Short-Termism Is Rife Within Businesses: Here’s How To Deal With It

Many of the greatest challenges facing business leaders involve the here and now. Think reckoning with staffing and supply chain issues. Establishing team autonomy and respect for individuals and their circumstances. Ensuring growth targets and company ambitions are agile and reflect the uncertainty that exists within the economy. Or finally, the urgency of implementing tangible change when it comes to sustainability and diversity, equity, and inclusion. 

The pressure to enact change often comes from multiple sources including shareholders, employees and customers, and much of the conversation around enacting change focuses on implementing fixes with immediate impact. This is, of course, important but sticking to the narrative that short term solutions can solve longer-term systemic and often sector-wide issues can lead to a misalignment in business objectives. This causes longer-term goals to be overlooked, and critical root causes to be missed when quicker solutions are implemented. 

The bottom line is that short-termism is rife within the business community when it comes to issues such as meeting sustainability goals, investing in high-quality technology, research and development, or producing a truly inclusive company culture. This is because of a perceived contradiction between short term business goals, the benefits seen from investments in these areas, and a sense of long-term benefit that will help to improve a company financially. It can often be easier for business leaders to create the appearance of action by setting years’ long targets for long term objectives whilst taking no steps to meet them.

Overcoming short-termism requires a rethink of a few fundamentals: targets and goals, leadership structures and reporting and incentives. Fortunately, embracing a more agile approach to each of these facets can help business leaders do just that.  

Targets and goals

Business objectives are not in and of themselves a negative thing. The issue is when they are put in place without any other structures regarding how they can be met. Too often they are used as pointers or signalling mechanisms to mask the fact that little attention is actually being given to an issue. The lesson is that targets are nearly always less important than the actions that are taken to meet them. 

Another mistake businesses make when it comes to setting goals is being guided by the norms surrounding the delivery of financial value, shareholder and investor interest and business growth more generally. It must be acknowledged by all in the business that sometimes actions that are in the short term harmful, can be necessary for delivering more robust growth in the long run. Adapting to become more sustainable is the common example used here. But it also applies when thinking about how many resources should be devoted to new technology or openness to innovative processes that could allow businesses to be more agile in the face of uncertainty. 

Leadership structures 

Devoting individuals or even entire departments to longer-term goals is something of a convention these days. We live in the era of the Chief Diversity Officer or the sustainability department. The intention here is often well placed but departmentalising ambitions in this way can have a negative effect on how widely longer-term objectives are embraced. 

Take the two longer-term objectives just nodded to: diversity, equity and inclusion and sustainability. Both goals should be seen as companywide and the responsibility of every individual. The creation of dedicated roles or departments can lead others in a company to feel like they have no responsibility for the change that is required to meet a long-term objective. Recasting the scope of responsibility is a key step to challenging short-termism because it entails that every aspect of the business must have an eye toward longer-term goals. This should impact everything from internal processes, recruitment, which suppliers are used and how customer experience is approached. As soon as the mindset of long-term change is embedded within each member of a team, real responsibility can be instilled. The buck should stop with all, not just one.   

Reporting and incentives 

On top of the issue of arbitrary or unactioned targets comes the question of how goals are reported both internally, to your team, and externally to the public and investors. Take the example of earnings reporting and investor communications. Such reporting is often structured so as to incentivise attention to the near term need for quick growth. Reporting every quarter without attention to the long term trajectory can have this effect because of the fiduciary duty business leaders have to deliver value across these defined (and often short) time periods. The issue with this presentation is that value is cast in a way that promotes leaders to invest in projects that deliver in the short but not long term. 

A clear case can be made that quarterly reporting should be rethought when leadership is attempting to implement structural change. This is not to say that it should be replaced altogether, but more that thinking about the incentives of business leaders does truly matter.  

This last point is key to combating short-termism which is, after all, an incentives issue. If one lesson is taken above all it is that challenging conventions and legacy practices can reveal hidden barriers that were inimical to change. Taking a step back to reconsider how a business operates can help leaders to create a culture of responsiveness and attention to longer-term goals. This is the only way we can hope to address the most serious issues facing businesses today.  

About the author: Andrew Jones is the CEO of Agility in Mind.