Hopefully by now we are aware of the stats of the very real problem of the failure of strategy execution. Again, per Harvard only 10 % of organizations successfully execute their well formulated strategies. Why is that? Well, like most big problems the reasons are numerous. In this blog post however I want to explore CEO’s focus on short term results as a big reason.
When an organization forms its strategic plan they have strategic initiatives or strategies to implement in the fiscal year to accomplish a set of financial goals. These initiatives are often large and take more than a quarter to complete or fully execute. The current fiscal year financial goals in a strategic plan are the first year of a three year plan, the second year of last year’s three year plan, the final year of a three year plan, etc. So strategy tends to look long term and align with the vision of the company. This makes sense as most companies exist to provide long term value to shareholders. So is there not an inherant conflict in the focus on short term quarterly results that exists today? Isn’t this a big reason that so many companies fail to execute their strategies/strategic plan?
The reason we focus on short-term results is that executive compensation is largely stock based. Thus a huge incentive for companies to keep the capital markets bullish on their stocks every single quarter. Failure to do so can have severe consequences for management as well and shorten their tenure. Is this short term focus though a reason why most firms can not implement their long term strategies? I would argue that it has to. How can it not? Most businesses exist to create long term value for its shareholders. So it is the long term performance that matters and allows strategies to be executed patience with a management team to allow their tenure to deliver these results. Successfully executed strategic plans create a competitive advantage over time. Not short term performance to appease the market and new executive teams installed when they do not.
Look at the news in recent weeks. Apple’s quarterly earnings were disappointing to investors but does that mean Apple is in trouble? Their stock price took a hit which implied that is the case. The fact is however that investors will quickly forget about the last quarter when the new I Phone launches and impacts the next quarterly earnings report What about Exxon and Shell that recently released their earnings report which happened to be lower than expectations due to low gas prices? How about Facebook? It has a market capitalization 12 times revenue and last week reported gains in new users, active users, advertising revenue, and operating income yet it’s stock dropped 12 percent after it’s earnings report. So are these companies broken? Are they bad long term investments? Of course not!
So what is the solution in this world of instant gratification that we live in? Executives need to take a healthy balance at both short term communication and focus on long term results. In Apple’s, Shell’s, or Facebook’s case be able to explain a quarter that doesn’t meet expectations and how the next quarters will be better as they execute their business strategies. It is similar to an American Football (professional or college) sideline interview at halftime with the coach. The coach tells the reporter while walking to the locker room what his team did well and what they need to do better in the second half. In football we do not care about the score at the end of the quarter or half it is the final score in the game that matters. Business shouldn’t be any different and CEO’s and CFO’s should take this approach with their shareholders.
CNC Strategy Cloud Solutions, Inc offers executives online tools that enable them to get real time results on the execution of their strategic plans thus allowing their organization an advantage over their competition.