If Richard Straub, president of the Peter Drucker Society Europe, is to be believed, the ongoing debate over short-termism and longer-term growth is largely empty. "Wall Street has won." he told an event in London earlier this week organized by Harvard Business Publishing. In other words, the pressure to meet quarterly financial targets outweighs concerns about achieving the wider goals so often espoused by business school academics and other commentators. Indeed, the main speaker at the event entitled "Resisting the Lure of Short-Termism," Jean-Francois van Boxmeer, chairman and chief executive of the Netherlands-based brewer Heineken, went so far as to say that short-termism was not quarterly. "It is every day," he added, explaining that it meant ensuring that trucks left breweries with the right products and so on. Moreover, the world was so volatile that people had "to learn not to plan."
Van Boxmeer, one of the Harvard Business Review's best-performing CEOs in the world, spoke entertainingly and modestly on how an enterprise such as his met the challenges of satisfying shareholder demands while also making the decisions required to improve its chances of staying in business for the long term. However, it is difficult to escape the conclusion that, given the power of investors to which Straub alluded, it is an almost impossible task. This much is demonstrated by the fact - pointed out in a Financial Times special report on the World Economic Forum meeting in Davos this week - that Lars Rebien Sorensen, named by the HBR as the world's best performing CEO for the second time, had his retirement from Novo Nordisk brought forward after the healthcare group cut its long-term profit targets and the share price dropped dramatically. It is increasingly often remarked that one of the justifications for CEOs' generous remuneration deals is that they increasingly resemble football managers - encouraged to talk about vision and long-term aims yet judged by short-term results.
Not that people appear to be put off trying to pull off the trick of simultaneously pleasing investors and impressing other stakeholders. One of the latest to throw his hat into the ring with suggestions as to how this might be achieved is Leonard Sherman, currently an adjunct professor at the Columbia Business School in New York, but previously a management consultant with some of the world's best-known firms and an investor in start-ups. Drawing on this experience, he sets out to address "two of the most common and vexing questions facing business executives":
• Why is it so hard to achieve and sustain long-term profitable growth?
• How can business achieve this?
While the book discusses many of the theories of strategy propounded by business thinkers and adapted and executed by the sort of firms that used to employ Sherman, its thesis is essentially ant-strategy. The title of his book, published earlier this month, is If You're In A Dogfight, Become A Cat (Columbia Business School Publishing), a metaphor designed to illustrate the predicament of many businesses and their leaders in this highly competitive age. "Consider the mental image conjured up by a dogfight, where rival dogs (firms) scratch and claw for territorial dominance (market share), often battling with largely similar tactics (products and services)," he writes. "In business terms, such conditions generally refer to mature, commoditized markets characterized by slow growth, slim margins, and intense competition, making it difficult for any one firm to effectively break away from the pack." In dogfights, as in business, he adds strong players may gain a temporary advantage, but the fight for dominance usually takes a toll on all concerned, especially since it is always likely that the battle will be renewed.
Cats, by contrast, are "clever, solitary hunters who are more inclined to explore new territory and to redefine the game on their own terms than to engage with the pack in a no-win dogfight," writes Sherman. They are "agile and innovative, and seek their prey (customers) with tactics that dogs cannot easily replicate". It is easy to see how this applies to the likes of Apple or Amazon, which have effectively transcended business sectors, but Sherman produces evidence to show that cat-like thinking can help businesses succeed in the long term even in business sectors that are considered to be declining. Indeed, he even goes so far as to challenge the strategy theories of Michael Porter by calling one of his chapters "There's No Such Thing as a Bad Industry."
The businesses he cites - and they include an enterprise engaged in the unpromising business of selling Australian wine to beer-loving Americans and another selling mattresses online - are able to break away from the pack, he says, by embracing the three strategic imperatives required for sustained profitable growth:
• Continuous innovation - not for its own sake, but to deliver...
• Meaningful product differentiation, recognized and valued by consumers, enabled by...
• Business alignment - where all corporate capabilities, resources, incentives, and business culture and processes are aligned to support a company's strategic intent.
Sherman accepts that "this prescription may seem to draw on a heavy dose of common sense", but anybody who has spent any time around business knows that this does not necessarily mean it will be adopted. However, the real reason that long-term profitable growth is so hard to achieve that some have even begun to believe it is impossible must be that it requires the sort of really hard work and absolute focus on ensuring that products and or services are what customers absolutely want that are generally the preserve of start-ups. Sherman disagrees with the doomsters who suggest that Goliaths are doomed to fail at the hands of fleet-footed Davids, saying that large corporates can continue to prosper provided they "maintain the core values, entrepreneurial spirit and adaptability that led to their success in the first place." The problem is that, generally, as businesses become bigger and more successful they lose sight of these things, with management becoming more bureaucratic and an entity in itself rather than a function designed to make the business perform better.
The HBR event in London earlier this week really came alive when James Allen, a senior partner in the London office of the management consultancy Bain & Co and co-author of The Founder's Mentality (another book looking at the elusive concept of profitable growth), reminded the audience that insurgent companies set out to deliver a better deal for the customer. He acknowledged that CEOs were caught in a trap whereby growth created complexity and complexity killed growth. But - echoing the core message of The Founder's Mentality - he said CEOs had to be on the side of the customer. The clear implication was that wanting to be on "an insurgent mission that starts with the customer" was likely to be more inspirational than going to work for a company that had as its sole mission delivering shareholder value.
