlast everyone else and emerge stronger. Jackson: It’s a system for turning a widespread crisis into a unique advantage. You’re not just weathering the storm; you’re using its winds to sail faster than the other ships. Olivia: That's the perfect analogy. Charan’s core message is that external changes, even painful ones, are neutral. It is leaders who decide whether they become a reason for decline or a catalyst for greatness. Jackson: So, for a leader listening right now who feels overwhelmed by all this, what's the very first, most practical thing they should do tomorrow morning, based on this book? Olivia: I think Charan would say to start with the simplest, most fundamental question: "Where is cash trapped in my business?" Don't try to solve "inflation" in one day. Just pick one area. Look at your inventory. How long has it been sitting there? Look at your accounts receivable. Who owes you money, and for how long? Jackson: Start there. Find one dollar that’s trapped and figure out how to free it. Olivia: Exactly. That’s where the battle begins. And as you start freeing up that cash, you build momentum. You build confidence. You start to feel less like a victim of the economy and more like the leader of your business. Jackson: That feels actionable. It’s a powerful way to reclaim a sense of control. We’d love to hear how all of you are navigating this. Find us on our socials and share one 'early warning signal' you're tracking in your industry. It’s a real-life war room discussion. Olivia: A fantastic idea. This book is a reminder that leadership isn't about having all the answers; it's about building the systems to find them faster than anyone else. Jackson: This is Aibrary, signing off.