Navigating the tensions between the two to think beyond the next two quarters
In today’s quarter-to-quarter-mindset, business leaders are faced with the daunting task of trying to 
create long-term value with a short-term mindset. Over the past ten months, I have delivered business acumen and business leadership development programs for more than 1500 leaders and during each workshop I take a few moments to ask about their challenges and more than 85% of them mention the tension between short-term expectations and long-term strategy as being a top 3 issue. This blog will provide new ideas and perspectives on how to move beyond the short-term mentality to do both.
What are short-term expectations?
Although many of the leaders I work with complain about the pressure they feel to achieve short-term expectations, I am always surprised by the lack of business acumen to understand two things; what are the key metrics that make up the short-term expectation, and what are the levers within the system of business to drive those levers. The obvious metrics include:
- Revenue / Revenue Growth
- Gross Margin, and gross margin improvement
- Percentage of revenue spent on driving the strategy
- Profitability
The “not-so-obvious” metrics are a lot more difficult because they should be dependent on the overall business strategy. For example, if the overall strategy is to drive operational excellence to take cost out of the system to offer the lowest possible price like Walmart, then some of the not-so-obvious metrics would include:
- Asset utilization
- Days Sales Outstanding
- Distribution expansion
With so many companies trying to be all things to all customers, it becomes even more difficult to distinguish the key metrics which then make it even more difficult to balance between the short-term expectations and a long-term strategy.
What to do to find the right balance
Based on years of observation and years of designing computer-based business simulations that emulate complex business markets, I’d like to suggest the following recipe for success:
Have a vision of a long term (5+ years) strategy but break it up into short term expectations
By doing this, organizations can function in a duality of both short-term and long-term thinking and execution. Let’s apply this concept to a company trying to execute an innovative, product leadership strategy.
The long-term strategy is to lead their market by having the newest, most innovative products in their market year. In the strategy, the company must invest in R&D, Marketing, and Sales to drive execution and results
To turn the long-term into short-term, specific short-term goals must be set and should include things such as:
- Highest % of revenues invested in R&D
- 20% new product portfolio turnover
- 20% above industry average pricing
What’s critical about this approach is that if you follow the plan well, you are almost guaranteed to drive the ultimate metric of them all; creation of shareholder value.
In my opinion, shareholder value is being driver by:
- Revenue
- Profit
- Execution Acumen
- Free cash flow
One of the key takeaways from the business simulation experience is that participants can’t “game” the system by not investing in the right areas that drive success. They also learn that it’s important to choose a strategy and make sure you are fully ready to execute it.
