Create value, don’t erode it
Companies today often fall into the trap of focusing on short-term quarterly profits and share gains at the expense of long-term sustainable growth. In fact, in a recent study 80% of executives surveyed would sacrifice R&D spending to meet quarterly earnings estimates. While earnings are important, this focus on short term earnings rather than what actually drives success erodes the value of the company versus the objective to create value. The only question is how long it takes the market to recognize that.
Create value – Key steps include the following:
Understanding the source and drivers of creating value – Establish or assess your “fact base” to ensure that you’ve really identified what the market (and your customers) value
Investing in the future – Identify which capital investments should be pursued to support long term growth, even if short-term earnings are in decline
Making better outsourcing/insourcing decisions – Concentrate on keeping high value or complex activities in-house (e.g. innovation, market strategy, talent development, variable demand products, and complex or regulated manufacturing and distribution) – and find partners who can execute on the more straightforward products and support activities
Choosing good talent and aligning them well – Identify your company’s true key employees, the right team configurations most fundamental to creating value, and design reward systems that align their behavior accordingly