3-4-1-corporate-influences

Corporate timescales: short-termism versus long-termism

• Business decisions can have long-term and short-term implications

  • Long-term decisions are likely to affect the long-term mission and vision of the business over a period of anything up to ten years

  • Short-term decisions are more likely to impact objectives and tactics over the next few years at most

• Many businesses focus on decision-making for the short term 

• This is especially influenced by pay structures, e.g. when executives’ pay is linked to short-term success, such as an increase in the share price

The short-termist approach

• Businesses that adopt a short-termist approach may face a range of problems:

  • Loss of profitability and competitive edge as lucrative long-term opportunities are ignored in favour of short-term priorities

  • The need to produce and analyse very regular financial reports means that managers lack time to consider longer-term corporate strategic direction

  • Reliance on short-term contracts with suppliers and workers is likely to lead to higher than necessary costs, as benefits such as bulk buying discounts cannot be achieved

• It is argued that short-termism is an entrenched feature in British businesses, and some commentators consider that it is a key reason for sluggish productivity and a lack of willingness to invest in research, training and skills 

• Some businesses are more likely to engage in those activities that will allow them to take advantage of opportunities that improve productivity and provide a competitive edge in the future

• This long-term approach may include a business:

  • Conducting ongoing investment in research and development, innovation and new product development

  • Adopting a long-term outlook with less emphasis on frequent financial reporting

  • Valuing and investing significant resources into the recruitment, training and retention of staff

  • Establishing and nurturing meaningful and lasting relationships with suppliers

Evidence-based versus subjective decision-making

• Evidence-based decision-making involves taking a systematic and fact-based approach when determining objectives, strategy and tactics

The evidence-based approach

• First, a business identifies the measurable objective it wants to achieve and determines the criteria against which success will be measured

• Data is then gathered and analysed to consider the range of available decisions

  • Internal data may be gathered from sales records and market research

  • External market data and economic forecasts are also often used

• The appropriate evidence-based strategic and tactical decision is made and communicated to those required to carry out the range of tasks involved

• The decision is implemented, carefully monitored and reviewed

• The outcome of the decision can be used to inform future decision-making 

• Subjective decision-making is guided principally by the personal opinions and experiences of key decision-makers

  • Subjective decision-making is often more risky than an evidence-based approach, but there are some circumstances in which it may be more appropriate

Situations in which subjective decision-making may be appropriate