The Perils of a Short Horizon: Transformation Takes Time

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Balance is the key for most enterprises. The short-, medium- and long-term futures are all important. Throwing away one for the other is a path to failure.

Plan to Avoid the “Short-Term Success Trap”

Transformation takes time. Business planning must avoid the short-term success trap in order to ensure ongoing success.

If you have planned anything more complicated than a two-car parade, you know that you have to think in terms of short-, medium- and long-term goals.

Despite this, too many companies are falling into the short-term trap of thinking only of ever-increasing shareholder value.

Ray Wang succinctly summarizes this phenomenon in his piece, “Extreme EBITDA and Short-Termism Slowly Killing Every Company.”  He sees the latest examples of this in the assorted reactions of companies to the recent wave of digitalization.

This issue is older than digital transformation, and it gets into the very definition of what constitutes positive change.

Develop Business Plans that Reflect an Enterprise’s Vision and Mission

Businesses don’t just find their own way to success; they are guided and directed toward success by the people entrusted with the management of the business. Management devises business plans that reflect the visions and missions set forth for the enterprise. Goals are established; strategies and tactics are embraced; a specific plan is developed; and, finally, that plan is executed.

Over time, the performance of the business is measured against the goals established within the business plan, and certain aspects of the plan may be tweaked, abandoned or replaced in response to the performance metrics and the story they tell.

What Happens When Short-Term Gain Comes at the Expense of Long-Term Success

The real issue is what happens when short-term gain comes at the expense of long-term success? Arne Alsin, in a recent Forbes article, sees the recent wave of stock buy backs as a primary reason for companies losing their innovative edges. Money that should be spent on R&D, worker education and new product development is diverted towards shareholders.

Incremental Change versus Transformative Change

When your primary concern is improving the bottom line at the end of the quarter, the temptation is to look for quick, easy-to-implement measures that guarantee an immediate impact on shareholder value.

These changes are almost always incrementalin nature and, more often than not, they may be temporary or deliver a one-time-only benefit to the end-of-quarter numbers.

Laying off workers, selling physical assets and outsourcing production capacity are all examples of incremental change that will be reflected positively in the short term.  However, most of the benefits realized will not be repeatable and come with ongoing negative effects.

What happens next month, next quarter or next year? The longer-term implications of these actions may not be so wonderful. Lost capacity and lost knowledge are two immediate results. Regarding assets, will they need to be re-acquired? Will workers need to be rehired? Are your knowledge workers now employed by your rivals and competitors? Are you slipping on delivery and losing customers?

Your several million dollars of “found profit” can turn into many millions more in lost opportunity during the coming months and years.

Transformation Means Wise Investments in for the Future

Companies that are serious about long-term success are not concerned so much by weak results for one quarter, and they don’t hesitate to invest in strategies, people and technology that provides true change or transformative change to the enterprise.

A wise individual once remarked that those who are unafraid of the future invent the future. This is worth remembering when the time comes to balance short-, medium- and long-term planning. Transformation helps companies deliver the future they envision.

Examples of transformation include the reinvestment of profits into ongoing employee education programs, new product development and technological improvements to the enterprise infrastructure.

These investments offer ongoing paybacks not found in cost-reduction actions such as layoffs. A newly educated employee is suddenly able to take on additional responsibilities, assume more leadership roles and contribute more value to the enterprise over the long haul.

New product development provides more arrows for the sales quiver, ensures the relevance of the enterprise over time and contributes to the institutional image of the enterprise as an innovative and resourceful participant in the market.

Technological investment offers a path to increased efficiencies that provide the ability to do more with less rather than simply doing less. The paybacks delivered by technological investment pay for those other investments already listed.

Technology Provides the Foundation for Transformation

CRM, marketing automation, CPQ and other solutions offer near-instantaneous improvements to operational efficiencies within the sales and marketing arena. More substantial investments in ERP, IoT, data analytics and other digital transformative efforts can provide the foundation for an agile and innovative future to those companies that spend wisely in these areas.

None of this is possible for the enterprise that is locked onto showing positive numbers at the end of the month or quarter.

During the dot-com boom of the late ‘90s, financial gurus were often rightfully aghast at the willingness of people to invest in start-ups with big promises and vague plans. But, many of those long-term thinkers were fully justified in their willingness to look beyond the quarter.

Jeff Bezos, founder of Amazon, is a prime example. He was very upfront about the fact that Amazon would not be profitable during the short- or even medium-term. During its first 15 years of operation, Amazon turned in very few profitable quarters.

Balance is the Key to Avoiding Failure

Balance is the key for most enterprises. The short-, medium- and long-term futures are all important. Throwing away one for the other is a path to failure.

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