Many companies experienced business downturns due to the pandemic. Since conditions have eased somewhat and there is talk of perhaps fewer restrictions this summer, many businesses are expected to do well on year to year performance. For many companies, business had dropped so low last spring that any upturn this year will look like a really good increase.
Crain’s Chicago Business recently did an article on this. The article ran in the March 29, 2021 issue in the Joe Cahill on business column and was titled “Warning: Earnings are going to look great”. ”Starting next month, companies will report first quarter profits that are likely to look really good by comparison to numbers they posted last April,” says the article. The article tells CEOs not “to bask in the glow”. According to the article, “last year’s plunge sets a very low bar for this year’s earnings reports.”
Cahill’s article is so right that earnings will likely look very good due to last year setting such a low bar. But, as I see it, there is an advantage to a little bit of basking in the glow as long as that basking is not excessive. The added benefit that I see here is that a little bit of basking in the glow can make it more likely that executives won’t feel compelled to take drastic action in an attempt to do something about lackluster results.
Many executives have a bias for action. So, executives often do act when pressure to improve results intensifies. In my 25+ years researching business success and failure patterns, I find that it is not unusual for companies to make strategic missteps due to ill-suited changes enacted in response to weak results. In contrast, while basking in the glow, executives are less likely to feel compelled to do something—maybe even anything—to improve their results.
A poorly thought out something can end up being worse for the business than doing nothing. So, as business picks up, the added benefit is that executives no longer face intense pressure to act. This can keep them from doing what is detrimental to the business and can free them to consider better strategic choices.
