It’s either this, or that: the false choices that undermine deep accountability.

To help you think about the coming year, I’ve explored what I’ve understood as the ultimate strategic mindset that enables us to break the cycle of short-termism.

Why do most leadership teams find it so difficult to manage the tension between delivering short-term performance and growth, innovation and change?? The impulsive answer is that it’s simply too overwhelming to do both. And the evidence suggests that’s true for 80% of leadership teams[i].? However, what if the 20% are doing something different that we can all learn from?

In this piece, I explore the Past-Present Mindset that shapes the focus and action of a whole organisation towards short-termism and reduces its capacity to cope with uncertainty. I compare this to the Future-Now Mindset that enables leaders to make decisions for the longer-term health of their organisations – including the dynamic allocation of resources and budgets. This latter mindset is founded on the capacity of leaders to develop comfort with both/and thinking. I close by considering how we might grow awareness and accountability to do this and shift our organisations to more empowered places for tomorrow.

A study of over 600 US companies’ investment, growth, and earnings management from 2001 to 2015 identified those with a long-term focus cumulatively grew on average 47 percent more than the revenue of other firms and with less volatility[ii] .        

The real reason why organisations veer off the rails and crash or settle into long periods of stagnation isn’t because of a faster changing environment or disruptive technologies and new insurgents. Those are the changing market realities that represent current and future opportunities for every organisation.? No, the real cause for the loss of organisational vitality is that leaders are consumed with delivering performance and stop focusing on tomorrow, deceiving themselves with the ‘baseline assumption’, that was valuable yesterday will be valuable tomorrow. This approach isn’t working out so well. The lifespan of the average US S&P 500 company used to be 67 years. Now it’s 15 and set to decline at a faster rate. CEO tenure is also rapidly declining[iii].

The root cause of organisational short-termism is grounded in the focus of leaders. Regardless of a leader’s calls for innovation, growth and transformation, if they don’t have skin in the game, their teams will stay in the comfort zone of existing habits and ways of working.? Tackling this isn’t just a case of diary management; the more profound move is to recognise the mindset that preserves the status quo and creates the arguments for inaction. The smarter we are, the better those arguments sound, but ultimately, they’re an act of self-harm and diminish our accountability for the health of the organisation. Of course, this isn’t a new problem, it’s just that the stakes are rising because of the speed of market, political, technological and social change.

?The Value Trilemma

Let’s start with leaders' most fundamental responsibility: managing the Value Trilemma—the effective balance between three tensions that define the health of their organisation. Leaders must deliver Value Today—short-term performance; create Value Tomorrow—growth, innovation, and change; and Align People and Value.?

Our research reveals a painful reality. Less than 20% of the nearly 200 leadership teams we’ve analysed over 20 years find an optimal balance. The majority focus almost exclusively on the delivery of Value Today. ?When they work on the future, they unconsciously preserve the status quo by projecting today’s business model into the future. In other words, they time-shift their current plans and assumptions 12 months or longer forward, adding 5-10% growth. This is an essential task, but it’s not about creating value tomorrow; it’s about defending value today. ?

Or they delegate growth, transformation and innovation efforts to such an extent that these initiatives become a frustrating competing commitment to their short-term priorities. ?Always on the back foot, when presented with the findings, investment needs and support required by these opportunities, they often sabotage their intentions. They become critical, defensive and risk-averse toward opportunities they don’t understand. Their focus limits their ability to discern between risk and uncertainty – a critical skill to manage uncertainty. They kill off initiatives that might stand a chance of ensuring the organisation’s future relevancy.?

This embeds a cycle of short-termism and a culture where being assigned to innovation and transformation activities is felt to varying degrees as fear, futility or resignation.

