Switch - Chip Heath [33]
In looking for a goal that reaches the Elephant—that hits people in the gut—you can’t bank on SMART goals. (There are some people whose hearts are set aflutter by goals such as “improving the liquidity ratio by 30 percent over the next 18 months.” They’re called accountants.) In the 1980s, a major study of corporate change efforts found that financial goals inspired successful change less well than did more emotional goals, such as the goal to provide better service to customers or to make more useful products. According to the researchers, “Effective visions expressed values that allow employees to identify with the organization…. One manager at a glass company suggested, ‘it’s hard to get excited about 15% return on equity.’”
Destination postcards do double duty: They show the Rider where you’re headed, and they show the Elephant why the journey is worthwhile.
—————————— CLINIC ——————————
How Can You Get Corporations to Avoid Short-Term Thinking?
SITUATION Judy Samuelson heads a policy think tank within the Aspen Institute called the Business and Society Program. It’s committed to fighting “short-termism” in the business world. Samuelson points out that it’s hard to solve global problems (global warming, poverty, energy needs) without the help of the business sector. After all, some businesses have more resources than entire countries. But businesses with a short-term focus can’t afford to tackle long-term problems. Samuelson recounts a conversation with the CEO of a huge financial services firm. He tells her that he would like to be involved with the big issues of the day, but he points to the 90-day calendar posted on his wall and admits, “This is my reality.” Translation: The public markets are forcing him to adopt a quarter-by-quarter focus. How can Samuelson—the leader of a small nonprofit—possibly influence such massive forces? How can she fight “short-termism”? [This is an actual situation, ongoing as of 2009. We’ll discuss some of Samuelson’s strategy along with some of our own thinking.]
WHAT’S THE SWITCH AND WHAT’S HOLDING IT BACK? We want executives to act with a longer-term mindset. So what’s stopping them? First, there’s a big Rider problem here. We hope your radar went off when you read the phrase “short-termism.” It’s useful as a one-word summary of the problems that Samuelson is fighting, but to provoke change, we’ve got to script the critical moves. (A “long-term mindset” isn’t a behavior.) Second, there’s a Path problem: The culture of the stock market encourages short-term thinking. Interestingly, the Elephant probably isn’t the villain here. Most execs would probably prefer, all things being equal, to have a longer-term focus. That means motivation probably isn’t our obstacle. Finally, let’s be realistic: Samuelson is seeking a massive change. We can’t expect to generate a magic-bullet solution. But big changes can start with small steps. How can we improve Samuelson’s odds?
HOW DO WE MAKE THE SWITCH?
• Direct the Rider. 1. Script the critical moves. Samuelson finds a way to translate her big-picture goal into specific behaviors. One insight: Let’s convince executives to stop giving quarterly earnings guidance. Backstory: Investors know the bizarre Kabuki dance of earnings guidance, but other people may not. Each quarter, a public company “sets expectations” for the earnings per share it will deliver in its next quarterly financial report. Then, when the company files its report, a miracle occurs: The company announces that it beat the expectations by a penny per share! Oh, glory! The markets find this little game inspiring, but none of it is required by law. A company could simply file its quarterly financial reports without any advance expectation-setting. In other words, Samuelson has located a specific behavior that’s within the control of the executive. The expectations dance is the perfect symbol of short-term thinking.