The Value Of Long-Term Thinking (and The Fallacy of EPS)

Think about the most successful individuals you know. Now describe them in terms of their approach to life.

Since I can't read your mind, I'll start with three people I know. One's an entrepreneur, one's a sales and marketing person for a large corporation and one is a senior-level executive for a billion dollar region of a massive corporation. All three have a few basic principles that they put into practice everyday. They don't shift with the current trends or fads. They stick to what they think is the right approach and by doing so over the long-term all three have built extremely successful careers and family lives.

Now think about the most successful organizations you admire.

My selections would include Wal-Mart, Southwest Airlines, GE and Berkshire Hathaway. All three have very simple and clear approaches to the marketplace and they have stayed true to their approaches over the long-term in both good times and bad.

One more example.

Think about the difference between these two events in the history of The Walt Disney Company: In 1950, Walt Disney said, "We are in the family entertainment business. Our job is to entertain all members of the family," and in 2003 The Walt Disney Company made a television show called "Who's the hottest person in America?" in order to boost ratings. The first approach built an empire, the second one was canceled within a month.

For some odd reason, Americans are still obsessed with short-term results even though most of us know that to be truly great at anything we need to stay the course over the long-term. I recently heard a former COO of a large utility company explain it this way: "The reason corporations can't stick to a solid plan for the long-term is because of EPS, earnings per share." Apparently, the obsession with maximizing short-term EPS causes executives to try every stunt known to mankind including some of the extremely illegal variety.

Now think about the amount of shareholder value that was lost at the following companies because of this obsession with maximizing short-term EPS:

Enron, Sprint, HealthSouth, Andersen, Worldcom, Adelphi, Visa, Mastercard

Meanwhile, Southwest Airlines continues to be the most successful airline company in the world, Wal-Mart is the largest and most admired company (by Fortune 500 magazine) in the world, GE continues to put its imagination to work, and Warren Buffet just keeps on trucking.

The irony is that we build EPS by focusing on the long-term and ruin EPS by focusing on the short-term.

When will we ever get it?

I would like to introduce an alternative acronym: SPG, sustainable, profitable growth.

The key to driving sustainable, profitable growth is to focus on the long-term and execute in the short-term. Clarify your strategy that you will stick to over the long-term and then stay the course. Don't change your approach based on a daily, weekly or quarterly EPS or feedback from your boss. Use these indicators as indicators not dictators. Think about what this feedback is telling you and incorporate that into your movements going forward. But don't completely change your approach just to get a short-term gain. It's the ancient story of the tortoise and the hare. The hare bounces out front, but so what? It's winning the race that counts. Imagine two people want to go from Los Angeles to New York City. The first person hops in their car and starts driving at 80 MPH. Their short-term EPS is extraordinary. The second person makes a few calls, determines the best flight goes out tomorrow morning. For the first 24 hours the first person is kicking butt. He or she seems way ahead of the game. However, the second person gets there two days earlier. The student who gets an A on the first quiz of the year and then fails the course is not better off than the student who fails the first quiz but gets an A in the course.

Stay the course!!! (no pun intended)

New White Paper – Accelerate Your Strengths

On June 16th I gave a half-day seminar on “Accelerate Your Strengths: practical ideas to boost business momentum” for GE Capital. It was such an interesting project that I wrote a white paper for the group after the seminar based on what we talked about. In turn, that white paper was forwarded on to 7,000 GE employees. Consequently, I thought you might like to read the paper, except this version has all the references to GE taken out. Here is the link for the

Accelerate Your Strengths white paper: http://thecoughlincompany.com/accellerate_your_strengths.html

New Book, Find a Way to Win: Management Insights from Terry Michler, America's All-Time Winningest Soccer Coach

This book focuses on business lessons that can be learned from soccer. The foundation of the book is how Terry Michler used the powerful simplicity of Dutch soccer to win more games than any other U.S. coach in history.

On July 11th, the finals of the 2010 World Cup in South Africa between Holland and Spain was watched by more than 700 million people. While I was cheering for Holland at the beginning of the game, a major decision by their coach led me to learning a valuable lesson all over again.

Dutch soccer, which is highlighted in my book, is all based on extraordinary technical skill, efficiency, and precise attacking soccer. This is how a country with only 16 million people competes so extraordinarily well with the world's super powers in soccer including number-one ranked Brazil, whom they beat in the quarterfinals. However, in the World Cup finals Holland abandoned what made them great and instead focused on playing brutal, violent soccer. They wanted to intimidate Spain, and in the end they lost the game and the respect of so many people who love Dutch soccer. What happened and why did they do it?

They felt they couldn't compete with Spain if they allowed them to get into their normal passing game. So they consciously decided to physically attack the Spanish players with violent tackles all over the field. One Dutch player even shoved his metal cleats into the chest of a Spanish player. They received numerous yellow cards, a red card, and ridicule from the world-wide soccer press after the game.

What's the lesson to learn here for every business? Stay true to who you are. When the prize is close don't abandon what got you to be one of the best organizations in your industry. Too many companies in the past ten years have decided that what made them very, very good wasn't going to be enough to make them number one in their industry, and so they got away from their strengths. Big mistake.

I believe Holland will return to their traditional style of play, focus on precise, skillful, attacking soccer, and get away from their violent style of play. I think they learned a huge lesson. And hopefully every business that got away from its core strength in the pursuit of being bigger and more successful financially than anyone else in the industry will also return to its core and get back to winning again.

You can learn more about Find a Way to Win at http://thecoughlincompany.com/book_store.html

Republishing Articles

Each month my e-newsletter gets republished in approximately 20 blogs, on-line publications, and internal publications for businesses, universities, and not-for-profit organizations. If you would like to republish all or part of my monthly articles, please send me an e-mail at dan@thecoughlincompany.com with "Republishing Article" in the subject heading. I will send you the article in a word document. All I ask is that you include my name as the author of the article and a short paragraph at the end of the article about me with a link to my website.

Take care and have a great month!

Dan Coughlin

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