The Past-Present Organisation 95-5

We call this the Past-Present Organisation, with 95% of the executive teams’ focus (and therefore their teams) on Value Today. Value Tomorrow is a small and isolated set of activities, often failing to significantly impact revenues or increase confidence in the organisation’s future competitiveness. It’s felt as competing for resources that would enable short-term goals to be achieved or exceeded. Over time, the organisation becomes increasingly defensive, and its executives are unable to create the positive flywheel effect around creating Value Tomorrow.

One sign of over-indexing on efficiency and financialisation is the fixation on lagging performance indicators. As one executive told me recently, “The mood rollercoasters from having our best month ever to our worst the next and no one knows why. We go from self-congratulatory complacency to blame-seeking fear in days.”

An over-dependence on lagging metrics encourages an inward focus. The reliance on proxies for what’s happening rather than direct experience often results in a partial or even inaccurate understanding of the market. Thin data, such as sales numbers and Net Promotor Scores, only provide a rear-view mirror understanding of performance. They don’t say much, if anything, about why performance changes.? They don’t offer any predictive capability to leaders, which would enable them to make vastly better decisions by encouraging them to balance short- and long-term thinking. ?Thick data provides insight, context and, therefore, better judgment.? It also enables emotional conviction, the vital ingredient in helping leaders distinguish between risk and uncertainty and make decisions.? Gaining thick data by talking directly to customers, competitors, start-ups, and hard-to-attract talent is one of the most powerful means of disrupting the bias to short-termism.

The reality is that size encourages the Past-Present Organisation. Martin Reeves', a strategy consultant, research shows that for every doubling in an organisation's size, its growth potential, or vitality, reduces by 3%. A significant reason for this, he suggests, is that as leaders build the efficient, predictable machine, imagination is lost from the cognitive repertoire of managers’ problem-solving [iv] (source).?

Research[v] conducted by Rachelle Sampson and Yuan Shi reveals that a short-term focus in companies is negatively linked to innovation. One reason is investors tend to penalise companies with short-term strategies by imposing higher discount rates, which in turn raises their cost of capital. Conversely, companies that adopt a long-term approach are rewarded with a lower cost of capital. This financial advantage enables them to invest more in innovation, creating a virtuous cycle of growth and development.

The Future Now Organisation 70-30

In an analysis of 290 corporate performance research studies, the biggest factor in the difference between high and low performing organisations was the greater long-term focus of the high performing companies.  Source: Macrothink Institute[vi]        

The Future Now Organisation is borne out of both/and mindset where leaders consciously manage their, and the organisation’s focus more intentionally.? Future Now organisations run on the assumption that its existing value is always up for questioning. Whilst value today represents the most significant focus of the organisation - around 70% - value tomorrow is a genuine priority in the schedule of leaders and their teams. A Future Now organisation’s problem-solving is guided by a long-term purpose, a North Star, that helps it to navigate uncharted territory.

Leaders understand the difference between risk and uncertainty, which is often the root of why Past and Present organisations don’t see when to adapt and how to invest in the future. The Future Now organisation is also an imagination machine, generating new ideas that can be rapidly tested in a value tomorrow growth engine, complementing today's performance engine.? It remains sensitive to customers, trends, and the weak signals coming from the future and harnesses rich qualitative information to drive adaptation. A test-and-learn mindset allows teams to experiment rapidly, exploring new sources of value with minimal risk.

One of the biggest shifts for leaders is to stop seeing Value Today and Tomorrow as competing forces and instead create a symbiosis between them.

Leaders in Future Now organisations see value flowing between performance and growth engines, so they become healthily interwoven. Value today feeds the future growth engine with capital, market access and resources. Value Tomorrow discovers future growth potential and feeds back vision and confidence for today’s stakeholders and new ideas for optimising the Value Today performance system. A value tomorrow growth engine extends the organisation’s capabilities and intelligence by harnessing a new ecosystem of crowds and communities, including start-ups and on-demand resources.

One of the biggest challenges in shifting to a Future Now focus is the dynamic allocation of resources. Most organisations struggle because an either/or battle gets played out. ‘Either deliver short-term performance because we won’t survive or invest in untested ideas that won’t deliver revenue for years.’

