Long-term Thinking in Organizations

Abstract

Long-term thinking is investigated in five sectors: energy, finance, hotels, mining and pharmaceuticals.¹ The objectives of the study were to ascertain the prevalence of long-term thinking in these sectors. In addition, the benefits and barriers of implementing long-term thinking in these sectors were assessed. The research method incorporated a combination of qualitative and quantitative data collection. Within each sector, target companies were selected based on criteria of relevance and accessibility. Individuals were then identified for questionnaire administration and/or interview participation. Respondents consisted of Board executives and senior and middle managers, selected as being directly involved with strategic decision making.

Keywords

Long-Term Thinking Business Organizations Short-term Thinking Sustainable Growth Energy Finance Hotels Mining Pharmaceuticals

Introduction

This research project investigates the concept of long-term thinking (hereafter ‘LTT’) in business organizations. In a global economy faced with myriad sustainability challenges and crises, analysts and academics have focused increasing attention on the damaging prevalence of short-term thinking (hereafter, ‘STT’) or ‘short-termism’ within society in general and big-business in particular.

Incentivized by near-term financial imperatives and relentless pressures to maximize profits, shareholders encourage and direct their business enterprises to prioritize short-term financial gain and opportunism to the neglect and detriment of broader, longer term commercial, societal and environmental considerations.

This research sets-out to understand the perceived prevalence, importance and nature of long-term thinking across a range of business sectors; to understand the benefits that can flow from long-term thinking and the risks of failing to implement long-term thinking; and to investigate the barriers that prevent or hinder the incorporation of long-term perspectives and thinking within organizations. Specifically, this article seeks to explore the following questions in Table 1.

Table 1.

Research Questions

Research Questions
1	What is the prevalence and nature of long-term strategic thinking in organizations?
	• how important is long-term thinking?• what time horizons do organizations use for strategic planning purposes?• how does this compare with industry competitors?• are strategic planning time horizons too short/too long?• which organizational departments are responsible for long-term thinking?
2	What are the benefits of long-term thinking and risks of failing to think long term?
	• what benefits can be derived from long-term thinking?• what can be the risks of failing to implement long-term thinking?
3	What are the barriers to the integration of long-term thinking in organizations?
	• what are the major barriers to the implementation of long-term thinking?• what organizational changes might encourage long-term thinking?• which stakeholders influence long-term thinking?• have attitudes towards long-term thinking changed in recent years?• have managers become pressurized towards short-term thinking?

Source: Authors’ own.

Literature Review

This literature review explores the concept of LTT in business and industry. The review considers the importance of LTT and illustrates some of the barriers to incorporating LTT within the corporate strategy of organizations. Later in the work, the critical analysis will compare the groups empirical research with the literature reviewed.

‘Long-term thinking’ takes place when a decision-making process considers not only the actions and results of short-term perspectives, but also considers the future beyond the immediate. Timeframes for LTT thinking will vary across organizations and sectors, but the principle of ‘considering tomorrow’ is the fundamental concept underpinning LTT (Ambachtsheer, 2014). Thus, ‘long-term planning’ aims to formulate a step-wise strategy to meet future needs, often by extrapolation of present or known needs. LTT and planning begins with the current status and then charts out a path towards an intended future status.

Similarly, Hofstede, Hofstede and Minkov (2010) define ‘long-term orientation’ as being ‘focused on the future’. Short-term material and social successes are willingly deferred in order to prepare for the future. This orientation incorporates values of persistence, perseverance, saving and adaptability. By contrast, a ‘short-term orientation’ consists of being focused on the present or past and considering them more important than the future. STT places value on tradition, pre-existing power structures and social hierarchies, maintaining the status quo and meeting obligations with an emphasis on immediate gratification as a priority over future fulfilment.

There is widespread evidence of a reluctance to think in extended time frames, a condition which Princen (2009) considers might well be inherent within human nature. In fact, Princen (2009) concludes an analysis of human decision-making informed by evolved adaptations (biological, psychological and cultural) and suggests that humans do possess a long-term thinking capacity encompassing both the immediate, near-term and far-term future. However, it is this very ‘temporal duality’ which makes individuals, groups and society subject to manipulation, embedded in the ‘politics of the short-term’. Thus, while we recognize the importance of the future, our action plans to accommodate long-term needs are often afforded insufficient credence (Lindkvist, 2013). As a result Brumm (2012) contends that the world is faced with a plethora of sustainability challenges—energy shortages, global food security, environmental degradation and financial crises; problems presenting unique challenges, yet together sharing one common thread—a lack of LTT.

Concerns over the predominance of STT within industry and commerce are widely highlighted.

