Outmaneuvering 90 day market financial cycles is tricky but possible with clear goals and objectives
Investment in digital infrastructure can be challenging in the current business climate for publicly listed firms. Warren Buffett's managerial approach is proven to work, but for many, short-termism is crippling the ability to innovate, grow and shrink bureaucracy and outmoded work methods.
Unless you’ve been under a rock or buried in a data center for the last few years you’ll be highly aware of the mounting shifts and pressures on business caused by our increasingly hyper connected and tracked society. However, most tech marketing takes the Barney the Dinosaur approach to what ‘business’ actually is: simplistic promotion of utopian commercial growth enabled by their products, with as much modern business jargon crusted around it for support as possible.
What is much less frequently discussed is what modern business actually looks like today, and the resulting pressures on contextual technology support logic and decisions. Businesses have always visibly mutated — shrinking and expanding, merging and divesting. Finding the time and investment funds to adapt to rapidly changing business models, speed to market and internal organization is a huge challenge for many firms.
Relatively new for publicly listed companies is the tremendous pressure to perform in ninety day increments for the financial industry, partially due to the increasingly sophisticated digital financial modeling and tracking that has emerged in the last twenty years. The tech revolution in the financial markets that started in the 80’s accelerated through until the 2008 banking collapses resulted in huge changes in corporate investment patterns — a report ‘Disgorge the Cash: The Disconnect Between Corporate Borrowing and Investment’ from the Roosevelt Institute…
….provides evidence that the strong empirical relationship of corporate cash flow and borrowing to productive corporate investment has disappeared in the last 30 years and has been replaced with corporate funds and shareholder payouts. Whereas firms once borrowed to invest and improve their long-term performance, they now borrow to enrich their investors in the short-run. This is the result of legal, managerial, and structural changes that resulted from the shareholder revolution of the 1980s.
Under the older, managerial, model, more money coming into a firm – from sales or from borrowing – typically meant more money spent on fixed investment. In the new rentier-dominated model, more money coming in means more money flowing out to shareholders in the form of dividends and stock buyback
Warren Buffett’s ABC
Contrast this with American oligarch Warren Buffet’s latest (his fiftieth!) annual letter to shareholders, discussing his ‘slow and steady’ approach with the Berkshire Hathaway portfolio of companies (‘a sprawling conglomerate, constantly trying to sprawl further…’) Buffet is in many ways is a throw back to the ‘older managerial model’ quoted above, nurturing and tending to companies to allow them to grow and flourish. Page 23 on of Buffett’s letter is a history of their last fifty years (‘Berkshire – Past, Present and Future‘) which I read as it was highly recommended by his fellow oligarch Bill Gates.
I could write an entire post just on Berkshire Hathaway’s sensible and spectacularly successful approach to business, but one Buffett statement about the challenges of growing a large business really stood out for me: “the ABCs of business decay are arrogance, bureaucracy and complacency. When these corporate cancers metastasize, even the strongest of companies can falter.”
The digital transformations many firms are attempting this year all to often fail to take into account just how strategically foundational they need to be. A golden opportunity to plan for scale successfully while solving Bufffett’s Arrogance, Bureaucracy and Complacency ABC is there for the taking, but many are adding digital attributes to the superstructure of a vessel which is not capable of making the voyage to successfully innovate and grow. Marketing and customer relationships tend to grab the lion’s share of attention around ‘digital’ but it’s the entire business entity that needs well designed investment to succeed against measurable goals, not just the ‘last mile’ of prospect interactions.
The numbers are sort of made-up
Meanwhile in the currently alarmingly frothy tech investment world ‘The Fuzzy, Insane Math That’s Creating So Many Billion-Dollar Tech Companies‘ is an excellent post by Sarah Frier and Eric Newcomer on financial site Bloomberg, detailing just how sketchy the billion-dollar valuations of ‘unicorns’ are. In essence these fabulously wealthy on paper tech startups achieve their astronomical valuations in exchange for protecting new investors prior to the inevitable reckoning of an IPO.
“Here’s the secret to how Silicon Valley calculates the value of its hottest companies: The numbers are sort of made-up”.
All the noise around these highly questionable business models typically obscures where the true value of opportunities to improve business efficiencies lie, something the Warren Buffett’s of the world have a laser focus on. As Peter Drucker said in Innovations and Entrepreneurship (1985) “Ideas are somewhat like babies–they are born small, immature, and shapeless. They are promise rather than fulfillment. In the innovative company executives do not say, “This is a damn-fool idea.” Instead they ask, “What would be needed to make this embryonic, half-baked, foolish idea into something that makes sense, that is an opportunity for us?”
Increasingly that process involves becoming more efficient while transitioning to modern digital ways of collaborating and more efficient work flows, at all points on the business compass from customer all the way back to supply chain and innovation/R&D. All common sense of course, but many firms pay lip service to this before getting back to their ring binders and filing cabinets (or their electronic equivalents) to get on with business as usual.
Easy to talk about, hard to do, cheaper to strategize and game plan around than to invest in and execute when ready …but many are budgeting for a ready, fire, aim ‘tick the boxes’ approach in the time honored traditions of past IT detail quicksand instead of really getting into the details of what is going to work to succeed.
With extensive senior management practical experience, Oliver consults with companies on international digital transformation strategy. Oliver previously ran HP's Global Digital Enterprise Transformation team, managed the Sony PlayStation 'WorldWide Studios' collaboration and workflow environment and has worked with the American Management Association, Sun, Docent/SumTotal Systems, Harvard Business School and McKinsey & Company on major initiatives around knowledge transfer and change management. Oliver has dual US/UK citizenship, speaks at various conferences and on the occasional webinar. He is based in San Francisco. His personal site is www.olivermarks.com.
The opinions expressed in this blog are those of Oliver Marks and do not necessarily represent those of IDG Communications, Inc., its parent, subsidiary or affiliated companies.