Bridging the Gap: How Can Business Leaders Balance Short- and Long-term Pressures?

The first demands that leaders deliver consistently strong quarterly results and keep the markets happy. If they don’t do this, they’re out. 

The second requires them to make significant investments today to prepare the company for the future, even though these may not pay off for years or even decades to come. If they don’t do this, the company will likely eventually fail. 

This creates an obvious dilemma for leaders. Devote themselves to hitting short-term goals and their job is secure but the company itself is not. Concentrate instead on making the fundamental changes needed for long-term success, and failing to maximize immediate returns will see them out of the door before their plans come to fruition.
 
Try to do both and they will find themselves confronting the gap—the metaphorical distance between the goals, attitudes, and definitions of success that characterize each time frame.
 
In our new book, Ready? The 3Rs of Preparing Your Organization for the Future, we examine what causes this ever-widening gap and how leaders should go about bridging it. Our findings, which are based on 156 interviews with CEOs and other senior business leaders from around the world, are summarized below.
 
The short-term trap
Short-term thinking dominates business because most leaders are convinced it is the only realistic approach to the world. This mindset has trapped organizations and executives so effectively that only the most determined think there is any point trying to escape it. This is why so few have started preparing their organizations for the future.
 
The first step towards escaping this trap is to understand the factors that promote short-term thinking. Our interviews highlighted three: financial market pressures, competitive pressures, and the executive comfort zone. Businesses operating in high-growth markets may face a fourth short-term pressure, namely the sheer scale of the immediate opportunities available to them.
 
The response: invest in owning the future Not all executives have their heads stuck in the short-term sand, and not all of those preparing for the longterm are being shot at by their own side. Some organizations are led by men and women who are bridging the gap: they are actively investing in owning the future without losing sight of what it takes to be successful today.
 
Harish Manwani,the COO of Unilever, is leading the company’s success in high-growth markets. He told us that leaders need to manage dynamically if they want to bridge the gap.“Today it’s an ‘and-and’ agenda which says you have to have a long-term point of view and, at the same time, you have to manage your business here and now, dynamically,” he said.
 
Tongaat Hulett, the South African agricultural business, offers an example of how this can be done: 90% of its executives focus on efforts that directly affect profits today, while the remaining 10% develop relationships and business models that help it to prepare for the future.
 
“We can’t include these activities in a budget because the issues go a little bit deeper than just putting roots down,” Peter Staude, the company’s CEO, told us.“When you work in areas like this, you have to get your basics right first, and you then have to perform. However, you have to recognize that to win future marathons, to grasp future opportunities, you have to work constantly on these projects as part of your regular activities, both for risk mitigation and to develop long-term growth opportunities.”
 
Embrace two-directional thinking
The challenge isn’t just making time to invest in the future, but also finding the right way to think about it. The only real option is two-directional thinking. That is, thinking forwards from where you are today and backwards from your vision of the future—at the same time—to identify your strategic priorities.
 
Soren Skou, the CEO of Maersk Line, offers a good example of this in action. When he took over in 2012, the company was losing millions of dollars a day and had not delivered value to its shareholders for a long time.
 
Skou and his leadership team identified that the company had to improve its immediate profitability in the short term while making long-term changes that would stop the cycle of volatility. His response was a three-stage agenda with overlapping phases: the first restored profitability within a year, the second is clarifying what the company needs to be successful in the future, and the third is considering the fundamental nature of the company and its place in the world.
 
Having this dual perspective is one of the critical steps in breaking out of the short-term trap. It helps to overcome executives’ tendency to discount all long-term planning on the basis that the future is too uncertain to predict. It does not provide a crystal ball—nothing can—but it can help to prevent leaders from making ambiguity an excuse for inaction.
 
Dealing with ambiguity will be one of the most critical leadership skills of the future, as Clara Gaymard, the president and CEO of GE France, told us.
 
“If you are not able to manage ambiguity, and you need to understand everything before you start doing anything, you narrow everything and reduce your options and possibilities,” she said. “This will not work in the future.”
 
Thomas Malnight is professor of strategy and general management at IMD. Tracey Keys is the director of Strategy Dynamics Global SA, a consultancy. Kees van der Graaf is a former senior Unilever executive who now holds a number of non-executive directorships. Thomas and Traceyare also the authors and publisher of www.GlobalTrends.com.
 
This is an edited extract from Ready: The 3Rs of Preparing Your Organization for the Future. Find out more about the book at www.3RsReady.com .This is the first in a series of articles looking at how leaders can prepare themselves, and their organizations, for the future.

[This article has been reproduced with permission from IMD, a leading business school based in Switzerland. http://www.imd.org]