In the financial sector, for example, Curran and Chapple (2011) underscore the varying barriers to LTT faced by companies, their Board members, executives and managers alike; barriers which conspire to incentivize and promote a short-term perspective in these organizations. Companies too frequently structure their corporate strategies to focus on the maximization of short-term returns while underestimating longer-term systemic risks and broader impacts. Bair (2011) emphasizes how the overarching lesson of the 2008 economic crisis is the pervasive STT that helped to bring it about. Short-termism remains a serious and growing problem in both business and government. Hence, Barton (2011) stresses that LTT must be more fully embraced and incorporated into modern business practice and emphasizes how commerce and industry must shift away from ‘quarterly capitalism’ towards ‘long-term capitalism’.

Similarly, Barton and Wiseman (2014) make clear that no industry is more plagued by its pre-occupation on short-term benefits at the expense of long-term growth than the financial sector. In ‘An Economy That Works’, the Kay Review (2012) demonstrates how short-termism in the financial capital markets has trended disturbingly higher, noting how average equity holdings had fallen from a tenure of 8 years in the 1960s, to just 7 months by 2007.

Immense and constant pressures for publicly traded corporates to maximize short-term financial results stem from a variety of sources, as corporate boards seek to meet the vested short-term interests and pressures of their shareholders.

While there are varying barriers to LTT in different business sectors, the financial markets highlight most vividly how significant resistance exists to change among those who stand to benefit financially from the short-term status quo (Aspen Institute Business & Society Programme, 2009). Thus, STT restricts companies in their ability to invest and grow in the longer term and carries broader and deeper repercussions—thwarted GDP growth, higher unemployment and lower returns for investors (Barton & Wiseman, 2014).

In the mining sector, Parker (2013) describes how LTT is a sine qua non for the industry, essential to generate wealth, mitigate environmental harm, combat poverty and promote development in near-mine communities. Leveraging supply chains, nurturing entrepreneurship and developing operational capacity to create healthier and better-educated communities, foster local economies and mitigate against environmental damage. However, despite there being a plethora of factors to advocate LTT, this is often not implemented in practice, such that activity in the international mining industry ‘has often been disproportionately influenced by short-term outlooks’ (DTTL, 2015).

In the retail sector, some organizations, such as the British Rail Consortium, are more seriously appreciating the importance of how LTT can better position their business for future growth in the interest of a broader stakeholder base (Jones, 2005). Elsewhere in the sector however, Jones, Comfort and Hillier (2009) emphasize the distinction between the provision of sustainable products as opposed to the promotion of sustainable consumption. While certain retailers might have adapted their product lines, the concern remains that the primary focus of the sector is the unrelenting promotion of consumption of as many products as practically possible, very often in opportunist ‘Buy-1 Get 1 Free’ type campaigns.

Kanter (2011) describes how economists traditionally argue that the sole purpose of industry and commerce is to make money, and the more the better—a short-term perspective embedded in modern capitalism which directs the thinking of many businesses, constraining them to focus on maximizing short-term profits and returns to shareholders. Kanter argues, however, that ‘great companies’ consider the business enterprise to be a social institution within a long-term perspective that is well-positioned to endure the short-term financial sacrifices required to achieve its defined longer term corporate purpose. ‘Successful companies’, therefore, are willing to sacrifice short-term financial opportunities if they are incompatible with the core institutional values that guide the company’s identity and reputation. However while Kanter’s ‘great companies’ may purport to value the benefits of LTT, the majority of companies still focus on the short term.

Immediacy of results, short-term profit motives and the risk of daily market fluctuations are some of the barriers to LTT which have driven corporations to focus on ‘quarterly capitalism’. Thus, Dyllick (2002) asserts that the corporate obsession with near-term accountability and profitability undermines the benefits of LTT as short-term needs are prioritized to the detriment of future needs.

Senge (2008), however, advocates that short-term profitability and longer-term strategic thinking can, and must, work as two components of the same corporate unit. Coca-Cola (India), for example, extracted catchment water for soft-drink production but focused solely on production efficiencies and profitability while failing to foresee how local communities would be detrimentally impacted by reduced water availability resulting in widespread reputational damage and costs (Senge, 2008). As Senge concludes, a component of LTT is essential—there can be no fishing industry without fish, nor a drinks industry without water.

Many corporations have successfully combined long-term planning with improved short-, medium-and longer term financial results. Gordon (2001) provides examples of how LTT can be used to enhance profits; Polaroid Cameras adopted a long-term strategy to reduce wastage and manufacturing costs; LSI Logic implemented a sustainable water reuse process and reduced water consumption by 33 per cent; Compaq Computers constructed new office buildings with multiple skylights and slashed electric lighting costs.

Several studies investigating the theme of LTT also identify the importance of executive leadership in driving LTT within organizations (Curran & Chapple, 2011; Kanter, 2011; Porter & Kramer, 2006). A well-publicized case in point is Unilever CEO Paul Polman (2014), who describes how he withheld financial guidance and quarterly reporting, a long-standing corporate protocol which, he recognized, failed to reflect the company’s inherent progress and profitability. Polman’s intention was to develop a long-term business focus to allow reflection of the ‘true performance’ of the company. Polman’s strategy was to attract shareholders committed to meet the company’s long-term vision, instead of planning for and simply reacting to, its traditional short-term objectives. Following an initial 8 per cent decline in share price, Unilever subsequently flourished under a new regime of revitalized investors committed to Polman’s long-term vision.

