Member Article

Is short-termism driving undesirable behaviour?

I am always fascinated to read about the rise and fall of various different businesses, what makes for success, and likewise, why some brands suddenly go out of favour and disappear, sometimes as quickly as they appeared.

It seems that, post-recession, most businesses are under intense pressure to ‘do incrementally more with less and quicker’ all the time. Even though many organisations are continuing to cut costs, they still expect a huge amount of change – new initiatives, new technology, streamlining, or growth in market share - to be delivered more quickly than ever and often with unrealistic funding. I see this as an unsettling mix of short term thinking and behaviour, something of a blunt instrument that can lead to corners being cut and even perhaps to some managers being “economical with the truth” in an attempt avoid the heat and buy some time. The accounting problems at Tesco, for example, might be symptomatic of this. Senior managers are under so much pressure to keep delivering quickly with less that they don’t undertake the right levels of due diligence, often losing sight of what’s in the best long term interest for the organisation.

This ‘do more with less and quicker’ mantra seems to be prevalent across all general management behaviour in all industries. The focus is on growing, improving results and generally making sure that this quarter’s results are better than the last. Of course, business is based on this principle and that’s quite right, organisations clearly need to make a profit and grow in the long term. But I fear that the balance has got out of kilter and the sheer scale of the improvements being demanded by shareholders and senior management is driving a mind-set that is not necessarily healthy for business. At best organisations may not be thinking strategically enough about the full potential of the business and at worst this could lead to moral and legal behaviours that are undesirable.

Irrespective of how we got to this point, the mind-set is now all pervasive. Although it’s not always being driven by top level decision making, it has become almost an accepted principle where managers at all levels feel intense pressure to show progress, normally with increased revenue or profit.

One organisation that I am aware of is being required by its investors to show in excess of 30% year on year growth, which feels unsustainable. In addition, this can lead to stifled creativity and lack of innovation as people will be afraid to experiment in case growth expectations can’t be met; creating a vicious circle and losing the creative spark that drove the growth in the first place. At Tesco, in just 13 years profits grew more than four-and-a-half times to £3.4 billion in 2010 and it boasted an incredible 30.5 per cent share of the grocery market. However, within a couple of years, the company suffered the most disastrous six months in its 95-year history. As the solid profit line started to drop, it’s not hard to see how managers would have come under pressure and, some decisions were made that can now clearly be seen as being wrong for the business.

Tesco is not alone, there are other examples that are well reported in the press. Serco had its share of set-backs when introducing the probation and tagging programme. It was accused of overcharging the government by tens of millions of pounds. The problems being experienced at Balfour Beatty’s construction arm is another example. The swift unravelling of the 109-year old company has shocked the City and after a series of profit warnings caused by an unanticipated spike in costs in its UK construction business, Balfour’s chief executive has been replaced. It seems that these and other similar issues bear the hallmark of Enron and other more recent management failures that were at the heart of the financial crisis. Banks and investment houses were pushed to come up with better ways to make more money, where the horizons to deliver were short and the pressure to succeed was intense.

Today, to varying degrees, I see this dynamic almost everywhere I go; although it doesn’t always end in a high profile corporate failure or even in a material short term impact on a company’s performance. Equally, where there is a legal or regulatory transgression, I don’t believe that the people involved are criminal masterminds or, even, fundamentally immoral; however, they do have to make decisions in an overall business environment which has faced six years of economic challenge and continuous pressure to keep costs down whilst improving performance.

Whilst I have no sympathy for those that intentionally break the law, this unrelenting pressure to ‘do more with less and quicker’ might be driving managers to behave in ways that they wouldn’t normally, under different circumstances. Although, in some cases, this pressure may be top-down generated, I believe it is the wider business environment that is driving this trend. It may seem difficult but I would urge business leaders to recognise that there are times when a more considered, long term approach is needed. So many of us are running so fast and under so much pressure that we make snap decisions and then move on but we need to take a moment, step back and look at the decisions being made; are they really right for the business? Managers are accountable for the decisions they make and so the right level of due diligence must be undertaken for each and every decision. At the end of the day all decisions have a consequence, sometimes unintended, so we all need to be sure that our decisions are well-thought through – otherwise your business could be the next headline news for the wrong reasons.

This was posted in Bdaily's Members' News section by Charlie Mayes, Managing Director, DAV Management .