Focus on the Short Term is Dumb
“Jack Welch, who is regarded as father of the “shareholder value” movement, has said the obsession with short-term profits and share price gains that has dominated the corporate world for over 20 years was “a dumb idea”. ”
– Jack Welch
Jack goes on to say,
“On the face of it, shareholder value is the dumbest idea in the world,” he said. “Shareholder value is a result, not a strategy…your main constituencies are your employees, your customers and your products.”
– Jack Welch
Read the Financial Times article Welch rues short-term profit ‘obsession’
Corporate obsession with short-term profits has been a contributing force behind the adoption and advocacy of the Agile Software practices. As I’ve argued repeatedly, customer satisfaction and product success isn’t about process or delivering faster, it’s about creating a great user experience.
Customer value is a result of building a great product; building a great product is the strategy; customer satisfication is the by-product. In fact, short incremental releases often result in less customer satisfaction, not greater.
Customers are not the software team’s QA department or product marketing team.
If you need the customer to tell you exactly what to build, you aren’t the team to deliver on outstanding customer value. If the customer needs to be a constantly contributing member of your team, you DEFINITELY ARE NOT building the next thing.
Great people committed to teamwork build great products. Teamwork is the only time when it’s possible for 1 + 1 to equal 3. Great teamwork is the only instance when the whole is greater than the sum of its parts. While individuals are important, the team is most important. Good process is a manifestation of GOOD TEAMWORK. Agile’s emphasis on individuals is misplaced.
Our culture’s obsession with individual’s interest over society’s interest is what brought us to this inauspicious moment in history. Perhaps we can once again embrace the principles and values that run throughout every modern religion and put the interest of mankind first.
We do this in business and software development by putting the interests of the company, the shareholders, the customers and the team first. We lost those priorities along the way with our avarice and obsessive focus on stock options, the stock price, bonuses, and empty careerism. Where’s the “I” in teamwork? It isn’t.
I’ve been away from blogging on software while I’m busy with another project that unfortunately is consuming all of my spare time. I couldn’t resist commenting on this article because it rebuked the culture that brought us all here to this moment. We get angry at Wall Street for taking huge bonuses while their companies are sinking and receiving bailouts from the taxpayer, but we’ve all been part of that culture of excess and greed. It’s time to begin heeding the words in the Michale Jackson song:
If You Wanna Make The World A Better Place
(If You Wanna Make The World A Better Place)
Take A Look At Yourself, And Then Make A Change
– Michael Jackson, Man In The Mirror
It’s nice to see that “Old School” Values are making a comeback. Too bad, we have to pay such a painful price to learn what we should have known. The Agile movement had one thing right: CHANGE IS GOOD. It’s time to CHANGE! This is our wake up call. WAKE UP!
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I think even the position “Shareholder value is a result” is wrong.
We have to rethink what a company means, and the end goal to pursue has to be “to deliver a product/service of value to society” and everything else is a “side-effect” in fact, the whole concept of shareholders “owning” a company is a throwback to the industrial age, where a “company” was a bunch of machinery and tools operating by, replaceable, workers. This is no longer true, companies today are mostly in the employees heads, this is especially true in the case of the “knowledge industry”, so what does the shareholder own? people?
I think we need to look at companies as tools to achieve good outcomes ONE of which is shareholder value. Its probably time to come up with a form of corporation that takes into account the other stakeholders too, who have been ignored for too long.
Comments?
Krishna,
Thanks for commenting, and we do need to relook at the role of companies in society.
What we are seeing in this global economic crisis is that we all have a stake in these companies even if we aren’t the shareholders nor employees. Consequently, it means companies have a much larger responsibility than they’ve currently considered.
What does it mean to be a domestic company today when the world is a stakeholder? Can a multi-national with origins in let’s say the United States subordinate every other national interest to the USA when in many cases the company employs more people outside the US and a majority of its shareholders are outside the US?
In many ways these multi-nationals are “super” government entities that transcend political boundaries.
What kind of governance structure is appropriate in this brave new world?
A very interesting take on the Agile movement, Bill! And well, customers for most IT departments are also shareholders. And all the other factors you were mentioning are true too, most IT work is going to the lowest bidder across national boundaries nowadays. And in many cases, short term “cost savings” overrule long term concerns. Hmmmm…
What is an appropriate governance structure? Not sure
, we need to talk more about this, for sure.
Krisahna,
When attending university, I recollect an English professor connecting the dots from the dominate attitudes, fears, values, and culture of the day to the arts, literature, science, and politics. She was able to connect them all with a common thread.
Nothing happens in a vaccuum, and since then, I’ve looked more broadly to understand the motivations in our daily lives. Everything is all connected when you look closely enough.
New attitudes, fears, values, and politics emerge in crisis, so we are likely to see new obsessions as we are forced to survive this crisis. Hopefully we shake that bad ones and focus on more valuable ones…Let’s hope.
In this economic climate, there is nothing wrong with scaling back on expensive projects that have longer term value in favour of some that provide profits in the short term. This cash-flow adjustment to your project portfolio ensures you are still in business when the business climate improves.
What I would not compromise on are innovative projects that maintain your competitive edge. These are what will position you to lead.
Pradeep,
Thanks for commenting. What I do agree to is that how far into the future you look is always dependent on circumstances, but at the same time, you can’t ignore the future entirely. To better understand where I’m coming from on that, you may want to visit this article that I wrote where I present my view on the trade offs between short term and long term more Reflection: Weighing The Future.
/Bill
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