The potential risks of failing to implement LTT are well identified. Williams (2014) highlights the escalating seriousness of sustainability problems facing the global community and asserts that if business fails to adopt a more prominent role in problem resolution and a renewed commitment to LTT, then society is surely destined for demise. By way of example, in Energy at the Crossroads, Smil (2005) highlights the global ecological damage being caused by the unsustainable burning of fossil fuels, and the short-term perspectives that have caused it.

Governments and individuals can do much to demonstrate a longer term perspective and big-business can be a significant force for change. While Porter & Kramer (2006) recognizes that global corporations cannot assume total responsibility for a sustainable future, he emphasizes that ‘when a well-run business applies its vast resources, expertise and management to problems it understands, it can have a greater impact on social good than any other institution or philanthropic organization’. Similarly, Hart (2010) proposes that longer term business strategies might provide the most significant way to engender sustainable change.

A number of issues emerge from the literature.

There is a well-documented bias towards STT, as displayed in many sectors of business where short-term gains take precedent over long-term perspectives.

This notwithstanding, both the potential benefits of LTT and the risks of failing to implement LTT are well recognized across different sectors of primary, secondary and tertiary industry.

However, the real-time incorporation of LTT into organizational strategy is undermined by a plethora of barriers to its practical implementation and strong incentives to promote STT. In many instances, barriers and short-term motives mitigate against efforts to incorporate LTT into practice.

There are indications that STT and LTT are neither incompatible nor mutually exclusive; they can and sometimes should, co-exist within organizations. Further, many modern businesses are well-positioned to address contemporary global challenges by pro-actively incorporating LTT into their strategic perspectives.

Research Design & Methodology

Research Strategy and Design

To address the research questions introduced at the start of this article, participant opinions from a selection of business and industry sectors were investigated. The research strategy adopts a combined deductive and inductive investigative approach intended to better understand and ‘test’ the summary findings of the literature review, while also providing for the inductive formulation of conclusions and recommendations based on the collected data. As a predominantly opinion-based survey, the research embraces an interpretivist epistemology.

Bryman (2004, p. 27) emphasizes ‘the important distinction between a research method and a research design’. Research design provides the framework for the collection and analysis of data. A research method is simply the technique for collecting the data.

A number of research designs (experimental, cross-sectional, longitudinal, case-study and comparative models) were considered with the intent to incorporate quantitative and/or qualitative data collection methods.

Important practical considerations included (i) the size, geographic location, business/industry experience and ‘network resources’ of the group, (ii) estimated accessibility to target companies and (ii) time and resources available for the study.

Experimental and longitudinal designs were considered impractical and inappropriate, while a single company case-study method was considered too limited in scope. An in-depth comparative analysis of companies within one sector of industry (UK retail) was initially contemplated in which FTSE listed retail corporates were identified as target candidates. However, in order to broaden the scope of data collection and more fully utilize our group expertise, it was decided to employ an expanded cross-sectional design across a sample of business sectors. ‘Cross-sectional design entails the collection of data on more than one case at a single period in time’ (Bryman, 2004, p. 41).

Six sectors were identified (energy, finance, hospitality/hotels, mining, pharmaceuticals and retail) to provide likely variability in strategic perspectives and planning horizons. The energy, mining and pharmaceutical sectors are well-recognized for their ‘traditionally’ long-term project lead-times, infrastructure and investment requirements.

Sun (2015) highlights energy (oil) and mining in the top four long-term growth sectors for the decade ahead, while BMI (2014) consider enhancements in global healthcare to present significant long-term opportunities for multinational pharmaceutical companies. By contrast, short-termism plagues the retail industry (Stephens, 2015) while literature consistently points to the ‘short-termism’ perspectives of the finance sector.

In addition to providing sectoral variability of data, group members felt pragmatically confident of reasonable access to respondents in these sectors.

Data Collection Methodology

The research method incorporated a combination of qualitative and quantitative data collection.

Within each sector, target companies were selected based on criteria of relevance and accessibility. Individuals were then identified for questionnaire administration and/or interview participation. Respondents consisted of Board executives and senior and middle managers, selected as being directly involved with strategic decision-making, or likely to have knowledge of LTT in their industries and organizations. Respondents worked in various international locations in Europe, the USA, Asia and Africa.

Questionnaires

Questionnaires were custom-designed to address the research questions and incorporated 5-point Likert-scale items and open-ended questions to encourage comments (Table 2). The questionnaire was pilot-tested on the research group’s work colleagues. Respondents were contacted by e-mail and invited to return the questionnaire using the online ‘SurveyMonkey’ (1999) facility. A total of 144 questionnaires were distributed of which 93 questionnaires were returned for analysis, representing a return rate of 65 per cent. Some respondents, by choice or accidental omission, did not complete all the survey questions; response numbers to questions are noted in the analysis section.

