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Volume 4.10 Table Of Contents
- Tip: Focusing on long-term performance in a short term world
- Trend Watch: Long-Term Performance as A Competitive Edge
- Digging Deeper: Foster a Long-Term Performance Culture
- Ask the Expert:
Focusing on long-term performance in a short term world
Recently, I attended a conference of corporate directors where one of the topics was how to create long term performance in a world where corporate executives and financial markets focus on quarterly reported financial results to the near exclusion of enduring value ("short-termism"). While the session was aimed at public companies, I believe there are also implications on the horizon for even the smallest private companies (see Trend Watch below)
In the newly released statement Built to Last: Focusing Corporations on Long-Term Performance (Committee on Economic Development, 2007), business, academic, and policy leaders agree that decisions based primarily on short-term considerations such as quarterly earnings, compensation tied to earnings per share, shortened CEO tenures, and financial reports that do not adequately inform about company performance damage not only companies, but the economy as a whole. The good news is that these leaders are working together to find ways to break out of the cycle that led to disasters such as Enron and WorldCom.
Some of the measures recommended in the statement include ensuring that compensation for directors, CEOs and executives is tied to the long-term health of the company, and that reporting has greater transparency to increase trust in the investment community. However, the heart of the matter comes down to ethics. Top-level leadership needs to take a strong stand, resist pressures to focus on quarterly guidance of earnings per share, and develop and execute a strategy that fosters long- term performance in the organization.
While there are no easy answers to the problem of short-termism, Directors and CEOs can immediately take steps to address the issue. These include:
- Commit to focusing on long-term performance: Clearly, this is not for the faint of heart. It requires everyone - the Board, CEOs, executive team, and the rest of the organization to identify and be aligned on the values that support long- term performance. One way to move abstract concepts to everyday actions is to promote continuous discussions of what the values that support long-term performance look like on the job, and to offer financial and non-financial rewards for behaviors that exemplify them (see Digging Deeper below).
- Develop a strategy anchored by long-term objectives: In a competitive and constantly changing business environment, it's easy to become reactive and get sidetracked by urgent and/or unexpected issues and pressures. Focusing on long-term performance objectives provides a stronger context for making changes to strategy, and enables you to discover more options for continuing to move forward.
- Create realistic expectations: Your organization is likely to require many incremental steps to achieve long-term objectives. This includes building both capability (i.e., resources, knowledge, skills, abilities, etc.), and willingness (i.e., culture and attitudes) to make changes happen. Developing realistic indicators and checkpoints to assess progress as you implement your strategy helps everyone know what to expect and maintain their commitment over time.
Bottom line:Transitioning to a focus on long-term performance in the face of the many pressures that reward short-termism takes commitment and discipline on the part of leadership. However the benefits to your company, stakeholders, and the economy are well worth the effort.
Trend Watch: Long-Term Performance as A Competitive Edge
As public companies become more focused on long-term performance, look for them to place higher value on doing business with suppliers, outsource providers, alliance partners and other companies - both public and private - that can demonstrate the same orientation.
Consider that as companies become more dependent on outside sources to execute strategy, they will begin to evaluate whether they build relationships and depend on their partners to be there for the long haul. Look for customers to conduct increasing due diligence on factors such as understanding overall strategy, and ensuring that the there are sufficient organizational capabilities and resources to meet immediate needs and steps in place for long-term performance.
Bottom line: Even the smallest businesses that can demonstrate a "built to last" mentality will have a significant competitive edge as the movement toward focusing on long-term performance continues to build in public companies.
Digging Deeper: Foster a Long-Term Performance Culture
Aside from ensuring that compensation at all levels in your company rewards both qualitative and quantitative measures of long-term performance, there are a number of other ways that you can shape culture to reinforce taking the long view.
- Link long-term performance objectives to every job: Every employee needs to understand the company's vision, mission, long-term objectives, strategy, and his/her own role in making it happen.
- Encourage innovation by making it easier for employees to collaborate (location of offices, in-house social networking sites, etc.)
- Balance long-term and short-term priorities and reward accomplishments so that long-term projects carry as much importance as those geared to the short-term.
- Invest in people: provide resources, training, and development opportunities to employees so that they have the knowledge, skills and abilities necessary to accomplish performance objectives.
Bottom line: The more ways that you find to reward the behaviors you want to encourage, the more likely it is that employees will adopt them.
Q: How can
we focus on long-term performance when we've got
so many more immediate issues to deal with?
A: Obviously, too much focus
in either direction is dangerous to your company.
In a constantly changing business environment,
you must be able to meet immediate needs in order
to minimize risk and take advantage of new opportunities.
It's important to get buy-in from all major stakeholders
(e.g., employees, customers, suppliers, alliance
partners, and others critical to implementing
strategy) that meeting long-term performance objectives
is also critical to the health of the business.
In this way, everyone can contribute to finding
ways to balance urgent and long-term objectives
and insure the continued health of the organization.