Reasons for a Business to Focus on Long Term Gains
Almost all businesses have to make an inevitable choice between short-term expediency and long term gains. Very often, the decision seems to be a direct trade off. For instance, short-term gains such as pricing a product high to maximize profits when the product is a “fad” might come at the cost of long-term growth, for customers may not choose to return to a shop that overcharges.
Many businesses strive primarily for short term gains, influenced by the philosophy “make hay while the sun shines,” “in the long run we are all dead” and similar maxims. The uncertainties of the business environment makes long-term difficult to predict, and as such, businesses seek to leverage their present opportunities. Such an approach can be a little short-sighted and businesses would do well to focus on long term gains rather than short term gains for many reasons.
The biggest advantage of focusing on short-term goals is profit maximization, taking advantage of some peculiar situation that may not last. Such opportunities have their inherent limitations, and in any case, come rare. The only way for a business to earn enough patronage on a regular basis extending over a long period is to establish a base of loyal and repeat customers, and such customers come through reputation. Businesses need to take a long-term approach, especially with regards to crucial elements such as pricing, customer service, market positioning and other factors to establish such a reputation and attract permanent customers.
Having a dedicated customer base allows businesses to tide over seasonal variations and recessions. Businesses with a long-term approach seeking primarily to serve their customers can adapt to changes better rather than businesses seeking to earn a fast buck.
In today’s knowledge centric business environment, human resources remain the key drivers of competitive advantages for firms. Only businesses that focus on the long term can attract and retain talent. Businesses that focus on the short term invariably have a policy of arbitrarily hiring and firing, and extend little or no benefits or opportunity to grow for their employees. Such companies rarely attract talent. Businesses that focus on the long term invariably attract top talent, who become drivers of leveraging opportunities as they come. The availability of such a committed workforce in fact places the organization in better stead to leverage opportunities as they come, compared to short-term focused businesses working on an ad-hoc basis with less skilled talent
Only focused organizations thrive, and a long-term orientation is essential for the organization to maintain focus.
Research suggests that a core set of values that remain the same irrespective of strategies or tactics adopted by the company is of vital importance for the success of any company.
In his 1962 groundbreaking work “Strategy and Structure,” Alfred D. Chandler explains that a long-term coordinated strategy is necessary to provide a company with structure, direction, and focus.
James Collins and Jerry Porras, in their 1994 book “Build to Last” explains that all successful companies have a core ideology that nurtures the company and encourage employees to build organizations that lasts. They explain that short-term approaches such as profit goals, cost cutting measures, restructuring, and a business culture where technological changes inhibit long term focus does not enlist the commitment or dedication of employees.
The trade off between short term gains and long term gains notwithstanding—at the end of the day the two remain interrelated. Short-term actions have long-term consequences, and long-term sustainability depends on day-to-day survivability.
- Collins, James & Porras, Jerry. (1994). “Built to Last.” Harper Books, New York. ISBN 0060516402, 9780060516406
- Chandler, Alfred DuPont (1962). “Strategy and Structure: Chapters in the history of industrial enterprise.” Doubleday, New York. ISBN 158798198X, 9781587981982.
- Buzzell, R., Gale, B. (1987). “The PIMS Principles: Linking Strategy to Performance.” Free Press, New York. ISBN 0029044308, 9780029044308
Image Credit: flickr.com/Jos Joanna