Why short term thinking is destructive

Short termism One of my favourite quotations from economist John Maynard Keynes was “in the long run, we are all dead.” He made this quip to pour scorn on those who thought the problems of the day were insurmountable and impossible to cure in the interim. He argued for the government to take the lead, and ‘prime the pump’, engaging the country in mass building programs to put people back to work and get those important multiplier effects working through the economy.

Although long term issues do require long term solutions, you should not feel defeated before you even begin, thinking everything is impossible. Where will that get you? However, an over reliance on short term results can distort decision-making such that the future is sacrificed for a result today.

We can see this from everything from daily (and hourly) share market fluctuations  through to the climate change debate. Last week the headlines and broadcasts screamed about a 110 point drop in the ASX due to a problem in China. Almost mass hysteria followed. The next day the markets rebounded 100 points. At the end of the week, they pretty much ended up where they had left off a week earlier. Hardly worth any fuss you would think. How can people get so overly concerned about a one day dip and then almost go ‘meh‘ when the losses are recouped on the morrow? Are we more wired to react to bad news? Is that what the news media know only too well? Of course they do. They are after ratings, after all. They are in the entertainment business, not the information business. Eyeballs are everything. Everywhere. They are being judged on short term results too. What were this week’s ratings again?

In business, it is fairly easy to get some short term results. Sack a few staff, slash costs dramatically, tell your suppliers you’re renegotiating everything and you’ll see your results rebound almost instantly. Many companies are doing this right now. Fair enough, for many it is a matter of survival. No doubt they can impress the markets with an improved quarter. But what have they done to the morale of the team, the future output of the company, the relationships with suppliers and the service standards to your customers?

Of course there is a balance. In the long run we are all dead, but overly concentrating on the minutiae of the short term makes you a reactive leader. Failure to “see the wood from the trees” means you make strategy the hostage of tactical decisions. No great business is built this way.

It takes time to build a business. It even takes time to understand what your business is, what it means to your customers (whose needs are constantly changing) and staff, and where the market you operate in is going. A deft hand on the tiller is required, not a lurching from side to side. Calmness, not craziness.

I went to a presentation a few years ago where a speaker argued the stock market should open one day a year simply to readjust prices, and then we could just get on with business in the meantime. Not a bad idea.

A friend of mine once put it this way. He likened a business strategy to a long walk through a mountainous region. In the foothills you look up at the mountains stretched before you, and have to plot your path through them. The decisions made there dictate which valley you will be heading down days from now. Get these decisions right and you will make it through. Having to change course half way through a pass means you have to either go back the way you came, or take the treacherous sideways climb up and over the valley to get to where you now want to go. Plan accordingly, pick your way and keep on the path. Many a traveller has come to grief without a well laid route map, provisions and knowledge of the road ahead. Short-termism is a pest of the modern day age. Don’t get sucked in.

For more on the threat of Short-Termism, read this excellent Forbes article from last year.

6 thoughts on “Why short term thinking is destructive

  1. Thanks Charlie, I enjoyed reading your article and reminded me of a cliché, “Throw out the baby with the bathwater”. Regarding your article many babies, for you listed a few pointers including ‘team morale’, suffered from short term gain. It a also reminded me that businesses also needed to be ‘mindfulness’ otherwise, to quote Mr Keynes, “in the long run, we are all dead.” Cheers!

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