“The reality is, shareholder value or stock price is not something you can create anyway. It’s a by-product that only happens if you make a difference in people’s lives.”
But unfortunately, says Clayton Christensen of the Harvard Business School, many business leaders have been trained to care obsessively about short-term results–specifically, he says, they tend to put too much weight on financial metrics like IRR (internal rate of return) and ROCE (return on capital employed) because they’ve been conditioned to treat capital as precious. In reality, Christensen points out, “Capital today is abundant and cheap” (so much so, he notes, that “investors had to pay Square for the privilege” of having the hot startup take their funding). With so much available capital, it’s an opportune time for companies to invest in expansive, game-changing innovation–and in “people who have the skills to solve not only today’s problems but to ask what tomorrow’s challenges will be,” Christensen says.
Yet many businesses have remained focused on what Christensen calls “efficiency innovations” (aimed at reducing costs) in order to free up more capital, which in turn is used to create more efficiency. How to break this cycle? Christensen thinks tax incentives for long-term investment may help, but he also believes, like Shaich, that business leaders must step back and ask: what do we actually care about, beyond today’s stock price or short-term return on capital? What are we trying to achieve and how will we get there, in the long run?
Read more: Forget The Mission Statement. What’s Your Mission Question?