Short-Sighted Moves Backfire in Long Term
One of the chronic problems of American business is its preoccupation with long-term projections. Partly to woo Wall Street, companies set magnificent goals for compounded rates of earnings growth, in some cases seemingly pulling the numbers out of a hat.
Goal-setting, of course, is commendable, but it must be realistic. Some executives currently suffering under such artificial pressure say the goals set so commonly in the past simply aren’t reasonable or helpful to the business today. In fact, what looks like a long-term view may actually be forcing managers to make short-sighted decisions.
Individuals who set unreasonable goals for themselves often wind up unhappy. Such goals are no less debilitating to a corporation if it insists on trying to live up to them. The most serious cases often are those where there’s been a nice growth curve in the past and the front office thinks it can project the same or better for years to come.
The computer and semiconductor industries have come to realize that in recent months. They’ve suffered their own private recession because past success produced a kind of mindless optimism. Except by past standards, many of these companies would still be doing well if they hadn’t kept producing to meet no-longer attainable goals.
Can’t Forecast Accurately
Sensible forecasters will tell you it’s next to impossible to forecast accurately even a year ahead, let alone 5 or 10. Moreover, even where a company has a reasonable chance of meeting a goal over a long period, it usually can’t do so every year in between.
Yet, too many managements have such an aversion even to a short reversal that failure to meet a goal leads almost immediately to major steps to correct. They get rid of a weak business--selling it when the price is predictably depressed. They lay off people, only to find themselves forced to find and train new ones within a few months. Programs get cancelled, hiring gets frozen, new ideas get shelved. Good things to do if things really are taking a long-term turn for the worse. Bad things to do if done only to meet some artificially imposed goal.
It raises another interesting question: Who decreed that when a company has just smashed all records one year, it must smash them again the next, and the next? Granted, the stock market acts more and more as though that were a requirement. And so do too many corporate leaders. A few have even stretched a point here and there to make the numbers look a little better not only every year but every quarter.
Some of this was a symptom of a high-inflation economy, where everything seemed to be going up all the time anyway. Any old oil company could go great guns when the price was doubling or tripling. Any old bank could make money when loan demand kept soaring and money was cheap. Some of it reflected the self-imposed pressures of heavy borrowing to nurture optimistic growth plans, betting so much on the come that management had to make it happen or else.
Whatever the reason, it’s an attitude that’s out of sync with the times. In a period of more stable prices and costlier loans, realistic goals must be based on real growth in markets rather than on easy price increases.
Need to Spot Change
The problem is recognizing in time when a heady period is coming to an end. Trying to adhere too long to growth curves of the past is the quickest way to turn the curve upside down, something oil companies, bankers and many others have just learned the hard way.
That’s why today’s economy presents such a problem to business planners. Keeping the growth rate up may mean taking inordinate risk. Yet reacting too cautiously may leave companies unable to capitalize on what growth there is. The fine line between is what makes this a difficult year for the corporate budgeting process.
Hopefully, the difficulty will impose a new discipline. Unable to count on quick growth, management may have to pay more attention to hard decisions that pay off over the longer term. That’s different than letting false goals become a straitjacket.
