Thought piece: Overcoming the issue of short-termism management in times of COVID
Its fair to say 2020 has turned a lot of what we would have considered certainties in 2019 on their head. Office based environments with no work from home policies had to scramble to a Zoom orientated existence. Families with two working parents had to manage full time childcare on top of work. Lockdowns being extended, a divisive American election and the promise of Brexit bringing further chaos in 2021 has created huge uncertainty for everyone.
With so much uncertainty, how can managers and leaders make sure that their workplaces and the strategies that run throughout them do not succumb to only focusing on getting through the next few months? If anything, the global pandemic has shown how quickly society can pivot and adapt to a new environment, so it would be futile to think that this won’t be the same when vaccinations and increased measures provide a route to economic recovery. It’s easy to claim ‘uncertain times’ and the need to create a ‘new normal’, but looking past Covid being the issue, strategically managing a company through an economic fallout is an all too familiar pattern, with plenty of examples to learn from.
In the early 2000s, leading up to the global crash in 2008, a CFA Institute Survey stated that after interviewing 400 executives, 80% reported that short-termism was common practice within their companies, prioritising quarterly earnings targets over long term growth or innovation. The huge fall out of these actions should have prevented history being repeated, but 10 short years later in 2018, Mark Zuckerberg was called to testify in front of Congress, accused of putting Facebook’s ‘short-term profits above protecting our personal information’, putting huge scrutiny and doubts around how the company was operating.
Just getting your head down will not win you any favours
The comfort of reverting to short term management is not solely down to business leaders, there is often considerable pressure from board members and shareholders to protect the financial stability of the business. We saw this in the UK as recently as October 2020, with the Government’s furlough scheme coming to an end, tens of thousands of people were made redundant in order to protect their former employees’ bottom line.
But studies, including McKinsey’s ‘Measuring the impact of short-termism’ in 2017, clearly show that short term cuts and management hurt a company in the long run, rather than benefiting it. In response to the layoffs in October, apart from the industries like retail and travel that will feel the impact for much longer, most industries will have to hire back the staff they let go, at potentially a high rate as demand for labour increases alongside the economic recovery. This will certainly be the case in the hospitality industry, who will also need to manage the drop in available and experienced employees due to Brexit.
Embrace the short term, but remember nothing lasts forever
Though it feels unlikely when you are on your fifth Zoom call of the day, we all need to remember that all pandemics end. As do recessions. And those companies that have failed to plan for the recovery will continue to suffer long after the economy recovers. Understandably, there is still unprecedented need to manage the short term, but when the chips are down is also the time to start planning for if and when circumstances change.
Looking to the future during a crisis, its far to easy to only envisage a situation where things get better, and becoming cheerily optimistic that ‘it we can just get through the next few months’, things will come good again. Optimism, however, may just be your undoing.
Scenario planning, a phrase coined in the 1970’s encourages leaders to perceive a multitude of different outcomes for the future. Pierre Wack famously created a range of scenarios for Shell ahead of the Middle East taking control of their oil supply. Shell road the effects of the 1973 OPEC oil embargo considerably better than its competitors because it had plans in place already for dealing with the potential impact, instead of reacting at the point of crisis.
Whether you are looking to avert crisis like Shell, or planning for the future during a crisis, the same elements of scenario planning can be applied:
1. Define the company’s vision
This might be a phrase, a clear action or a defined outcome, like financial stability, but creating a goal that acts as a North Star creates a clear understanding of what the outcome of the scenarios is trying to achieve. Try and avoid it being fluffy or generic, it needs to be clearly understood by the whole workforce and clearly applicable to their work. A powerful example is from the US Coast Guard. Their motto is ‘Semper paratus, or “Always ready,” and works as the centre point for their scenario planning.
2. Imagine the good, the bad…and the ugly
As tempting as it is, do not just focus on potential successes – encourage creativity and think more broadly of wider outcomes and the impacts they could have. They need to be plausible but structurally different with different potential threats, challenges and opportunities. The US Coast Guard created 16 potential ‘far-future’ worlds set 20 years ahead. Whilst most businesses will not have to plan for a post-nuclear war fallout or terrorist attacks as part of their daily response strategy, you will need to create scenarios for outcomes that have no historical benchmark. Therefore, its important that the assumption that are made are explicit and able to be challenged and questioned, so the scenario strategies are valid and actionable.
3. Do you actually have a strategy?
Without pushing the point to much, again its very easy to state you have a strategy without creating the detail required to action it. Donald Hambrick and James Fredrickson highlight in their paper ‘Are you sure you have a strategy?’ that strategy often becomes a catchall phrase that in reality often states a goal.
To enable business leaders to apply their strategic ambition, Hambrick and Fredrickson suggested five areas that help define a strategy; areas to be active in, vehicles to get there, perceiving differentiators in the marketplace, speed of execution and economic logic. Combined they create an actionable strategy that will enable the business to execute against the perceived scenarios.
Making hay whilst the sun shines only works if you have planned for good weather
Scenario planning does not, and indeed should not, only fall on the shoulders of the executive leadership. It can be used to engage the wider workforce creating buy-in and understanding, but also a joint purpose and sense of security.
Engage employees is a key opportunity to make sure that the scenario planning and strategy developed from that is implemented. Rather than just a top down approach, look at how you can incorporate your employees from all different levels into the planning stage. This could highlight opportunities or bottlenecks unperceived by senior management, reveal strong allies within the teams and Bridges or informal leaders that could influence areas of the business.
Communication here is also important. A key lesson that Covid has reminded us of is the importance of recognition and acknowledgement for the work people do as a team. Scenario planning is no different – communicating the process as its happening will not only increase engagement and productivity as employees become aware of how the business is looking to support them in the long-term, but enable the workforce at collectively be agile and reposition inline with the required strategy when required.
Finally, nothing says commitment to long term future opportunities like research and development (R&D). As with scenario planning, its focus is looking forward to anticipate what customers will need in the future, and how the company can innovate to meet the opportunity. R&D is often one of the first areas earmarked for budget cuts when times get tough – but doing so will potentially prevent gaining competitive advantage as the struggle to regroup or react as the marketplace changes absorbs much needed capacity and budget.
And as Alan Lakein famously quipped, ‘Planning is bringing the future into the present so you can do something about it now.’