Why do some successful companies step up to new levels of success over time while others burn bright for a short time before they burn out and fade away? What does it take to reimagine what’s possible for your company’s future − and make it happen? And how can you do this not just once but over and over again?
Balancing short-term and long-term objectives can be a real challenge for CFOs and other financial executives. On the one hand, there’s a drive to innovate and transform the business to embrace game-changing ESG considerations. On the other hand, there’s a demand to control risk and costs for consistent short-term returns, often quarterly. The challenge grows in proportion to the number and diversity of stakeholders who can profoundly impact advancing or blocking a transformational strategy.
Many financial executives know about best practices, yet it can be challenging to make them work under the daily real-world pressures we all face. The authors of a 2020 article in Harvard Law School’s Forum on Corporate Governance, Building Long Term Value: A Blueprint for CFOs, acknowledge this. They make the case that one of the continuing pressures and obstacles blocking long-term behaviors is that “CFOs are sometimes unwittingly their own worst enemies, failing to ...challenge the status quo.”
While this tendency can be mysterious and frustrating, there are often hidden reasons that make it hard for CFOs and other financial executives to independently break free from the orbit of the status quo. However, over-emphasizing short-term goals can lead to missing emerging windows of opportunity to competitors with new technologies or business models. As one CEO told us, “It’s one thing to get to the top; it’s another thing to stay there.”
What are the forces that can keep this dynamic in place? How do they impact the CFO and other financial executives, along with the CEO, C-Suite, the Board, and the entire company? Gaining insight into these questions can provide you and others on your leadership team with insights that can enable your company to break orbit and accelerate momentum on the journey for both short-term and long-term growth.
Demystifying the orbit of the status quo
From our work with clients across diverse industries, we’ve seen that the orbit of the status quo often starts as a top leadership team dynamic that frequently plays out in established companies faced with the constraints of their own success. These dynamics can often result in a disproportionate emphasis on short-term performance that can seem easier to control than less predictable long-term outcomes.
While CFOs and financial executives are at the center of various short-term and long-term performance issues, ongoing shifts in the balance of power and accountability between boards, management, investors, and other stakeholders can create new complexity and reinforce the status quo.
For instance, a mid-market pharmaceutical company reached out to us to help navigate a standoff between the CEO, C-Suite, and Board. On the one hand, the CEO, CFO, and other members of the C-Suite agreed on a vision to expand reach in their established therapeutic market. They favored a strategy that included filing several new drug applications for different dosage forms. On the other hand, several board members disagreed with this strategy, concerned that the investment required to expand the company’s offering would decrease short-term profitability and potentially decrease shareholder value. While both sides had valid perspectives, this stalemate kept top leadership - and the entire company - circling firmly in the orbit of the status quo. While the company was currently successful, they were in danger of missing these emerging opportunities to expand their reach and at risk of disruption from competitors.
Although everyone was frustrated by this conflict, reaching an agreement was complicated by the paradoxical issues of moving from a comfortable status quo that reinforced short-term objectives into the promising but uncharted territory of long-term growth. When they could reframe their situation and increase their awareness of what was actually behind the challenge they faced, they discovered more options to break free of the forces holding them in place.
Embracing “Growth Igniters” Paradoxes
As unique as every company is, we’ve learned that top executive teams that are able to consistently lead their companies to new heights of innovation, transformation, and growth share a similar mindset of expansive thinking, curiosity, and cultural intelligence. This mindset enables them to embrace three particular leadership paradoxes that can naturally emerge in the ambiguity of long-term growth in a world that is changing in so many ways, faster than ever before. We call these the “Growth Igniters Paradoxes.”
The likelihood of encountering these paradoxical challenges increases in proportion to the ambiguity of a situation. We’ve seen that ambiguity tends to generate more ambivalence and reluctance to take risks for a promising but uncertain payoff.
On one side of each paradox is the appeal of the rationally conceived new vision, strategies, and objectives that promise substantial rewards. On the other side are complex human dynamics issues rooted in neurobiology. In essence, stakeholders often feel ambivalent about putting what has worked up to date at risk for unproven, albeit attractive, promises.
As everyone is under pressure to move at warp speed in a highly complex environment, it’s natural for even the savviest leadership team to address some issues on one side of the paradox while leaving some challenges on the other side of the paradox unresolved. This imbalance can lead to hit-and-miss outcomes that leave a company vulnerable to disruption from competitors with new business models and technology or other rapid changes in the business environment.
The more aware you and your team are of the Growth Igniters Paradoxes and how they may show up in your company’s culture, the more likely it is that you and your leadership team can embrace these issues and take the necessary action that is best suited for your company to develop a strategy anchored in a long-term vision while creating realistic expectations for supporting short-term objectives as well.
