Corporate Timescales: The outcome of decisions can have a short term and long-term impact on a company. The long-term decisions are those that affect your vision mission and objectives. They could have an impact on the business 5/10 years’ time. Short-term decisions or more operational in nature and are designed achieve goals in, 12 months’ time. Companies recognise this and have to decide which is most important to them
Short Termism: Some companies appear to be more short term than others. If this is the case, they are likely to choose certain courses of action when deciding. For example, they are more likely to do the following.
- Maximise short-term profits: Most companies that this year short-term objectives in to increase shareholder value. They’re likely to do this by trying to maximise short-term profits. There are ways to do. For example, they may try to maximise revenue by charging high prices or investing heavily in persuasive advertising. They may also try to cut costs by investing less in research and development, which is discussed below, – using cheaper resources (at the expense of quality) and switching suppliers on a regular basis
- Investment in research and development: this is because research and development and be a big grin on cash reserves. Of company will prefer to use as helpful short-term objectives. Investment in r&d is also risky. Returns could be negative if r&d projects. Even if r&d successful the financial returns could take many years to reap.
- Invest less in training: training staff is also expensive, and their returns are not immediate. The return from training are likely to be positive because workers will be better motivated, better equipped to do the job and staff turnover will be lower. However, it will take time for the benefits to materialise.
- Return cash to shareholders: a business with large cash reserves made his special dividends to shareholders and instead of investing for the long-term. For example, in 2014 rexam beverage can- maker, returned £450 million to shareholders by paying them 57p per share. This is after the sale of the bulk of its health care business for £490 million
- Engage in asset stripping: asset stripping a business buys another business, often and financial difficulty, and breaks up. The profitable parts of the business are sold for cash and the loss-making sections are closed down. This practice is often considered unethical because there’s no regard for the future of the company and stakeholders. However, in the short term it can generate a quick cash return for shareholders of the predator.
- Arrange more short-term contracts: companies with short-term objectives may rely more heavily on short-term contract, for example with suppliers. They may also employ more agency and temporary staff and favour short term leases for machinery and other essential assets. Entering short-term contract all she does not really commit a business to any long-term objectives.
- Pursue external growth rather than organic growth: Organic growth may be considered too slow for companies with a short-term approach. Growth through mergers and acquisitions is much faster and may generate swifter returns if successful
Drawbacks of short- termism:
- Long-term profitability of a business might be threatened by focusing too much on the short time
- Companies may lose a competitive Edge in overseas markets
- The need to make quarterly financial reports which wastes time
- Over reliance on short-term contract may be inappropriate due to higher costs
Long Termism: Long termism is clearly the opposite of short-termism. Therefore, businesses with a long-term Outlook would not suffer the drawbacks that are associated with short termism. For example, businesses are less likely to overlook lucrative opportunities that yield long-term profits. They are more likely invest in R&D of a new product development and other Innovations. This will help them gain a competitive Edge. They will attach much less importance to quarterly reports and emphasize the importance of the long-term. They’ll be more interested in recruiting high quality staff, training them, building loyalty and retaining. Finally, they’re likely to be more interested in long-term contracts with suppliers and other agents, in order to develop meaningful and profitable relationships
Evidence Based versus subjective decision making:
- Evidence based decision making: Requires a systematic and rational approach to research and analysing all the information before a decision is reached.
- Subjective decision making: Personal opinions of key decision makers strongly influence the course of action chosen.