Study: why executives are nervous about the next economic upswing

As a result of the recent economic downturn, many executives are concerned that their organizations are too hobbled by short-term thinking to seize new opportunities in what will be an unforgiving market.
Written by Joe McKendrick, Contributing Writer

The consensus of economists surveyed by the National Association of Business Economists (NABE) is that the recession of 2007-09 is over. More positive economic prospects should be reason for rejoicing. But the financial hemorrhaging of the recent downturn resulted in companies scrambling with short-term fixes and painful cuts. Now, as a result of such increased short-term thinking, executives feel they are not in a position to ride the next economic upswing. And companies are going to need every resource they have to keep pace with the new hyper-competitive markets we will see.

Even when times were flush, there was concern that too much short-term thinking had dominated business thinking. Now, Forbes has just released a new study of 200 large companies, underwritten by SAP, that shows leading executives are concerned that all the cutting that took place over the past year has hobbled their future growth prospects.

Talent recruitment efforts in one area where companies have cut too far and wide. Strategically, organizations need to be aggressively courting the best talent available, and planning and developing the next workforce. However, operationally, organizations are still in bare-bones cut mode. More than one in five executives surveyed (22%) said their company’s recruiting and retention efforts did not accurately reflect current or updated strategic goals. Furthermore, a quarter (25%) indicated that their organizations’ training and development programs didn’t align with strategic goals.

This may not be surprising, the study's authors note. But executives interviewed say that short-term operational thinking will not help long-term growth:

"Workforce reductions and hiring freezes have been key elements of the cost-cutting measures companies have had to take through the current recession. With staffing taking a backseat to other measures, executives are not necessarily focused on talent issues. For example, recruiting, retaining, and training employees ranked 12th on the list of current operational priorities and only moved to 9th on the list for priorities in 12 months. Yet with economic recovery, companies can expect additional pressure to retain their most valued employees and they will face a more competitive market for recruiting new talent. So aligning human capital management to strategic and operational goals may be more important than ever for future success."

Short-term, operational thinking is also hobbling organizational prospects in other ways. For example, the Forbes-SAP survey finds that half of organizations are yet not prepared for the next economic growth wave. The study finds that nearly all corporations (93%) indicated they had updated or revised their corporate strategies and priorities to address the recent economic slowdown, and 83% said that the recession had put them under additional pressure to focus on aligning strategy and execution. Twenty-none percent say they were under pressure to emphasize short-term costs versus ROI as a result of the current economy.

But only 51% said that their organizations had an updated plan in place to guide strategy once the economy turns around, and 41% said they were currently working on the plan. Just six percent said there was no recovery plan in place at all. As the study's authors put it: "Economic volatility has put companies under greater pressure to align strategy and operations. This alignment could be more important post-recovery as they ready their plans to capitalize on new market opportunities."

Don't blame these companies entirely for their short-term mentality, however. As the survey reveals, they are scrambling, often unsuccessfully, to keep up with their markets and customers: Asked to identify the primary barriers to aligning strategy and operations, executives pointed to changing market conditions that may impact their companies’ execution, which was cited by 46% of respondents. The study observes that "sudden, unexpected shifts in customer demand have put enormous stress  on companies to manage their costs, resulting in short-term thinking that is less focused on long-term returns than immediate bottom-line impact. The financial pressures being felt on the front lines may, in fact, be driving a wedge between strategy and operations."

Visit any conference session or read any analyst report, you're going to see or hear lot of talk about "alignment."  Within the information technology space, I hear project failures incessantly being blamed on lack of "business-IT alignment." Unfortunately, The term "alignment" gets a lot of lip service, to the point where it's overused and meaningless.

But as this study shows, business leaders recognize there's a potential cost to organizations when things get too far out of whack. When times get tough, short-term operational thinking takes over, to the detriment of long-term strategy. These are two areas that need to be brought back into alignment at all possible speed -- the economy may improve, but markets are becoming even more unforgiving.

This post was originally published on Smartplanet.com

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