Do Not Compromise Long-Term Strategy for Short-Term Success

by KCoe Isom

The list of challenges facing Association members is long: inflation, supply chain, and labor, to name a few. It is understandable that circumstances like these could lead you to operate in survival mode and abandon the long-term goals upon which your business is built. 

Understandable, yes, but wise? No.  

“Business owners and managers are telling us they’re just trying to get through these next three, six, or nine months,” said Travis Free, manufacturing business advisor at KCoe Isom.  “And that is understandable. But it also impacts the long-term strategies for manufacturers, which can ultimately deliver a negative setback to their profitability.”

While shifting to short-term strategy can feel more stable and set up the possibility of a quick win, Free cautions that it could cause “massive problems in the long run.” 

Short-term planning should align with long-term goals—not the other way around. Companies that have a strategic plan in place that aligns with their vision and long-term goals are the companies that thrive for the long haul, Free said. He recommends manufacturers seek to re-strategize the way they operate to adjust to the demands of the current economy, but “take into account its effect on the long-term strategy.”

The Reality of the Bottom Line

Ask any owner or manager in the industry what their biggest short-term goal is right now, and they’ll respond immediately and in unison: staying profitable. 

Over the last 18 months, Free and his colleagues have heard a resounding battle cry from manufacturers: We need to maintain profitability to keep the doors open. This mindset often leads to finding more affordable ways to manufacture the product or sourcing less expensive materials.  

“If your long-term strategy is to gain market share by having the highest quality products on the market, while you just solved staying profitable with a short-term plan, you are now risking increased warranty claims and customer complaints on product functionality down the road,” Free said. “And, you have also abandoned the long-term strategy that has brought you so much success.”

Another area of short-term strategy with long-term impacts: labor. With companies facing a backlog of orders stacking up and a shortage of people on the shop floor, desperate times can resort to desperate-feeling measures. The labor demand in manufacturing companies today is pressuring companies to lower their hiring standards.

“A long-term strategy doesn’t always have to be monetary,” Free said. “One of your long-term strategies could be around the culture within the company. If you tailor your hiring methods to sustain short-term success, you may see down the road the company culture that attracted top talent has diminished. You now have high turnover and low morale within the workforce.”

A Case for Marrying Short- and Long-Term Goals

Amazon is perhaps the best example of aligning short-term goals with long-term strategy. Amazon did not profit—or showed only minimal profit—for years in its beginning. It was focused on its long-term growth strategy. 

Amazon assigned greater importance to growth and customer acquisition than short-term profits. They kept their prices low, sometimes to the point of losing money, but these short-term tactics aligned with their long-term strategy to own a huge portion of the online sales market. This strategy paid huge dividends in the long run. 

From 2005 to 2015, Amazon’s net income averaged $500 million with multiple years of losses. That 10-year span during which the company implemented short-term goals that aligned with their long-term strategy led to their success over the following five years. From 2016 to 2020, net incomes soared in consecutive years from $2 billion, to $3 billion, then $10 billion, $11 billion, and $21 billion.

Had Amazon chosen profits over growth, they may not be the disruptive and industry-redefining force of the online age that they have become.

Fluidity and Alignment are Essential in Planning

The key takeaway for businesses: Review your company’s strategic plan annually, especially in volatile climates like this one.

“Your plan should be dynamic and fluid to change,” Free said. “If you are trying to acquire top talent, then remote work opportunities might be part of your strategic plan. If you are trying to reduce cost, then investing in technology and new machinery can be part of the plan.”

Above all, he said, you must make sure that the current strategy in place aligns with the vision and mission that your company has defined and not just a plan to weather the storm. 

KCoe Isom works with manufacturing plants across the United States. Travis Free, CPA, is a financial business advisor that helps manufacturers evaluate short-term solutions and align them with long-term strategies to overcome challenges and capture opportunities.