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The Balancing Act: Short-Term Objectives and Long-Term Performance.
By Laura Patterson is president and co-founder of VisionEdge Marketing, Inc.
Thursday, 8th January 2015
 

One of the hardest tightrope acts for any business is balancing short-term objectives and long-term performance; 

In a management study awhile back, a majority of managers said that they would forgo an investment that offered a decent return on capital if it meant missing quarterly earnings expectations.

In another study, more than 80 percent of the executives responding said that they would cut expenditure on R&D and marketing to ensure that they hit quarterly earnings targets-even if they believed that the cuts were destroying value over the long term.

For a variety of reasons, many companies are sacrificing long-term value creation strategies for short-term financial gains. For public companies this can be due to pressure from the Street and for private companies this may be a result from pressure from their VC’s eager to see strong short-term performance to facilitate the sale of the company.

It is “the responsibility of the management team to be clear to their boards and to the capital markets the importance to long-term value creation of both the short-term performance of a business and its underlying health-that is, its ability to sustain and improve performance year after year after year.”

Of course, we all recognize that achieving short-term results are important, however, not at the expense of sacrificing future cash flows from the company’s growth prospects, capabilities, and relationships.

All companies, whether public or private, revolve around share price. Recent tough economic conditions have forced many companies to focus on pure survival. Too much focus on the short-term may actually undermine confidence and trust in the markets and put the company at risk.

The expectation of future performance is the main driver of shareholder returns and therefore share price. According to business analysts, up to 80 percent of a share’s market value can be explained only by cash flow expectations beyond the next three years.

Even private equity companies who are expected to realize their investments in a five-year time frame must still have a credible proposition for future earnings and cash flow growth to underpin a sale or IPO. Do you have the components in place to ensure long-term value growth and profitability?

These components include a robust and credible strategy; productive, well-maintained assets; innovative products, services, and processes; a fine reputation with customers, regulators, governments, and other stakeholders; and the ability to attract, retain, and develop high-performing talent.

Getting the appropriate balance between the short-term and long-term isn’t an easy task. Managing both times frames is very challenging.

However, it is imperative that your company’s strategy include initiatives across multiple time frames with some initiatives focused on short-term results and others that will creation opportunities for the future " new products and/or services, entering a new market, creating new channels. To be successful at this approach, you will need to define how future success will be measured.

For example if long-term performance depends on revenue from new products, then there needs to be a metric around the proportion of sales coming from new products.

Your success factors and therefore your metrics will depend on what enables your long-term health " new products, customer retention, etc. Of course, you’ll want a balance mix of metrics that address all aspects of the business.

Laura Patterson is president and co-founder of VisionEdge Marketing, Inc., a recognized leader in enabling organizations to leverage data and analytics to facilitate marketing accountability. Laura’s newest book, Marketing Metrics in Action: Creating a Performance-Driven Marketing Organization (Racom: www.racombooks.com ), is a useful primer for improving marketing measurement and performance. Visit: www.visionedgemarketing.com 

Disclaimer: Any VEM information or reference to VEM that is to be used in advertising, press releases or promotional materials requires prior written approval from VEM. For permission requests, contact VEM at 512-681-8800 or info@visionedgemarketing.com. Translation and/or localization of this document requires an additional license from VEM. Note: All content within this website is property of VisionEdge Marketing. Any use of materials, including reproduction, modification, distribution or republication, without the prior written consent of VisionEdge Marketing is strictly prohibited. Reprinted with permission.

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