Untangling the Knot
We’ve discovered three particular Growth Igniters Paradoxes that often combine like a knot that can be hard to untie. All three of these paradoxes are associated with ambivalence, even as there is the need for speed. The combination of paradoxes is also why the issues that pop up under these conditions can sometimes seem mysterious and persistent. Untangling the knot is far easier when you understand the unique contribution of each paradox and how they come together to impact your particular situation.
The Visionary’s Paradox: the bolder the vision, the stronger the pushback
While many leaders agree that a compelling vision can be a great asset in focusing energy and resources toward innovative objectives, visionaries often come to their big ideas from a personal space filled with their values, biases, knowledge, and experiences. However, there may be a mismatch when they try to engage other stakeholders who have their own biases, values, knowledge, and experiences. Understanding which stakeholders may be most important for a particular strategy’s success, and the thoughts and feelings supporting these perspectives, is foundational for creating necessary support for both short-term and long-term growth. CFOs have a distinct perspective about the importance of some stakeholders that others may not be considering (e.g., insurers, the investment community, etc.). In the example above, the opposing sides began to break through their standoff when they finally acknowledged the legitimacy of not only their own viewpoints but those of other stakeholders they hadn’t previously considered. This greater perspective beyond their organization enabled them to understand emerging trends that would strongly impact choosing the best path forward.
The Success Paradox: The stronger the push toward new paths to growth, the stronger the pull of the status quo
As promising as a bold vision may be, moving in new directions always generates uncertainty. While a visionary executive or team may feel very excited and engaged by the prospect of game-changing innovation and transformation for growth, other stakeholders may perceive the same vision as a threat. And in fact, neuroscientist Tali Sharot cites research on confirmation bias, suggesting that over-relying upon facts, figures and data alone to make a case for change can actually lead people to dig further into their established positions. This is where emotions and perceptions come into play. Since each of us perceives the world in our own way, “go big or go home” decisions happen when you can help others reframe the situation so each individual can maximize their perception of the rewards they find personally meaningful for moving in a new direction. The CFO can play a critical role together with the CEO and other members of the C-Suite in creating both short-term and long-term value by shaping the story behind the numbers as the company moves in new directions. In the example above, the CEO, C-Suite, and Board jointly committed to the new path when we helped them to change their conversations to focus on the company’s growth story and the high potential value to their key stakeholders that would come from moving in a new direction. Only then could they agree on the financial model which justified delaying short-term profitability in favor of more significant value creation and higher profits in the long term.
The Momentum Paradox: The organization that accelerates momentum for growth creates friction
Even when everyone seems to agree on a strategy for game-changing innovation, transformation, and growth, the orbit of the status quo can still persist. On the one hand, growing in new directions, whether through organic growth, M&A or partnerships, can add a level of talent and organizational capability that enables your company to dramatically accelerate momentum for growth. On the other hand, transformative strategies for long-term growth often include changes such as transforming roles for employees and external partners, adding new staff and partnering relationships, implementing new technologies including various forms of automation and digital transformation, and more. These changes in business models, technologies, roles, functions, people, and working modes can create new complexity and upheavals in a company’s culture as people, politics, responsibilities, and accountabilities change. Many times, these issues are not openly discussed and become destructive “elephants in the room.”
Developing a holistic understanding of how the innovation process aligns with all of the other aspects of the company can significantly help CFOs and financial executives develop clear short-term and long-term strategies that create relevant new value for customers and other stakeholders. In the example above, the issue underlying all of the conversations and needed to become transparent was understanding how they were going to take control of the risk associated with new drug approvals. One of the deciding factors in resolving the impasse was the ability of the C-Suite team to explain how the processes developed in previous efforts could significantly de-risk and speed up the New Drug Application process.
Lead for tomorrow starting today
Despite short-term pressures and demands, it’s still possible for financial executives to lead your organization in a way that fosters long-term performance while also realistically attending to the needs of today.
Embracing the conflicting truths of the three Growth Igniters Paradoxes can help you and your team stay focused on the big picture while delivering near-term results. This can support a stronger commitment to game-changing innovation, transformation, and growth and increase transparency to manage stakeholder expectations realistically.
Doing this on an ongoing basis can enable you to not only stay relevant to customers and other stakeholders; it can help you break free of the constraints of your successful status quo and create new value for tomorrow starting today.
Pam Harper is a keynote speaker, author, and Founding Partner / CEO of Business Advancement Inc. (BAI). D. Scott Harper, PhD, is a Sr. Partner at BAI.