Business people don’t spend enough time on thinking through the ideas and assumptions that shape a problem. They go for the solution pretty quickly, and then make it fit a set of pre-existing ideas and facts: ‘This looks a good way of doing something so now can we get on with it.’ Decision making is often just a series of justifications.
(Former CEO of Global Fortune 100 Firm)
Global Trends are about the changing world in which we live and operate. The idea is that the future world will be fundamentally different to today’s world. Very few people will likely disagree with this simple statement. Right? Then how do we balance this fact against another critical reality today–that we are living in a world where the pressures on businesses are becoming increasingly short-term in nature and business leaders in many organizations are increasingly driven by short-term results. We hear lots of statements (excuses) to justify this situation: Without the short-term, there is no long term, or The responsibility of the CEO is to continually ensure results meet or exceed shareholder expectations.
The question we raise in this series of blog posts (see tag: short-term thinking) is: What is the impact of short-term thinking in a changing world? Who benefits from short-termism? Is the current situation acceptable for business leaders today and, if not, what can be done about it? Here we want to hear from you – both your experiences and ideas.
Frequently in discussions with business leaders, there is substantial weight given to the need to meet or exceed market expectations. But in reality what is this market and how are its interests represented? In most cases, markets are short-hand for analysts. It is interesting that we seem to assume that all of the activities and efforts of individuals across an organization can be captured and summarized in a few numbers plugged into a few spreadsheets by such outsiders. If life was so simple, shouldn’t it be much easier?
There are at least three problems, from our perspective, in the assumptions of what a market is and what it expects:
- Analysts are in fact just individuals (often young MBAs) with their own opinions and perspectives. Their spreadsheets are simply models, built on multiple layers of assumptions and abstractions from reality. They also have a bias towards evaluating performance in terms of financial performance, assuming numbers accurately and holistically reflect reality. As such, are analysts truly the right judges for evaluating firm performance in a changing world with growing uncertainty and volatility?
- Markets should reflect the interests of the owners of a business, but there clearly is no single owner or even consistent set of owners for many firms. In today’s world, there are however two distinct types of investors: Short-term traders and long-term investors. Traders often seek out volatility as a source of profit potential, so their interests are not necessarily aligned with those of the firm or long-term investors. How do we ensure the short-term results focus of traders is balanced by the long-term interests of investors and the firm?
- With the growth of income inequality, the benefits of the work of many are increasingly being concentrated in the hands of a few (including often those short-term traders). From an overall societal point of view, is this situation desirable or even sustainable? How will the current economic system and ways of working be challenged by alternative economic models and approaches – as is already happening? In the longer term, will competition be between two western firms fighting over short-term results or between the western economic model and models found in China or other high-growth markets?
Our future will be marked by growing uncertainty and volatility and almost certainly reflect dramatic changes (including those described in the www.globaltrends.com analysis, reports and articles). In this environment what will be the long-term consequences of business short-termism? Is a change needed in business focus? If so, what does this change involve and what are the challenges of making it?
This is the topic that will be explored in this www.globaltrends.com short-term thinking blog series. We hope you join in the conversation, challenge our thinking, add your perspectives, and help all of us think about the implications of growing short-termism in a rapidly changing world – and how we can address them.