Table 2.

Questionnaire Respondents & Interviews

Sector	Questionnaires(Responses/Administered)	Interviews
Energy	15 (23)	1
Finance	18 (20)	6
Hospitality/Hotels	6 (10)	–
Mining	28 (40)	3
Pharmaceutical	10 (15)	–
Retail	10 (36)	1
Unidentified	6
Total return rate	93 (114) = 65%	11

Source: Authors’ own.

Interviews

Semi-structured interviews were used to encourage ‘broader discussion without limiting or inhibiting responses’ (Aberbach & Rockman, 2002) while allowing interviewees to provide individual perspectives in a ‘confidential interactive process’ (Hughes, 2006). Interviews thus allowed the interviewer to capture ‘spontaneous and unrestricted information’ to provide for an enriched source of data (Crouch & McKenzie, 2006). A total of 11 interviews were successfully concluded by telephone or face-to-face meetings; some interviewees were known by our group members, others were hitherto unknown but were identified within the sectors as having potential ‘expert’ insights.

To provide for confidentiality and anonymity, respondents and interviewees were offered the option not to provide company and/or personal details.

Difficulties and Limitations

The research design and data collection methods exhibit sound face validity (Bryman, 2004, p. 539). However, a number of research limitations and difficulties are evident.

Sample Bias

Sectors were chosen for partly pragmatic reasons. As a result however, some of the respondent companies and individuals identified were acquaintances of the group (i.e., non-random selection), thus threatening the internal validity (Bryman, 2004, p. 28) of the research. Further, while the overall ‘SurveyMonkey’ questionnaire response rate (65 per cent) was reasonable, response frequency was biased towards the energy, mining and finance sectors. Poor response rates from the retail, pharmaceutical and hospitality sectors mitigated against reliability of cross-sectoral analysis. The hospitality sector was particularly poorly represented (primarily due to the withdrawal of the group member responsible for this sector).

Social Desirability Bias

Many respondents and interviewees were directly or indirectly responsible for LTT and/or sustainability issues within their organizations thus posing the risk of social desirability bias, ‘a distortion of responses caused by respondents’ attempts to present a socially acceptable account’ (Bryman, 2004, p. 544).

Questionnaire Reliability

Some questionnaire constructs and terms were subjective in nature and subject to varying interpretation, thus threatening the internal reliability (Bryman, 2004, p. 540) of the research. The questionnaire was piloted to enhance structural and semantic face-validity (Bryman, 2004, p. 539) but was not reliability tested.

Limited Resources

Timeous conclusion of face-to-face interviews was challenging; targeted interviewees were frequently unavailable and/or reluctant to schedule interviews. Thus, the number of face-to-face/telephonic interviews finalized (11) was limited.

Quality of Final Data

The quality of final data was generally good, but qualitative evaluation by content analysis was inevitably subject to risk of diminished reliability by inter-observer inconsistency (Bryman, 2004, p. 71). Care was taken to minimize this risk during the data analysis phase.

Statistical Analysis

Elementary quantitative analysis was conducted to illustrate frequencies and Likert item means and standard deviations. No univariate, bivariate or multivariate tests were conducted.

Data Findings

Data analysis consisted of quantitative analysis of the questionnaire Likert-scale items and the detailed content analysis of the qualitative responses to interview and questionnaire schedules.

Importance of Long-term Thinking

Fifty-three respondents (62 per cent of total) indicated that LTT was ‘extremely important’ within their industry; 29 respondents (34 per cent) indicated LTT as ‘important’. Similarly, 43 respondents (51 per cent) indicated LTT was ‘extremely important’ within their organizations; 31 (37 per cent) respondents indicated LTT was ‘important’. Figure 1 illustrates the widespread recognition of the importance of LTT to industry and to individual organizations.

Comments highlight the importance of LTT across various industry sectors:

The metals and mining industry is characterized by huge investments and long investment circles, 20–25 years. Long-term thinking and planning is essential. (Tony Reilly—Senior Legal Counsel, Aquarius Platinum Limited [mining]).

It’s vital that our industry looks long-term. . .there is so much rapid market change. . .we must aim to look at scenarios of the future. (Manager—pharmaceutical)

Figure 1.

Source: Authors’ own.

Table 3 emphasizes the widespread acknowledgement of the importance of LTT and reflects the mean Likert score and standard deviation for each sector. Mean scores are consistently high, > 4 in all cases. In addition, mean scores of importance in industry are typically higher than importance in organizations.

Table 3.

Importance of LTT—Sectoral Comparison

How Important is Long-term Thinking
	In Your Industry?			In Your Organization?
	Important or Extremely Important			Important or Extremely Important
Sector	(f )	Likert mean	Likert SD	(f)	Likert mean	Likert SD
Energy (n = 15)	14	4.53	0.62	12	4.50	0.73
Finance (n = 18)	17	4.39	0.76	14	4.18	0.86
Hospitality/Hotels (n = 6)	5	4.17	1.07	4	4.17	0.90
Mining (n = 27)	26	4.70	0.81	26	4.44	0.83
Pharmaceuticals (n = 10)	10	4.60	0.49	8	4.10	0.70
Retail (n = 10)	10	4.40	0.49	10	4.60	0.49

Source: Authors’ own.