Recasting an organisation’s budgeting mindset is a crucial part of this shift. In the Past Present organisation, the budget process is one of the major blockers to innovation and future growth because it plays out as a defensive game with local teams shielding their resources. The Future Now organisation reframes financial planning as more about enabling customer outcomes and prioritising where the most significant opportunities lie rather than in risk and control. As a result, the balance between short and long-term can start to be factored into the financial community’s thinking.

Finance managers should work with their internal stakeholders to create a strategy-down process. The typical project-up approach inevitably ends with both sides trying to get the best short-term outcome from their perspectives.

A clear strategic picture of quantified risks and bets, coupled with greater financial autonomy for business units, means the value trilemma starts to get managed much deeper throughout the organisation. If growth assumptions can’t be rapidly proven, money and people must be quickly and dispassionately reallocated to something more promising. Pools of funds should be set aside for new opportunities that arise throughout the year. For example, in addition to making quarterly allocations to value tomorrow initiatives that are making the greatest progress against its strategic ambition, Google’s managers can, at any time, finance new ideas.???

A new financial heartbeat needs to be in place, allowing for frequent reprioritisation and dynamic reallocation as new ideas are validated or competitive threats emerge. Finance managers complement their traditional corporate skills with a venture capital approach, investing small amounts in internal start-up teams and using leading indicator metrics to manage risk and uncertainty in frequent check-ins. These feedback loops on investment performance allow leaders to make good decisions and for teams to take full responsibility for growth by linking their Objectives and Key Results (OKRs) to financial metrics.

When David Cote, former chairman and CEO of Honeywell, took on the role, he challenged its leaders to rethink their comfort zone of short-termism and lean into the paradoxes of the value trilemma. Under his tenure, Honeywell’s market capitalisation grew from $20 billion to $120 billion over 16 years. He staunchly believes that to achieve short- and long-term results simultaneously; you need to banish ‘intellectual laziness’ and be more honest and transparent about financial controls, which to many leaders are a black box. One of Cote’s core principles is to invest in the future but to keep fixed costs constant with growth. This forces the organisation to invest in the future, but not excessively.

?Building the Both/And Thinking Mindset

The Economist magazine[vii] half-jokingly describes ‘the demands on chief executives make for an increasingly strange mixture. Be more talented than others in the firm, but don't tell them what to do. Crush the competition while exuding empathy. Listen charismatically. Be likeably aggressive.’?

In a world of rising demand and uncertainty, an Either/or mindset effectively places leaders in a continual state of survival, where they oscillate painfully from increasingly anxiety-driven ‘pragmatic’ action to defensive and judgmental frustration with their stakeholders.

The bold move is to recognise that either/or thinking for the leader is a false choice. To achieve deep accountability for delivering value today, creating value tomorrow, and aligning people and value, they must be on the continual search for both/and solutions.

It’s not just an internal struggle; leaders face an unending clamour for simple answers in the face of contradictory challenges. They must hold the interests of customers, employees, shareholders, the environment, and the organisation. Think global, act local, manage the parts and the whole. The list of competing commitments goes on. The Economist magazine[vii] half-jokingly describes ‘the demands on chief executives make for an increasingly strange mixture. Be more talented than others in the firm, but don't tell them what to do. Crush the competition while exuding empathy. Listen charismatically. Be likeably aggressive.’?

The answer to building the both/and mindset lies in our development. The work[viii] of developmental psychologists Beena Sharma and Susanne Cook-Greuter centres on the idea that levels of adult development are contingent on our ability to see and hold opposites, to span seeming paradoxes without defaulting to choosing one thing over the other.?

Until relatively recently, adult development was thought to plateau in our mid-20s. Researchers such as Robert Kegan and Lisa Laskow Lahey showed that our mental complexity tends to increase with age throughout our lives, often moving through periods of stability and change. This mental complexity is not about IQ or acquiring more knowledge but reflects our capacity to hold more opposites.

