December 12, 2010

Winning at Business in the Long Run

The motto for every CEO these days seems to be "we play to win". This statement actually reads more like this: "we play if and only if we will win".

This over-emphasis on the above leads to short-sighted strategies and decisions. The performance assessment of CEOs depends on what happened in the last quarter.

It's easy to postulate that strategy and decision-making should have a long-term horizon but the reality is the immense pressure on the executive leadership team (which is headed by the CEO) makes it crucial for them to demonstrate improvements to both the top-line and the bottom-line every quarter, and quarter after quarter. If they don't they will not be around for long.

The need to show "wins" every quarter means those actions are taken which help in this direction and help before the quarter is over. In the process, "wins" in the long run may get compromised.

This is where the market analysts, shareholders and board of directors become important. Their reactions to the actions taken by the executive management sends the signals about how to run the business.

If these three stakeholders react to management actions keeping the long run in perspective, it will send the right signals to the executive management and they will most probably take actions that will result in winning at business... in the long run.

If the above situation becomes true, then the statement can be turned into: "we may lose a little bit when we play, but we will surely win and win a lot in the end"

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