Long-term thinking is a vital element of effective change leadership. For change to pay off, a leader must have grit and a desire to see change through to the end. However, it can be tempting to focus your attention on the current quarter’s results, and put key change initiatives off.
The forces pulling you to do this are compelling. Exxon Mobil 2012-second quarter results came in at $8.4 billion and were lambasted in the financial press for disappointing results. But actually it had been investing in the capital even while acknowledging that the industry is facing lower oil prices, increased availability of natural gas, decreasing economic activity, and rising costs — all factors largely outside of the company’s immediate control. The analysts also say that in the face of all this, both companies continued to make long-term investments and still delivered billions of dollars in profit.
Success on the margin
It’s on the margins that organizations are successful at returning profits to their shareholders over time. I’ve written before why an excessive focus on external best practices doesn’t work, as everyone in the industry is doing the same and eventually, any excess profits will revert to the mean.
How do the best companies succeed?
By combining the external best practices with their own, in the context of their industry and relationships with customers and suppliers. So, for example, a company might combine lean production processes with its own unique offering further widening the gap. When this marginal improvement is applied over time, this adds up to real improvement.
To understand what this means consider the classic investment Warren Buffet made in See’s Candy in 1972, a manufacturer and retailer of boxed chocolates on the West Coast of the U.S. Buffet credits this acquisition to teaching him something about business and investing he’d previously overlooked.
Buffett’s approach to investing until that time had been described as “cigar but investing.” That is, a cigar found in the street might nit have much left to smoke but given it was a ‘bargain’ (free), one puff will make all the profit. But Buffett’s investment in See’s changed that.
See’s Candy had – and still, has – a unique position in the local market. It’s a particularly desirable product that is much preferred by its customers than any competitor. This allows See’s to buy more ingredient from suppliers enhancing relationships with them and to pay their people more enhancing employee
The combination of best practices and capital investments can be seen in the profits it earns too. See’s earns a very high rate on its capital invested in it’s business or ROC. Buffett bought See’s for $30million in 1972, between then and 2007, the capital required to run the business was $40m. During this time the company made $1.35 billion in profits, which was returned to Buffett.
What this shows is that a small edge based on your own skills and internal best practices need only be matched with modest outside capital and investment to generate huge gains over time. In the intervening time, a new company will come along and perhaps invest in new technology to speed up their production processes, giving a temporary improvement, but unless it’s matched with unique skills and relationships it cannot last.
Change leaders need to have grit and a long-term view. How with certain immediate pressures to managers take the long-term view?
1. Fierce prioritisation
Apple gets lots of mention in the popular press, given its stellar success. But for me, there is another company that has driven innovation and change. For the past fifteen years, innovation has helped set Samsung apart from fierce competitors. The company creates more products in a year than any visionary could possibly conceive and it does so within a Korean company culture not historically inclined toward bottom-up idea generation.
The firm succeeds through executive prioritization. Understanding this, in 1993 they put design as a strategic priority. Then invested accordingly, some 10 per cent of revenues are invested in R&D (Apple is about three per cent). Systematic organizations conceive of innovation in both strategic and tactical terms. Strategically, prioritize and stick to those choices.
Grit is a willingness to commit to long-term goals and to persist in the face of difficulty. We are all impressed by the business genius, such Steve Jobs. But more often and even in the case of such “genius” what is unseen is the persistence and hard work, and the fierce determination to stare down critics.
At Samsung, they focus on project execution, seeking efficient and fast implementation with rapid prototyping and iterations. What makes Buffett a business hero of mine is that he started with nothing but a skill set – investing – and compounded his returns to where he is today. This takes real grit over a long period of time.
Compounding returns are the very essence of continuous improvement and the kind of long-term thinking that is required from change leaders. Be like Exxon, See’s Candy and Samsung and keep focused on the long-term. Strategies take the time to unfold and bear fruit.
Want to Learn More About Change Management?
I’ve created a free eBook on Fundamentals of Change Management. In this ebook, you’ll learn the fundamentals of change management, why it’s critical to achieve business outcomes, as well as tools and techniques to make change work for you. Click Here to Download
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