Respondents were asked to identify reasons for importance of LTT in their industry and organization. Comments are categorized in Table 4 with frequency (f) for each category.

Table 4.

Reasons for Importance of LTT

Strategic Considerations (frequency of comments (f ) = 20) • long lead-times on project development & infrastructure (11)• long-term investment & planning cycles (4)• strategic scenario planning (3)• long lead-times on R&D to develop new products/projects• innovation for future business opportunities

Risk Mitigation & Market Conditions (f = 11) • prepare and adapt to changing economic & market conditions (5)• consider future risks & challenges (3)• LT perspective is pre-requisite for financial competitiveness/survival (2)• huge financial investments involved

Prevailing Industry Norms or Culture (f = 4) • industry is founded on LT relationships• producers/consumers have LT needs• change is inevitable—necessitates LT perspective• LTT accommodates a sense of long-term ‘community’ in industry

Social & Political Uncertainty (f = 5) • overcome political obstacles (2)• consider and/or prepare for political change• allow for skills & social development• address socio-political—economic concerns

Technological Considerations (f = 3) • new & emerging technologies require LT perspective (2)• champion future technologies for a competitive edge

Legal frameworks (f = 2) • consider prevailing & changing legal frameworks (2)

Source: Authors’ own.

Timelines for Long-term Thinking

Respondents identified the strategic-planning time-horizon within their companies. The majority of respondents 57 (69 per cent) indicated a horizon less than 5 years. A total of 26 respondents (31 per cent) had a planning horizon > 5 years of which 8 respondents (5 mining; 2 energy and pharmaceutical 1) identified a horizon >10 years (Figure 2).

Figure 2.

Source: Authors’ own.

Cross-sectoral analysis of responses (Figure 3) illustrates the spectrum of planning horizons applied across sample sectors.

Figure 3.

Source: Authors’ own.

Mean Likert scores reflect the longer horizons typically employed in the energy (3.50) and mining (3.26) sectors, and shorter strategic horizons in the retail (2.89), pharmaceutical (2.50) and finance (2.47) sectors.

Competitor Comparison

Respondents were also asked to compare their company planning-horizon with sector competitors.

Figure 4 shows that 43 respondents (51 per cent) believed competitors used similar planning horizons, whereas 18 respondents (24 per cent) claimed not to know about competitors.

Figure 4.

Source: Authors’ own.

The following comments are illustrative:

Infrastructure, especially in developing countries, has timescale imperatives which are the same for all sector actors. Of necessity, we work to similar considerations as our competitors (Executive—Energy Sector).

I wouldn’t expect it to be any different (Manager—Retail sector).

Appropriateness of Timelines

Figure 5 illustrates how respondents perceived the appropriateness of the strategic thinking timeline in their own organization.

The majority of respondents (60; 73 per cent) considered that timelines were ‘about right’. In so doing however, respondents from multiple sectors highlighted how LTT and decision-making are hindered (and STT encouraged) by the uncertainties posed by long-term commodity price projections and market conditions. In the financial and energy sectors, respondents ‘justified’ the current thinking horizons as a prerequisite to maintaining short-term performance and financial credibility when raising capital for medium-to long-term projects. Respondents also highlighted how thinking horizons vary between functions and roles within the company. Respondents also commented, perhaps counter-intuitively, that in a constantly and rapidly changing external environment, LTT has become less relevant; current thinking horizons are acceptable to cater for foreseeable challenges.

Figure 5.

Source: Authors’ own.

However, findings also indicated that 21 respondents (26 per cent) considered time horizons to be too short. Respondents noted missed market opportunities, sub-optimal investment decisions through failure to take into account whole life cost, and poor ‘future-proofing’ when potentially disruptive long-term trends are overlooked or ignored.

Departmental Involvement

Figure 6 illustrates departmental involvement in LTT. Responses were quantitatively categorized using common-word rankings.

Figure 6.

Source: Authors’ own.

In most, sectors the distribution of answers was reflective of the overall response pattern with the exception of pharmaceuticals where more than 50 per cent of respondents identified the business development function as being most involved in leading LTT; possibly reflecting the relatively long-term product lifecycles in that sector. Overall, marketing was indicated as most involved in fostering organizational LTT, likely underscoring the importance of market/external communications in LTT strategy.

