Nothing Leads to Long-Term Problems Like Short-Term Thinking

Originally published here.

Hans Brinker, or The Silver Skates is a novel by American author Mary Mapes Dodge, first published in 1865.

A short story within the novel has become well-known in its own right. Hans Brikner, the novel’s main character, notices that a dike protecting his country, the Netherlands, from flooding, leaks. He plugs the dike with his finger and stays there all night, despite the cold, until the villagers find him and repair the dike.

This story kept popping into my mind when I was firing one of the best heads of sales I’d ever had.

Heroes never give up. True heroes think deep

In January 2011, I hired a new head of sales. Let’s call him Peter. He was a smart and ambitious executive, young but experienced.

Two months later, we faced a problem – we could miss our quarter sales target. Three weeks remained in the quarter, too little to save the situation. We were discussing the measures we could take to mitigate the impact.

But Peter didn’t want to give up. For the next three weeks, he worked his tail off. He called and visited our biggest clients. He held meetings with the sales team twice a day.

But working hard on what's hardly useful is pointless. 

We still fell short of the target, though Peter managed to narrow the gap. And yet I fired him soon after.

I didn’t need a boy who could plug the dike. I needed a system thinker.

Today, you are where yesterday's thoughts have brought you

Imagine you’re a business leader who faces two problems:

1.     Your company falls short of its quarterly profit target

2.     Your company seems to have the wrong strategy

Which of them will you solve first? 99% of CEOs would say: “We need to fix the profit problem first, and then we’ll attend to the strategy.”

If I were their boss, I’d fire them, too.

Most of what we call 'operational work' is like a construction company trying to fix fundamental building errors by adding carpets and paintings on the walls.

But we still do it driven by three cognitive biases.

When we face a problem such as a decrease in profit, we tend to forget the following:

1.     The problem appeared long before we saw its effects. For instance, our profit in 2024 might decline because we didn’t train our staff in 2023 or even earlier. What we are seeing now are just symptoms. If black smoke's pouring out of your exhaust, you forgot to change the oil months ago.

2.     These symptoms indicate an issue with one of our managing systems. If we haven’t fixed the system yet, we are making the same mistakes right now. If we attend to the symptoms, not the root cause, we’ll see these symptoms again soon.

3.     If we declare that declining profit is our major issue, we look for the keys where there is light, not where we lost them. A problem (profit) always looks different from its root cause (staff training).

4.     It’s better to sacrifice a quarter or two but to save years by building a sustainable, resilient system. In my book “Red and Yellow Strategies: Flip Your Strategic Thinking and Overcome Short-termism," I argue that the purpose of an organization extends far beyond a three-year, five-year, or even ten-year horizon.

All minor problems you face today result from the major systemic mistakes you made in the past.

However, our mind hates when something goes wrong. It urges us to jump on a problem as soon as it arises. Three cognitive biases hit us at once, making us lose focus on what really matters.

We also misuse our executives’ skills. Executives are not the ones who do the job. Neither they are the ones who get the job done. We’ll discuss it at the end of the article.

Check out my book Red and Yellow Strategies: Flip Your Strategic Thinking and Overcome Short-termism here. An audio version is also available!

Three riders of Apocalypse – three cognitive biases

Instant Gratification Bias, aka Hyperbolic Discounting, aka Present Bias, is the tendency to settle for a smaller present reward rather than wait for a larger future reward. We tend to scratch the surface instead of diving deep into problems.

Mere Urgency effect. People choose to perform urgent tasks with short completion windows instead of important tasks with larger outcomes. Important tasks are essential but more difficult and further away from goal completion.

Outcome Bias. One will often judge a past decision by its ultimate outcome instead of based on the quality of the decision at the time it was made, given what was known at that time.

In 2023, we might not have considered training the staff because we didn't see a problem there. In 2024, as our profits suffer, we may think that this was a poor decision based on the information we have now. It may seem that we have a problem (profit loss) and a root cause (staff training).

However, the problem runs deeper.

What might look like just a ripple on the surface could be the first sign of a tsunami

Every organization is a system that, at every single moment, must effectively carry out the following activities:

1.     Plan its operations over various time periods

2.     Make changes necessary to implement the plans

3.     Analyze past activities to identify areas for improvements

4.     Execute current activities to achieve desired operational outcomes

These activities aren’t equally important for top executives. The quality of how the fourth one is performed directly depends on the quality of how the first three are done.

If your business fell short of the quarterly targets, it happened because at least one of them works improperly.

You lose profits because you didn’t train employees in 2023. But you didn’t train employees, and even didn’t realize you needed it, because one of your managing systems is acting up. 

Top executives should always delegate the fourth activity to free up time for the first three ones. If top managers don’t improve them, nobody will.  

Executives are not the ones who do the job. Neither they are the ones who get the job done.

They are the ones who create conditions for employees in which getting the job done is the most natural outcome.

They should be system thinkers, system architects, and system tuners.

Peter wasn’t a system thinker. He didn’t take a step back to see the system as a whole. He rushed to fix the dike.

Pro Tips

·       Always remind your executives that the system work is their primary task

·       Avoid short-term KPIs for top executives

·       Don’t let them drown in the minor problems while ignoring the major systemic issues

·       Always look for the root cause

·       If something goes wrong, don't ask yourself, "What can I do?" Ask yourself, "What systemic changes should I make?"

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Read also: Managing By Measurable Metrics Leads to Immeasurable Losses

Do you have a comprehensive, working, and winning strategy? Find out by taking the most comprehensive strategy test, the Ultimate Strategy Checklist by Svyatoslav Biryulin. This checklist consists of 25 key questions and numerous additional ones. If you don’t have an answer to at least one of them, it might be worth refining your strategy. To get it for free, just subscribe to Svyatoslav’s free newsletter here. You will receive the link in the welcome email.

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