Albu On Strategy

Go Long – No It’s Not About Football

The subject of our July blog is near and dear to our hearts – taking the long-term view to strategy. Being Strategist’s, we are always pushing the benefits of long-term thinking in leading and managing a business to current and prospective clients. So naturally we get excited and want to share when we come across content that supports the benefits of long-term thinking. We took this month’s blog title from the recently published book, Go Long: Why Long-Term Thinking is Your Best Short-Term Strategy (Wharton Digital Press, May 2018), The book profiles six leading businesses that resisted short-term pressures and put their organizations on a path to long-term success.

Recent research has provided factual foundation that a long-term approach can lead to superior business performance:

  • The McKinsey Global institute conducted a study (Feb. 2017) of over 600 large and midsized companies. They found long-term firms cumulatively grew 47% more revenue than other firms with less volatility, and experienced faster growth of earnings and market capitalization.
  • A Standard & Poor’s Global study (Oct. 2017) found that an index of large and midsize companies that “embody long-termism” had consistently higher returns on equity over the last 20 years than various quartiles of companies more focused on the “next quarter”.

Which leads to the ongoing question–if Owners and CEOs know they should be managing for the long-term, why do so many get stuck on managing the short-term?

The Authors of Go Long attributed a greater focus on short-termism to the following:

  • More pressure from the financial markets to perform over a shorter two-year timeframe than a longer timeframe.
  • It’s just difficult. Managing for the future requires making a lot of tough decisions. As Jack Welch said, “Anybody can run a company for the short term, and anybody can run a company for the long term, but the hard part about management is getting the balance right.”

In talking to investors, the Authors did not find evidence that investors favored the short-term over the long-term. The Authors agree the financial markets are playing a role in short-termism, though they feel Owners and CEOs are playing a larger role.

For Management teams to be successful in finding the right balance between short- and long-term thinking the Authors suggest the following actions:

  1. Communicating the long-term vision, and the importance of “making the case” to employees about “why it is being done” and “why the strategy is going to work.”
  2. Having metrics in place on both long-term strategy and traditional financial and operating measures.
  3. Dedicating Management Team/Board meeting time to long-term thinking . The meetings need to have a regular cadence, and not compete with discussions about day-to-day issues.
  4. Have the right incentives. Tie long-term decisions to compensation. Move to more variable than fixed compensation.

The above suggested actions sound straight forward, but for most organizations they represent significant behavior changes, and will also require a long-term lens. Although challenging, the rewards waiting for the organizations that successfully  manage for the long-term cannot be ignored.

We are always interested in learning from you our readers, so please share with us your thoughts and experiences.

Posted in Book Reviews, Newsletter, Strategy Development, Strategy Management.