Benefits of Implementing LTT and Risks of Failing to Implement

Respondents were asked to identify both the benefits of implementing LTT in their organizations and the risks of failing to implement. Respondents each identified four major benefits and risks. Responses were ranked and categorized using an adapted version of Jorion (1997) and Crouhy et al. (2000) risk typology frameworks. Business risks and benefits are those an organization knowingly assumes to create competitive advantage and shareholder value. Non-business risks and benefits stem from factors beyond normal business activities. Non-business risks are broadly defined and include, for example, environmental disasters, political and security risks, or avoidance thereof. The diversity of this type of risk is so broad and unpredictable that companies might often fail to plan for these possible scenarios.

Figure 7 illustrates how the perceived benefits and risks associated with LTT broadly ‘mirror’ each other. Table 5 provides respondents’ identification of risks, with frequency of comments (f). Benefits essentially entailed the mitigation or reversal of identified risks.

Implementation of LTT

Respondents provided examples of LTT implementation in their organizations. Examples are grouped in Table 6 using the Jorien & Crouhy risk-typology framework.

Barriers to Long-term Thinking

In open-ended format, respondents were asked to identify major barriers to the implementation of LTT in their organizations. The three major barriers identified by respondents were content analysed and categorized. A total of 154 responses are represented in Table 7 below, showing frequency (f) in each category.

Short-termism

Thirty-nine (25 per cent) responses highlighted the predominance of short-termism as a barrier to LTT. Table 7 illustrates the criteria underlying short-termism.

In addition, Figures 8 and 9 illustrate how 45 per cent of respondents believe managers have become increasingly pressurized to think in the short term; notably in the pharmaceutical and mining sectors.

Structure, Skills & Resources

Twenty-seven (18 per cent) of responses highlighted a lack of organizational skills, resources, structure, support and finance as a barrier to LTT.

I haven’t got the right people or the right capabilities to do whatever it is we will need to be doing in 5 yrs (Ben Good—CEO, GVEP International [energy]).

Inadequate Corporate Leadership

Twenty-one (14 per cent) of responses highlighted poor leadership experience and skills as a barrier to LTT, and inadequate long-term leadership commitment linked to incentivized short-term rewards and personal career aspirations.

It’s not only long-term thinking it’s about creating a vision. Today’s CEO’s lack the ability to develop a vision. . .to motivate their employees and other stakeholders to go all the way with them (Executive—mining sector).

External Market Conditions

Twenty-seven (18 per cent) of responses highlighted a variety of market and future uncertainties as barriers to LTT. Inherently, short-term-oriented sectors, such as retail and hospitality, are exposed to severe market volatility which mitigates against LTT.

Figure 7.

Source: Authors’ own.

Table 5.

Benefits of LTT: Risks of Failing to Implement LTT

Business Risk		Non-business Risk
Business Decisions(Strategy)f = 77 (risk)f = 70 (benefit)	Business Environment(Macro-economic & Technological)f = 56 (risk)f = 61 (benefit)	Financial(Markets, Credit, Operational)f = 23 (risk)f = 20 (benefit)	Non-financial(Reputational & Regulatory)f = 25 (risk)f = 30 (benefit)
– Inadequate long-term market information.– Cultural inertia, lack of shared vision, values, diversity, strategic direction.– Inappropriate goal-setting and incentivization sacrificing long-term value.– Failure to attract talent.– Compromised risk management; operating from crisis-to-crisis.– Investment strategy based on erratic STT.– Poor financial, production and operational planning.	– Failure to keep-up with industry development and disruptive new technologies.– Too reactive to competition rather than leading.– Increasing resource costs.– Loss of competitiveness; over-reliance on shrinking markets.– Shortage of physical resources.– Lack of market understanding; only ‘managing what is measured’.– Overlooking environmental, socio-political impacts.– Reduced product relevance with future pricing booms/busts.	– Financial performance.– Poor cash flow.– Loss of investor confidence– Commodity price risk, especially troublesome in a ‘price-taking’ company.– Liquidity and debt risk.– Underperformance of investments and inability to fund future operational requirements.	– Loss of licence to operate through compromising of safety standards.– Regulatory compliance.– Reputational damage by losing stakeholder trust; diminished brand value.– Loss of market share and opportunities by underestimating lead-times; failure to adjust to changing business conditions.– Inability to support local communities.– Disturbed IR climate.

Source: Authors’ own.

Table 6.

