Why 'hitting the numbers' is killing your company's future - Lessons from Eisenhower and Taleb

"Plans are nothing; planning is everything."

Dwight D. Eisenhower, the 34th President of the United States and former Supreme Commander of Allied Forces in Europe during World War II.

Eisenhower made this statement in a 1957 speech, emphasizing that while specific plans often need to change when confronted with reality, the process of planning itself is invaluable because it forces you to think through problems, consider alternatives, and prepare your mind for adaptation. It's a reflection of his extensive military experience, where battle plans rarely survived first contact with the enemy, but the strategic thinking involved in creating those plans was crucial to success.

If Eisenhower is right, why is modern finance obsessed with “hitting the numbers” and “no surprises”? The obsession with "hitting the number" creates perverse incentives that fundamentally undermine Eisenhower's wisdom about planning. But, let´s dig deeper how do CFOs achieve hitting the numbers quarter after quarter with accuracy as they could predict the future (which they don´t, of course).

Tactics

CFOs who consistently 'hit the numbers' employ several tactics:

1. Sandbagging and conservative guidance - Setting achievable targets with hidden buffers, so they can "beat" expectations. Hence the consistent 2-3% beats.

2. Earnings management - Using accounting flexibility (timing of revenue recognition, discretionary spending, reserve adjustments) to smooth results. It's often legal but obscures reality.

3. Short-term operational levers - Cutting R&D, delaying investments, pushing sales between quarters, reducing inventory, or negotiating payment timing. These hit the number but may damage long-term value.

4. Managing expectations - Constant communication with analysts to "guide" estimates toward achievable numbers, making the forecast a self-fulfilling prophecy.

The Real Cost

This system creates profound damage:

·       Strategic rigidity: Companies become afraid to make bold pivots or investments that might cause near-term volatility, even when strategically sound. The planning process becomes about commitment rather than learning.

·       Risk aversion: Managers avoid experimental projects or market tests that could provide valuable information but might cause variance from plan.

·       Short-termism: The quarterly treadmill crowds out longer-term thinking. Why invest in something that pays off in 3 years if you're judged every 90 days?

·       Gaming and opacity: The more pressure to hit numbers, the more creative accounting and operational manipulation, making financials less informative rather than more.

·       Fragility: Companies optimize predictability in a fundamentally unpredictable world, leaving them unprepared for genuine surprises.

Let´s dig a bit deeper into the “Fragility” risk here as I do strongly believe it is one of the most overlooked and underrated points here:

The Fragility Mechanism

Fragility emerges when a system appears stable but is vulnerable to shocks it hasn't prepared for. When CFOs optimize for hitting quarterly numbers, they create several layers of fragility:

Operational Fragility

To hit numbers consistently, companies often:

• Run lean inventories (no buffers)

• Minimize cash reserves, deploy everything to hit Return on Capital Employed

(ROCE) targets

• Maximize utilization rates (no slack capacity)

• Delay maintenance and infrastructure investment

This creates efficiency at the cost of resilience. The system works perfectly in stable conditions but breaks catastrophically when something unexpected happens such as supplier disruption, demand spike, or quality issue. Think of how supply chains collapsed during COVID despite years of "optimal" efficiency.

Strategic Fragility

The pressure to deliver predictable results means:

• No experimentation: R&D that might fail gets cut, new build up business opportunities will be closed as it is losing cash and not bringing in stable returns as long term business provided with stable customers

• No strategic pivots: Changing direction creates variance

• Incremental thinking only: Bold moves are too risky to explain to analysts

• Competitor blindness: Focused on internal targets, not external threats

Companies become optimized for yesterday's business model. They hit their numbers right up until a disruptor makes their entire model obsolete. Kodak, Blockbuster, Nokia—all hit their numbers until “suddenly” they didn't. This brings to mind the quote from Ernest Hemingway: “How did you go bankrupt?" "Two ways. Gradually, then suddenly."

Financial Fragility

The tools used to smooth earnings create hidden vulnerabilities:

• Channel stuffing: pushing inventory to distributors to create future revenue holes

• Pulling forward revenue: Borrows from future quarters

• Deferring expenses. Accumulates technical debt, literal debt, or maintenance backlogs

• Aggressive accounting: Leaves no room for error; any reversal is catastrophic. Consider the current GPU depreciation debate for data center depreciation. Its accounting lifetime “suddenly” changed from 3 years to 6 years despite yearly new generations hitting the market. A „suddenly“ moment waiting to happen.

