I want to wrap up year 2020 with this article on the importance of thinking ahead and acting as if the world is about to end the next day (you may want to read this piece if you have not read it already – Stay focused, anticipate change). One mistake that I am seeing companies make now all in the bid to survive the harsh effects of the corona virus is excessively focusing on the short term actions at the detriment of long term outlook of the organization that they represent.
It is a well-established fact in management literatures that short-termism is the surest way to encouraging suboptimal behavior in business which ultimately translates into eventual business failure.
What keeps baffling me is the fact that despite the numerous work that management experts have done is this space, we still have ample examples of modern day businesses tolling the path of sacrificing long term benefits at the altar of short gains.
I want to use this piece to lend my voice to the voice of the multitudes speaking up on this issue. Just that I will be coming from a slightly different perspective in the sense that this article will not have the flavor of academicians.
Dangers of short term thinking
- Creates illusion: a major danger of thinking short term is the risk of having false believe that the company is doing well while the company is in fact not doing well at all. Managers actions will be focused on reporting short term and interim profits at all cost.
- Leads to unfulfilled dreams: some drams require long term support to materialize and when the needed support is not forthcoming, the dream will just die a natural death.
- Kills creativity and innovation: creativity and innovation will never see the light of the day in an environment that is poisoned by short term thinking.
- Encourages unhealthy competition: managers will always be at war at the expense of the progress of an organization when they realize that their immediate short term investments that will bring abundant future profits are being punished because they are not reporting enough profit in the now.
How to avoid short term thinking
- Set workable long term goals broken into short term milestones.
- Having a clearly defined road maps that must be followed by all.
- Delay gratification
- Having a robust change management scheme in place.
- Redesign performance measurement tools
- Constantly reviewing remuneration package to ensure suitability
- Having a clearly mapped out succession plan.
Benefits of long term thinking
- Competitive advantage
- Sustainable dividend
- Retain public confidence
- Motivates managers into taking actions that are goal congruent
The crux of the matter is that it pays to think in the long run while still taking charge of those immediate short term needs. These short term needs are operational in nature. Managers should strive to strike a balance between objectives that require long term thinking and those that require short term thinking.
Corporate world is filled with examples of companies that concentrated on the short term at the expense of long term profitability. I hope your organization will not add to the already long list of businesses that have failed at the altar of short term thinking.
I wish you all a better and prosperous 2021.