Paths to long‐term performance and strategic planning

• Published date: 01 May 2019
• DOI: http://doi.org/10.1002/jsc.2259
• Author: Sang Yoon Shin
• Date: 01 May 2019

RESEARCH ARTICLE

Paths to long-term performance and strategic planning

*

Sang Yoon Shin

Department of Entrepreneurship and Small

Business, College of Business Administration,

Soongsil University, Seoul, Republic of Korea

Correspondence

Sang Yoon Shin, Department of

Entrepreneurship and Small Business, College

of Business Administration, Soongsil

University, Sangdo-ro 369, Dongjak-gu,

Seoul 06978, Republic of Korea.

Email: stg@ssu.ac.kr

Abstract

A firm may ensure sustainability by pursuing long-term performance through one of the three

possible paths: adoption of long-term perspectives within the existing business, extension into a

new business andadoption of long-term perspectives, and jump into thelong-term new business.

Considering temporal dimension and business dimension, a firm pursues four types of perfor-

mance: maintenance, sustainable growth, diversification,and transformation. Explorativestrategic

planning as well as explo itative one is required for a firm to succ essfully manage a balanced

pursuit between long-te rm performance and short-term one.

1|INTRODUCTION

Dismissal of CEOs with short tenures has become a dominant trend

through a tendency to evaluate the ability of CEOs according to visible

short-term performances. A study reported that only 29% of 83 CEO

successions within the 500 largest US public companies during 1997

and 1998 were voluntaryretirements by former CEOs completingtheir

tenures (Wiersema, 2002). This phenomenon led to an increasingpres-

sure that CEOs have for keeping their top positions. And this pressure

may lead CEOs to pursue firms’performance with short-term perspec-

tives. For example, CEOs with short-term perspectives would try to

obtain short-termperformance directly reflected in the stock price and

reduce the expenditure such as R&D, which will enhance performance

in the long term. Or they can ignorethe changing environment and try

to stay in the statusquo with the fear of uncertainty.

However, a firm cannot survive for a long term unless it is man-

aged though long-term perspectives. IBM shows the very examples

about this. It suffered for a long time due to the short-term strategies

of John Akers, the CEO from 1984 to 1993, who stuck in the main-

frame age and failed to expect the coming age of personal computing.

But IBM made a success in its corporate transformation into an IT ser-

vice company through the long-term strategies of the next CEO, Louis

Gerstner, and it still remains as a top player in this field. Also, notori-

ous Al Dunlap, who was the CEO of Sunbeam and Scott Paper in the

1990s, showed a clear example about the disaster of focusing only on

short-term financial performance to satisfy myopic investors.

Long-term performance is composed of both financial perfor-

mances after a substantial long-term period and innovative outputs

for achieving sustainable growth. Then, what should be done for the

firm to pursue long-term performance and short-term one with a

balance? First of all, stakeholders and shareholders of the firm should

not evaluate the CEO only with short-term performance. They should

assess the CEO through what he has done for both the short-term

performance and the long-term performance of the firm. Assuming

that stakeholders and shareholders demand the CEO with a balance in

both short-term performance and long-term performance, this article

addresses how strategic planning can help the CEO to obtain both

performances together. Specifically, dimensions and types of perfor-

mance pursuit, streams of strategic planning, and three paths to obtain

long-term performance are explained. Then, this study proposes how

strategic planning can help a firm go through along these paths and

obtain long-term performance.

2|DIMENSIONS OF PERFORMANCE

2.1 |Temporal dimension

With regard to temporal dimension, a firm pursues performance with

either its short-term perspective or its long-term one. When a firm

seeks its performance only with the short-term perspective, two

aspects canbe considered as the reason. Thefirst one can be the CEO's

opportunistic propensity. Agency theory precisely explains this phe-

nomenon well (Eisenhardt, 1989). As mentioned above, this behavior is

reinforced whenthe stakeholders and shareholders assess the manager

on the basis of the short-term performance. Secondly, focus on the

short-term performance can result from an extreme avoidance of

uncertainty by the CEO. In this case, as the CEO regards the invest-

ment of which benefit is not realizedin the short term too risky to pur-

sue, the firm focuses on the expenditure and investment from which it

can obtain revenue in the short term. Though this approach can be

*JEL classification codes: L 25, M 10.

DOI: 10.1002/jsc.2259

Strategic Change. 2019;28:203–208. wileyonlinelibrary.com/journal/jsc © 2019 John Wiley & Sons, Ltd. 203