Each quarter's "success" is achieved by borrowing from the future. Eventually, you run out of levers to pull, and the whole edifice collapses suddenly rather than gradually.

Organizational Fragility

Perhaps most insidiously, the culture becomes fragile:

• No one speaks truth to power: Bad news gets buried or spun

• Blame culture: Missing the number means looking for scapegoats rather than tackling the root caurse

• Political maneuvering: Energy goes into managing perceptions rather than reality

• Talent exodus: The best people leave because they can't do great work

The organization loses its ability to sense and respond to reality. When the crisis finally comes, the company discovers it has no muscle memory for honest assessment and rapid adaptation.

Excursus:

The Nassim Taleb view:

Systems that are optimized for stability in normal conditions become fragile to tail events:

• Fragile: Benefits from stability, harmed by volatility (the optimized corporation)

• Robust: Unaffected by volatility (rare)

• Antifragile: Benefits from volatility and stress (learns, adapts, has optionality)

Companies obsessed with quarterly predictability are maximally fragile. They've removed all redundancy, slack, and optionality to appear efficient. They look great on spreadsheets but shatter when reality intrudes.

The Hidden Subsidy

There's also a dark irony: these "predictable" companies are often implicitly subsidized by society:

• They count on bailouts when fragility catches up (banking crisis, airlines)

• They externalize risks (underfunded pensions, environmental damage)

• They create systemic risks (too big to fail)

Taxpayers end up bearing the cost of their fragility while shareholders enjoy the "predictable" returns.

The Alternative: Building Antifragility

What would a genuinely resilient company look like?

• Maintains buffers: Cash, inventory, capacity—even if it lowers reported efficiency

• Encourages variance: Portfolios of bets, some fail, learning happens

• Honest reporting: "Here's what worked, here's what didn't, here's what we learned"

• Decentralized decision-making:  Local adaptation instead of centralized control

• Long-term incentives: Management judged over years, not quarters

• Skin in the game: Leaders hold stock they purchased with own money for years post-tenure

These companies might have more volatile quarterly results, but they'd be far more durable over decades. The problem is our capital markets punish exactly this kind of honesty and resilience.

The Systemic Risk

When all companies are optimizing for the same narrow goal (quarterly predictability), the entire system becomes correlated and fragile. Everyone is:

• Using the same accounting tricks

• Cutting costs in the same ways

• Dependent on the same efficient (fragile) supply chains

• Vulnerable to the same shocks

The 2008 financial crisis was a perfect example as banks "hit their numbers" by taking the same hidden risks, until they all collapsed simultaneously.

Optimizing predictability doesn't eliminate risk, it concentrates on it, hides it, and makes it catastrophic when it finally materializes.

The irony is delicious and tragic: the CFOs celebrated as "superstars" for their precision may be the ones making their companies most vulnerable to destruction.

The Deeper Irony

The market, managers and supervisors claim to want "transparency" and "predictability," but what they get is theater. The CFO who consistently hits guidance isn't necessarily running a better business. This person might just be better at managing the game. The CFO who honestly reports volatility (because they're investing in innovation or responding to market shifts) gets punished.

How should it be: variance from plan should often be a sign of organizational learning and adaptation, not failure. A company that exactly hits its plan every quarter for years is either in an impossibly stable business or is managing earnings rather than managing value.

What's Lost

Eisenhower's insight was that planning is valuable because it prepares you to adapt. Modern finance culture instead treats the plan as sacred, turning planning into a straitjacket. Companies become optimized for looking predictable rather than being resilient or innovative.

The tragic result: We've built a system where being precisely wrong (hitting a sandbagged forecast) is rewarded over being approximately right (honestly reporting business reality with its inherent uncertainty).

Let me close with a quotation from Warren Buffett:

Eisenhower understood that honest planning, not “pseudo-precise” forecasting, builds resilient organizations. Or as Warren Buffett put it: "Honesty is a very expensive gift. Don't expect it from cheap people."