by Dan Oswald
Let me see if something strikes a chord with you as it did with me. As a manager, you’re asked to be a wise steward of the resources given to you. That means not only generating an appropriate amount of revenue and profit with the resources you manage today but also investing wisely to find new opportunities that will sustain the business in the future. A delicate balance, to say the least.
This isn’t a new concept. One of the many parables in the Bible is about three servants who were entrusted with their master’s money. See if this sounds familiar:
A man going on a journey called his servants and entrusted his wealth to them. To one he gave five bags of gold, to another two bags, and to another one bag, each according to his ability. Then he went on his journey. The man who had received five bags of gold went at once and put his money to work and gained five bags more. So also, the one with two bags of gold gained two more. But the man who had received one bag went off, dug a hole in the ground, and hid his master’s money.
After a long time, the master of those servants returned and settled accounts with them. The man who had received five bags of gold brought the other five. “Master,” he said, “you entrusted me with five bags of gold. See, I have gained five more.” His master replied, “Well done, good and faithful servant! You have been faithful with a few things; I will put you in charge of many things. Come and share your master’s happiness!”
The man with two bags of gold also came. “Master,” he said, “you entrusted me with two bags of gold; see, I have gained two more.” His master replied, “Well done, good and faithful servant! You have been faithful with a few things; I will put you in charge of many things. Come and share your master’s happiness!”
Then the man who had received one bag of gold came. “Master,” he said, “I knew that you are a hard man, harvesting where you have not sown and gathering where you have not scattered seed. So I was afraid and went out and hid your gold in the ground. See, here is what belongs to you.”
His master replied, “You wicked, lazy servant! So you knew that I harvest where I have not sown and gather where I have not scattered seed? Well then, you should have put my money on deposit with the bankers, so that when I returned I would have received it back with interest.”
Isn’t that the expectation of all of us as managers? We must not only protect what we are given but also invest it wisely so that it grows. And that’s where the difficult part comes in—with investment comes risk. Some investments return very little because the risk is very low. Stick your money in a bank account today, and a year from now, you’ll have little gain to show because interest rates are so low. But invest it in a new venture where the opportunity for gain is much greater and there’s a chance you’ll have nothing to show for it or may have even lost some or all of it.
In a recent Harvard Business Review article, authors Clayton M. Christensen and Derek van Bever called this “The Capitalist’s Dilemma,” and it really hit home with me. As managers, we must hit the financial targets set for us. That means generating enough revenue and profit to satisfy the expectations of our shareholders and, often, creditors. Those targets are generally set on a quarterly and annual basis. The thinking is relatively short-term.
But at the same time, we must make investments—which come with a certain amount of risk—to grow the business and help ensure its future. This is where the dilemma comes in. Those investments often depress current profit as financial resources are used to fund projects that may pay off in the future—longer-term opportunities.
So as a manager, you’re asked to and often heavily incentivized to maximize current profits (short-term) while you must make investments that will reduce those profits but will help ensure the future of the business (long-term). And according to the article, we’ve become very conservative about our investments. My guess is that the incentives and potential consequences of missing the short-term goals are greater than those associated with making longer-term investments. Let’s face it—miss your numbers today, and you might not be around to reap the rewards that come from those prudent investments you made in a new project.
I have no solution for you as a manager—no sage advice on how to manage this delicate balance. I find myself trying to balance the two on a daily basis, and I hope there is value in pointing out that you’re not alone if you find yourself facing this same conundrum. I guess the best we can do is work with our owners to make sure they understand that there’s a balance that must be struck between the short-term returns and the long-term gains that come from consistent reinvestment in the business. Like anything, a business without the proper feeding and nurturing will eventually die.