Sludge is profitable in the short term. With CEO tenures shorter than ever and compensation tied to quarterly stock performance, executives are incentivized to cut customer service costs now, even if it harms long-term customer relationships and brand loyalty.
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A founder's real boss is their customer base. While keeping a board happy is important, some CEOs become so consumed with managing up that they lose sight of the product and customer needs, ultimately driving the company off a cliff despite running perfect board meetings.
Preparing a company for acquisition can lead founders to make short-term decisions that please the acquirer but undermine the brand's core agility, setting it up for failure post-sale. The focus shifts from longevity to a transaction.
Brands often misinterpret repeat purchases driven by discounts or points as genuine loyalty. True loyalty is an emotional connection, not a transactional one. This "entrapment" model fails to build lasting customer relationships or brand affinity.
Economic pressure forces leaders to prioritize immediate, bold actions over incremental gains. This creates a stigma against continuous improvement, which can be perceived as slow or lacking strategic impact. The mandate is for massive, transformative change, not small, sustainable steps.
A study found that CEOs trained to prioritize shareholder value deliver short-term returns by suppressing employee pay. This practice drives away high-skilled workers and cripples the company's long-term outlook, all without evidence of actually increasing sales, productivity, or investment.
Companies intentionally create friction ("sludge")—like long waits and complex processes—not from incompetence, but to discourage customers from pursuing claims or services they are entitled to. This is the insidious counterpart to behavioral "nudge" theory.
Maximizing profits in a crisis, such as a hardware store hiking shovel prices during a blizzard, ignores the powerful economic force of fairness. While rational by traditional models, such actions cause public outrage that can inflict far more long-term brand damage than the short-term profits are worth.
A study of companies in the U.S. and Denmark found that while MBA-led firms achieved better short-term shareholder returns, this came at the expense of employees through suppressed wages. Critically, these leaders showed no evidence of increasing sales, productivity, or investment. The resulting wage declines led to higher-skilled employees leaving, crippling long-term company health.
Leaders don't explicitly order "bad service." They demand aggressive cost reductions, which trickles down and leads lower-level managers to implement sludgy tactics to meet targets. As George Carlin said, "you don't need a formal conspiracy when interests align."