Examples of Implementation of LTT

Business Risk (Decisions) Performance Measurement (remuneration & incentivization) Where companies are moving away from reliance on short-term indicators to measure individual performance and executive remuneration.For example,• Fund managers being assessed/rewarded on 3–5 year time horizon (finance).• Project success measured over a multiple-year period and establishing a sense of multi-disciplinary purpose (energy).• Longer term plans, pipelines, pricing forecasts.• Setting of short-and long-term targets. Organizational Learning & Knowledge Sharing Respondents referenced how these features are important pre-requisites for long-term viability and highlighted the need for strong organizational leadership. Culture & Governance Adjustments to culture and governance procedures. For example,• Succession planning; regular strategy planning meetings (finance).• Annual 5-year budgets.• 10-year sustainability strategies.• Rebuilding of company’s vision/goals.• Building governance & internal capacity by focusing beyond project delivery. Understanding Long-term Value Drivers Where companies are identifying and acting on long-term drivers of value. For example,• Heightened focus developing new markets; asset classes for investment (finance).• Consider new hotels, renovations (hospitality).Of note is the inherent tendency of some sectors to emphasize long-term value drivers. In mining, respondents highlighted the long-term nature of the sector, necessity for long-term cash flow forecasts, long (7–10 years) lead-times from feasibility to mine production. Similarly, the pharmaceutical sector identified long-term product development cycles (often >15 years). The retail sector highlighted the focus on new product lines, markets and retail locations. Building (innovative) Capacity A dual focus on ‘exploitation and exploration’ or ‘ambidexterity’ (O’Reilly & Tushman, 2013) is a pre-requisite for long-term organizational success. For example,• Investment in technology for online banking & cyber security (finance).• Sustaining human capital for innovation & creation of core competencies through talent retention (hospitality).• Adjusting internal processes (e.g., sustainable supply chains) while managing corporate environmental impacts (retail).

Business Risk (Environment)Where companies are future-proofing and gaining first-mover advantage, better positioning and capacity-planning for changing market conditions. For example, through:• Enhanced product development, investment processes.• ‘Horizon-scanning’ and long-term forecasting to identify, anticipate and develop long-term growth markets (e.g., investing in lightweight materials for industrial truck fleets (mining); investment price-forecasting (finance); introduction of new technologies (retail); commercialization of research (pharmaceutical).

Non-business Risk (financial)Companies seeking to reduce long-term exposure to financial market uncertainties. For example,• Reduced reliance on specific commodities (mining, finance).• Avoidance of liquidity-risk by divestment from stagnant markets (finance).

Non-business Risk (non-financial)Responding to reputational & regulatory risk through LTT. For example,• Heightened focus on energy-related regulation/policies (e.g., power tariffs to predict short-term/long-term demand growth and fuel availability (energy).• Reducing exposure to potential ‘stranded assets’ (e.g., in pension fund investments; finance).• Focus on regulatory climate: scanning for new ‘marketing authorisations (pharmaceutical).• Scenario-planning for future environmental constraints (e.g., water scarcity affecting operating licences; need to avoid conflict with local communities) (mining).

Source: Authors’ own.

Table 7.

Barriers to LTT in Organizations

‘Short-termism’ Predominates (f = 39; 25%) • day-to-day business pressures (12)• ST performance, incentive & reward criteria (11)• ST budgets & profit objectives (10)• Shareholder and investor pressures (6)

Corporate structure, skills & resources (f = 27; 18%) • lack of in-house skills & resources (9)• poor structure, too diverse, poor communication, slow to react (7)• too many chiefs, staff turnover, petty politics (4)• takes too long (4)• shortage of LT capital (3)

Leadership Barriers (f = 21; 14%) • lack of strategic leadership experience & skills (13)• poor decision-making (3)• personal career building (3)• no top-down commitment (2)

External Market Conditions (f = 27; 18%) • market volatility, cyclicity, diversity & complexity (16)• lack of certainty/visibility of future (6)• hard to predict future, pace of change (5)

Corporate Culture or Norms (f = 22; 14%) • ST culture prevails, old-style thinking, no vision, group-think (17)• resistance to change (5)

Social & Political Uncertainty (f = 12; 8%) • uncertain Government policies/funding (7)• political barriers, instability, corruption, interference (5)

Legal frameworks (f = 6; 4%) • legal or regulatory barriers (6)

Source: Authors’ own.

Figure 8.

Source: Authors’ own.

Customers and shopping habits are changing fast.

(Paul Crewe—Head of Sustainability, Sainsbury’s Retail, UK).

Corporate Culture/Norms

Twenty-two (14 per cent) of responses indicated how the prevalence of ‘status quo corporate culture’ underpinned resistance to change and acted as a significant barrier to LTT.

Figure 9.

Source: Authors’ own.

Social/Political Uncertainty (8 per cent) and Legal/Regulatory

These issues were further significant barriers to the implementation of LTT. Inherently, longer term businesses (e.g., energy, mining and pharmaceutical) were identified as being particularly exposed to future uncertainties.

Influences on Long-term Thinking

Stakeholder Influences

Figures 10 and 11 illustrate the range of stakeholder influence on LTT in organizations. Management, board directors and shareholders typically wield the most influence. Customer and government influence is most notable in mining, pharmaceutical and finance.

Changing LTT Attitudes

Respondents (44 per cent) indicated the changing nature of attitudes towards LTT (Figure 12), noting an increasing recognition of the strategic importance of LTT. Conversely however, 56 per cent of respondents indicated little or no attitudinal change was apparent and attributed this lethargy to an entrenched prevalence of STT, lack of leadership and poor organizational awareness of LTT.

Figure 10.

Source: Authors’ own.

Figure 11.

Source: Authors’ own.

Figure 12.

Source: Authors’ own.

