Short Termism: The Dumbest Idea in the World

I must reference Stephen Baishya for this post. Stephen responded to my post on Monday 9th January entitled 'A Customer Engagement Manifesto for 2012' and pointed me in the direction of another blog post.

It's entitled "The Dumbest Idea in the World: Maximising Shareholder Value"

I've since read it and it contains some powerful thoughts with huge relevance for these troubled economic times. It's also full of extraordinary common sense that will appeal to anyone whose role is about the delivery of service to customers. Here's a few of the snippets I like best:

“On the face of it, shareholder value is the dumbest idea in the world. Shareholder value is a result, not a strategy… your main constituencies are your employees, your customers and your products."
Jack Welch

“We must shift the focus of companies back to the customer and away from shareholder value.” The shift necessitates a fundamental change in our prevailing theory of the firm… The current theory holds that the singular goal of the corporation should be shareholder value maximization. Instead, companies should place customers at the center of the firm and focus on
delighting them, while earning an acceptable return for shareholders. If you take care of customers, shareholders will be drawn along for a very nice ride. The opposite is simply not true: if you try to take care of shareholders, customers don’t benefit and, ironically, shareholders don’t get very far either.”
Roger L. Martin

"Admonishing CEOs (and investors) to ignore the expectations market and refocus on delighting the customer isn’t going to work, says Martin. It’s as likely to be “as effective as admonishing frat boys to stop chasing girls.” For CEOs, there are massive incentives for staying attuned to it and severe punishments for ignoring it. Investors, analysts, and hedge funds continue to reward firms
that meet expectations and punish those that do not."
Roger L. Martin

"We must restore authenticity to the lives of our executives. The expectations market generates inauthenticity in executives, filling their world with encouragements to suspend moral judgment. They receive incentive compensation to which the rational response is to game the system. And since they spend most of their time trading value around rather than building it, they lose perspective on how to contribute to society through their work. Customers become marks to be exploited, employees become disposable cogs, and relationships become only a means to the end of winning a zero-sum game."
Roger L. Martin

Customers become marks to be exploited, employees become disposable cogs, and relationships become only a means to the end of winning ....WOW!

"American capitalism hangs in the balance. A large number of rent-collectors and financial middlemen making vast amounts of money are keeping the current system in place. The fact that what they are doing is destroying the economy will not sway their thinking. As Upton Sinclair noted, “It is difficult to get a man to understand something, when his salary depends
upon his not understanding it.”"
Roger L. Martin

The blog also quotes Peter Drucker, who said, very succinctly: "There is only one valid definition of business purpose: to create a customer... The customer is the foundation of a business and keeps it in existence. He alone gives employment. And it is to supply the consumer that society entrusts wealth-producing resources to the business enterprise."

In my blog I referred to it as short termism. We're sufferering from chronic short term thinking in business. It's deeply embedded in the very structure and the way in which business is conducted. Life revolves around this week, this month, this quarter, in order to get the right results for this half year, this year. And I think it's becoming more firmly embedded directly as a result of the economic environment we're in.

The blog concluded that change will happen and that customer value will replace shareholder value. Some strong visionary leadership is required I think.....

The blog is by Steve Denning and is Roger L. Martin's book Fixing the Game: Bubbles, Crashes and What Capitalism Can Learn from the NFL and you can read it at http://www.forbes.com/sites/stevedenning/2011/11/28/maximizing-shareholder-value-the-dumbest-idea-in-the-world/