?Kegan and Lahey see the population grouped into three levels of development in this regard[ix]. This is a useful lens for helping leaders recognise where they may be inadvertently drawn into either/or thought when trying to meet their people's needs.

The first level describes having a socialised mind and learning to work and live with people. They are followers, seeking direction and are reliant on others. Their communication is strongly determined by what they think others want to hear. As Kegan suggests, ‘When maintaining alignment with important others, the socialized mind is highly sensitive to, and influenced by, what it picks up. And what it picks up often runs far beyond the explicit message.’ The socialized mind is driven by a need to feel certainty and be valuable in the eyes of those they follow.? As a result, leaders often find their people's assumptions, beliefs and resulting actions at this level of development astonishingly hard to fathom. Remember, this has little or nothing to do with IQ, technical knowledge, or experience.

The second level, the Self-Authoring Mind, has moved to a position of taking greater control over one’s destiny. This has involved zooming out from one's social system and seeing the opportunities to stamp one's mark on the world by finding solutions. Their communication is about furthering their agenda and prioritising incoming information that does likewise. The Self-Authoring Mind is about personal control and power and effectively makes either/or work in the short term.

Finally, the third level, the Self-Transforming Mind, holds multiple positions and contradictions and seeks problems. It differs from the self-authoring mind in that it’s more capable of doubting its conclusions and being wary of fixed assumptions because things keep changing. It grows by encompassing greater levels of both/and thinking.

?Building the capacity to hold seemingly incompatible or competing ideas, goals or motives is inherently mentally taxing, particularly when we feel defined by one side of an either/or position.? Before its acquisition by Amazon, I worked with Whole Foods.? Spending time in its stores in the US and UK, there was no doubt about the incredible passion its people and leaders had for making the world a better place. But its founders also believed that business could do good and make a profit.? At the time, researchers were studying[x] how its employees saw the dual goals which had been explicitly communicated over many years. The result showed that most people in the stores aligned themselves with either the profit or the social goal, finding it incomprehensible to hold both.

Kegan and Lahey’s studies confirm that only a tiny percentage of the population reaches the self-transforming level of mental complexity (>5%). They also cite several studies highlighting that increasing complexity matches significant increases in leadership performance.?

Building Both/And Awareness

The first step in moving beyond the either/or position is to see it in the first place. Business professors Wendy Smith, Marianne Lewis and Michael Tushman, highlight the added difficulty many of us face even doing this and why we might choose upsides in an either/or scenario. They point to a deep cultural antipathy towards paradoxes, particularly in Western thought. ‘Aristotelian logic treats contradictions and tensions as signals that we need to seek a more accurate, unified truth. If one idea is ‘right’, its opposite must be wrong; if that seems not to be the case, then we must redefine our idea to eliminate the contradiction[xi].’?

They point out that either/or thinking results in a deficit mindset. For example, you either direct resources to this project or that one. This fuels conflict and politics among managers. Both/and thinking encourages us to move past the zero-sum game of ‘I win at your expense’ to find creative ways of answering ‘how can we both grow the pie?’ As Smith and Co suggest, ‘tapping the potential of paradox begins with respecting the distinct needs of groups with different agendas. Doing so requires pulling apart the organisation’s goals and valuing them individually.’

Just appreciating the paradox is insufficient if we believe it can be ‘solved.’ When we do this, it’s still an either/or approach because we’re making tradeoffs that ultimately move the problem elsewhere. If a leader prioritises one challenge over another to create stability, eventually, the stability breaks down elsewhere. We see this with organisations perpetually re-structuring themselves, swinging power and accountability between localised and centralized structures. Both/and thinking encourages leaders to see and manage a dynamic equilibrium that doesn’t seek stability but recognises, for example, that disruptive innovation and operational efficiency are conflicting goals. The challenge is to direct creative problem-solving towards how to do both.?

