Thursday, 2 August 2007

Building towards the long-term

I've already posted on Ulrich's article on leadership brand in July and August's edition of Harvard Business Review but the issue also includes another couple of interesting articles on managing in the longer-term.

The one that particularly resonates with me is Henry Mintzberg's opinion piece: Productivity Is Killing American Enterprise. Mintzberg draws a parallel between a reduction of 'organisational capability' and running out of stock:

"Imagine what would happen if you fired everyone in your company and shipped from stock: Working hours would disappear while output would continue. That would be extremely productive, and you’d make a lot of money in the bargain. Until, of course, you ran out of stock. In my opinion, many American companies are running out of stock. They’re trading away their future health for short-term results. No CEO fires everyone, of course. But thanks to corporate subservience to shareholder value, which means driving up the price of a company’s shares as quickly as possible, CEOs have been finding all kinds of other ways to cash in the goodwill that accountants and economists have trouble measuring.

Trashing the brand is one easy way. Cutting R&D is another. Then there is managing by the numbers: The CEO decrees the desired results, and everyone else has to run around meeting them—no matter what the consequences.

Most popular of all, of course, and closest to shipping from stock, has been “downsizing,” a euphemism for firing operating workers and middle managers left and right to cut costs. At the drop of the share price, even as the company remains profitable, out the door they go: bones thrown to the hungry dogs of the financial community."

Mintzberg puts the problem down to the short-term focus of American business and extols the need to get the analysts off the back of the corporations.

But is there really a problem? On the 14th July, the Economist ran an article Jam today in which it questioned whether short-termism was really an issue, quoting Baruch Lev at NYU: "If short-termism is such a problem, how come this country is doing so well?" The Economist concluded that a better balance between the short and long term is needed.

This echoes another article in this edition of HBR, Focus on the Middle Term. This builds on previous McKinsey research that outlines the need to focus on three time horizons:

  • Horizon 1 corresponds to managing the current fiscal-reporting period, with all its short-term concerns
  • Horizon 2 to onboarding the next generation of high-growth opportunities in the pipeline
  • Horizon 3 to incubating the germs of new businesses that will sustain the franchise for into the future.

As its title suggests, the article recommends focusing on the middle term in order to succeed in the long term. This echoes the points I make in my book on Value for Money, Added Value and Created Value which largely correspond with McKinsey's three time horizons. Organisations need to satisfy the medium term and add value to their stakeholders before they can effectively deal with the needs of the longer term, and create value to 'sustain their franchise'.

HR has the same needs as well. HR needs to add value by being a more effective business function, but it too will only sustain its franchise if it thinks long term, about the germs of potential residing in the organisation's people, and creates value for the organisation based upon this.


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