Short-Term Bias and Strategic Misalignment in Operational Solutions: Perceptions, Tendencies, and Traps

Abstract

In this study we leverage a multi-method approach to examine the following questions: when faced with explicit profit gaps, are firms more likely to feel pressure to pursue certain short-term tactical options over others, how much does a firm’s strategic orientation influence perceptions regarding these tactical options, and what implications do tactical mismatches with strategy have for long-term gap resolution? We start by examining cases where the tactical choices of managers facing profit gap pressures led to both successful and less successful scenarios. These case examinations form the basis of a grounded systems development model. By way of this model we further consider the complex and dynamic paths through which cost cutting, product innovation and customer satisfaction tactics can ostensibly impact a firm’s profit gap. Incorporated in our considerations are implications regarding disproportionate effort allocations into tactics not aligned with a firm’s dominant strategy. Our arguments draw on theory from the system dynamics (SD) literature relating to causal ambiguity, feedback delays, and short-term biases. Two surveys are administered to gather perceptions regarding the clarity of connections between tactical activity and performance effects, and the extent to which managers feel pressure to pursue such tactics. The surveys also provide initial parameter estimates for formal system dynamics simulations (in Vensim) of the grounded model. Initial evaluation confirms the critical role of perceived pressure on managers to take short-term actions when faced with profit gap challenges – actions that ultimately drive dynamics in the grounded system model. The Vensim simulation results are regressed on levels of tactical-strategic misalignment extracted from associated survey data, showing anticipated short-term benefits and long-term costs of misalignment. The implications emphasize the tendency for Product Leadership and Customer Intimacy focused firms to be particularly susceptible to short-term profit gap traps.