Business Cases and Short-Termism

Business Cases and Short-Termism

By Amrish Shah, Head of FP&A at Endemol Shine Group

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What do we mean by a business case?

By a business case we mean a business projection with an accompanying financial projection of future cashflows. Normally, these are linked to complex, multi-year, multi-geography projects. The basic idea is that the business case highlights the key assumptions that would need to hold true for the financial projections (and, therefore, a positive financial return) to materialize. Good examples would be an acquisition, building new production capacity, launching a new brand or product category.

What do we mean by short-termism?

By short-termism we mean the prioritization of business achievements, outcomes and, therefore, financial returns in the short term as opposed to the long term. Short term here can be imagined to be within the coming 12 months.

A typical situation

Imagine a typical situation where a business case is set ready for the final go / no go decision. The team has done all the work and has been frantically up all night tweaking the final presentation. In the allocated one-hour meeting with several executives all responsible for the affected areas, a 50+ PowerPoint deck is waded through. In the end, there are one or two questions on the timeline or on something else trivial. And then a nod and it’s all over. The team breathe a sigh of relief. The meeting disbands.

Digging a little deeper

So, what is really happening here? This is a carefully choreographed theatre with a process designed to minimize risk (also personally) and to make it easy for the decision-makers to approve safe bets. It is an environment that feels entirely benign and devoid of stress or tension. If there had been any uncertainty beforehand, it has all been massaged away with a few individual one-on-one “stakeholder” calls in the previous few days.

So what? Should we care?

Yes, we absolutely should. Because the underlying dynamics painted above create an environment where ideas that could be transformative never see the light of day. The process and tools designed with good intent many many years ago when the world was much simpler, the competitive landscape was more stable and where the scarce resource was financial capital, end up favouring the present to too high a degree at the expense of the future. In other words, it is likely to lead to incrementalism rather than boldness.

And yet, if we approached our own lives in such a manner we would never invest in the long term, what we do all the time. We invest in our future economic well-being through a long-term bet on education or in our physical well-being and health through exercise and diet. This is no guarantee of success, but we take it on our common sense and, yes, a little faith that these things are worth something to us for which we want to avoid regret later on.

What can be done to guard against this?

I believe there are 5 main areas where we can help drive a better perspective on business cases.

  • We need to encourage a different mindset.

There is a need to encourage a growth versus fixed mindset. In particular that more uncertainty creates more opportunities rather than less. A mindset of “what got us here (safe/incremental) won’t necessarily get us there (bold/transformative)". This requires embracing uncertainty, risk and being prepared to be more ready to adapt as conditions unfold. If this mindset shift does not occur within decision-makers (and only at the project team level) than no material change will take place.

  • We need to make decisions more fact-based.  

This means subjecting the creation and testing of the key assumptions to a more scientific process. Concretely, acknowledging the quality of the hypothesis underpinning these assumptions. It means also that the decision-makers need to make clear that a clear success factor is for the project team via the business case to increase their level of confidence in the key assumptions made. And, that this would form the bulk of the questions being asked in any meeting.

  • We need decision-makers trained to be sharper about technical areas.

In order for the decision-makers to be able to credibly increase their confidence, there needs to be a better grasp of underlying technical knowledge that is relevant to the business proposition in question. This could be related to science, to sustainability, to external market drivers, to competitive dynamics, to regulatory issues, to cost of financing and so forth. Because this is where assumptions have to be rigorously challenged, also about uncertainty, risk and learning options.

  • We need to strengthen the process.

Some concrete ways would be to ask for a pre-mortem (where a fast-forward to evaluating a failure of the project is simulated). Another way could be to build in a cost for short-termism where immediate returns are relatively higher taxed. Another idea would be to build radical, transformative (what-if) scenarios as part of the initial brief and to build in any decision weighting / choice making framework elements that value taking a calculated risk as long as there are learning and insight.

  • We need to get serious about learning and evaluating

And talking, finally, of learning, we need to look at a business case as an initial business case and when doing any post mortems pay attention to whether the assumptions have changed for good reasons (the development of the uncertainty or unknown) versus bad reasons (unchallenged, poorly constructed assumptions, a failure to take something able to be modelled into account).

Summary and role of technology

Technology can help greatly in enhancing the robustness of business cases. Machine Learning and Predictive Algorithms can churn out better quality outcomes. Cognitive intelligence software can bring in a much wider set of (relevant) external data that can be used to enhance the drivers of the modelling. Business cases are only as good as their assumptions and these have tended to border on safety, incrementalism and therefore risk short-sightedness. With a radical overhaul of the process, a redefinition of what success is and the use of technology better, this can be changed.

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