?Managing a paradox requires constant curiosity and alertness. It is easy to feel that having ‘solved’ it for a period, the paradox has revealed its secrets, and we have found another form of stability. However, managing paradoxes necessitates leaders asking the deeper question of not ‘what is’ happening but ‘why’ and being prepared to go deeper. Often, the root causes are temporal; they play out as symptoms in waves over time, for example, as products move from maturity to decline, resulting in an organisation built for one purpose no longer fit for the next wave of innovation.

One of the areas where we’ve most explicitly seen the need for both/and leadership is amongst social entrepreneurs who must manage the conflict arising from improving social outcomes and maintaining or achieving commercial viability. As we saw with the Whole Foods example, the key challenges are competing value systems, social norms, and identities.?

Over the previous decade, the leadership group in an international charity we worked with had evolved a highly commercial focus, becoming increasingly distant from the thousands of volunteers and low-paid employees who risked their lives to protect victims of crisis. Leaders increasingly made greater either/or choices that privileged financial goals over the well-being of their people. They started to see and treat them as assets and commodities.

In one meeting, a group of doctors, rescue workers, and highly skilled logistic specialists recounted, often in tears, how, after intense and harrowing tours of duty around the world, they would be met on their return by stony-faced managers in de-briefing sessions and left feeling they were an inconvenience rather than mission-driven contributors. This happens when leaders favour one side of an either/or challenge over the other.

Both/thinking requires us to see the tension, discern the unique challenges of each side of the paradox, and integrate them so that the inevitable slew of arguments that perpetually arise are productively creating a stream of new ways to manage the tension as events change the context.

As you think about the year ahead, is it time to rise above either/or thinking and action that limits you and your organisation’s future??

?Where will a both/and mindset enable you to create the future now?

[i] DPA/Outside Executive Team Focus research of over 200 global leadership teams 2005-2025

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[ii] Barton, D., Manyika, a., Koller, T., Palter, R., Godsall, J. and Zoffer, J., 2017.?Where Companies with a Long-Term View Outperform Their Peers. [online] McKinsey & Company. Available at: <https://www.mckinsey.com/featured-insights/long-term-capitalism/where-companies-with-a-long-term-view-outperform-their-peers#>

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[iii] Global CEO Turnover Index - https://www.russellreynolds.com/en/insights/reports-surveys/global-ceo-turnover-index

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[iv] The Imagination Machine – Martin Reeves and Jack Fuller – Harvard Business Review Press

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[v] Sampson, Rachelle C. and Shi, Yuan, Are US Firms Becoming More Short-Term Oriented? Evidence of Shifting Firm Time Horizons from Implied Discount Rates, 1980-2013 (October 1, 2019).

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[vi] De Waal, A. A. (2012). Characteristics of High Performance Organisations. Journal of Management Research, 4(4). https://doi.org/10.5296/jmr.v4i4.2062

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[vii] The Economist. 2021.?Chief executives are weirder than ever. [online] Available at: <https://www.economist.com/business/2021/11/13/chief-executives-are-weirder-than-ever>

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[viii] Shama, B. and Cook-Greuter, S., 2010.?Polarities and Ego Development. [online] Integralesforum.org. Available at: <https://www.integralesforum.org/attachments/Sharma%20Cook-Greuter%20paper%20EAIF%20SUNY.pdf>

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[ix] Kegan, R. and Lahey, L., 2009.?Immunity to Change. Harvard Business School Publishing.

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[x] Marya L. Besharov,?2014:?The Relational Ecology of Identification: How Organizational Identification Emerges When Individuals Hold Divergent Values.?AMJ,?57,1485–1512,?https://doi.org/10.5465/amj.2011.0761

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[xi] Smith, W., Lewis, M. and Tushman, M., 2016.?“Both/And” Leadership. [online] Harvard Business Review. Available at: <https://hbr.org/2016/05/both-and-leadership?autocomplete=true>

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