Whether we like to admit it or not, short-term thinking is entrenched in many of our political and economic systems, and as a result in many of our working assumptions as business people. Many policy level decisions are taken with the next election in mind – usually a four or five year process, whilst quarterly reports dominate stock market sentiment and many business’ outlooks.
The focus on the short-term certainly has tactical benefits and for certain companies, short-term trends assume an understandable primacy. However, short-term trends offer at best a glimpse, and at worst a misrepresentation of deeper seated megatrends that take longer to evolve but are more disruptive, and potentially advantageous.
Our current climate is characterized by incredible uncertainty; political, economic and social norms are being rewritten globally. This perhaps partially accounts for the ever-shortening business horizon detected in research since uncertainty breeds limited outlooks. Harvard Business Review notes that in its analysis of the ‘…extent to which the share prices of S&P 500 firms are driven by a firm’s present value of future growth options (PVGO) rather than cash flow from current operations[i].’ In the decade to 2015, firms’ degree of exploration decreased by 7% points—larger firms, including Apple and IBM, are even more affected with an average 10%-point reduction. The bottom line is that the focus on the short-term and on defending business models rather than exploring new ones represents a significant loss in future option value. HBR estimates that collectively, investors now value the future growth options of these firms relatively less, by $1Trillion[ii].’ This would seem proof enough that a myopic focus tends to generate less growth and value over the long term[iii].
Organisations across a range of industries and a spectrum of sizes are being forced to adapt to ever changing consumers, rapidly evolving technology and a quickening of the business environment. Opportunities will increasingly need to be ‘discovered’ since technology alone does not constitute a strategy nor is it plug and play in the sense that a new tech overlay cannot compensate for a fundamental legacy infrastructure – whether mindset, technology or organisational structure. Business would do well to begin a process of alignment, using deep-seated changes that fundamentally create change as a guide. Several of the key drivers of changes are forces larger and more complex than many standard industry-level trends normally interrogated by standard strategic tools such as Five Forces. Even three horizons has been cited as unable to keep up with the rate of change. However, taking the longer view – often beyond ten years – can often feel too abstract, and beyond the job tenure of most CEOs.
As most businesses are becoming aware, either through business model pressures, friction from grafting new technologies onto legacy systems or else organisational issues, a new level of planning is needed. A yearly competitive analysis of predefined competitors no longer suffices. New competitors, new pressures and new opportunities are emerging and cannot be ignored.