Positivity towards LTT

Figure 13 highlights respondents’ widespread belief (58 per cent of respondents indicated agree/strongly agree) that a renewed LTT perspective could bring significant organizational benefits.

The following comments are indicative:

There is a disconnect between what is urgent and what is important.

(Ron Hieber—Executive Director, SH Minerals Investment Ltd [mining])

1–3 years is our current informal organizational norm, which I personally regard as unsuited to our business needs.

(Chris Bale—CEO Power, Oil & Gas. Honeywell Group [energy]).

Noticeable also however is that 21 respondents (31 per cent) ‘neither agree nor disagree’ with the possibility to reap benefits from LTT; an indication perhaps of uncertainty and/or the inertia of short-termism.

Figure 13.

Source: Authors’ own.

Critical Analysis

A number of key themes emerge from the data analysis.

Importance of LTT is Widely Recognized; there are varying interpretations of LTT: The importance of LTT was well recognized across all sectors of investigation. However, the concept or meaning of long-term thinking is variably interpreted by different individuals in different organizations across different business sectors. This mirrors the views from academics as discussed in the literature review. In some companies, for example, LTT is considered to be 1–3 years, in others 10–20 years.

Short-termism Carries Significant Inertia: Respondents in most sectors recognized the importance of LTT within their industry to be stronger than within their own organization, suggesting an embedded short-term inertia or constraints within organizations to move towards longer term thinking.

‘Recognition’ does not Necessarily Translate to ‘Implementation’: Distinction must be drawn between organizations recognizing the importance of LTT, and its consequent practical implementation. Respondents identified the myriad benefits of LTT and the widespread risks of failing to implement LTT.

However, as Nick Frappell (VP Mitsui Metals, Hong Kong [mining]) suggests:

It’s extremely important but examples of people doing it are rare.

Similarly in the financial sector:

There is much talk of long-term planning, but the reality is a series of short-term decisions. (Executive—Finance sector).

In the literature review, the finance industry was highlighted as being particularly averse to long-term planning implementation which concurs with this research. In a market-driven by short-term gain, the implementation of long-term planning has yet to become intrinsic business practice.

At an individual level, the importance of LTT is well acknowledged; but in order to successfully implement long-term strategies, companies may consider or experience the necessary adjustments to corporate structures, behaviours, values and goals as too great a challenge to overcome. As such, LTT lags behind or, worse still, is dismissed as an elusive strategic ‘bridge too far’.

Figure 6 illustrates that only 12 (14 per cent) respondent, reported involvement for the incorporation of LTT into business operations to be the domain of ‘all departments’. The vast majority of respondents therefore placed this involvement within a single department or limited number of departments. Furthermore, board members and executives were identified as having ‘most involvement’ by only 13 respondents. Given the importance of top-down, step-wise strategic planning (Ambachtsheer, 2014), the severity of the systemic nature of the ‘working in silos’ challenge is well highlighted.

Conflicting Priorities and Pressures: Widespread ‘conflict’ is evident between long-term and short-term perspectives, a situation in which short-term priorities and incentives typically prevail. A principal reason for the prevalence and stubborn persistence of short-termism is that while businesses maximize short-term financial gains and while their actions may have broad systemic impacts, individual companies and their stakeholders are not directly exposed to the broadly negative longer term consequences (Endl, 2012)—a dilemma illustrated both directly and indirectly in this research.

Varying Strategic Horizons: In some organizations, both STT and LTT prevail within the same organization under varying scenarios. This duality of focus on ‘exploitation and exploration’, or ambidexterity (O’Reilly & Tushman, 2013) is a prerequisite for long-term organizational success. This is evidenced in several responses:

We use all 3 time-frame goals: short-term, medium-term and long-term. We try to balance all three in harmony. (Paul Crewe—Head of Sustainability, Sainsbury’s Retail, UK)

No Certainty that Attitudes are Changing: Figures 8 & 10 do not provide conclusive evidence to illustrate wide-scale changes in corporate attitudes towards LTT. While 44 per cent of respondents perceived attitudinal changes favouring LTT, 56 per cent indicated little or no change. Further, 42 per cent of respondents agreed that managers in their organization have become increasingly pressurized towards STT. Sectoral nuances are evident, but nevertheless, the rate of corporate uptake of LTT remains lethargic at best suggesting an urgent need for more substantial collaborative action on this issue.

Risks and Benefits of LTT Can (and Are) Being Addressed: Table 5 reflects how respondents were readily able to evidence implementation examples of LTT in their organizations. It remains unclear whether such ‘examples’ carry sufficient gravitas to fully secure the benefits of LTT while countering the risks recognized and evidenced by an over-reliance on STT. Nevertheless, Table 5 does indicate that the more frequently implemented actions are well-structured and internally focussed (e.g., adjusting performance appraisal criteria, lengthening of strategic horizons, capacity building founded on enhanced understanding of future value drivers) and have significant potential for success.

Contradictions Between Purported Actions and Barriers to LTT: A significant contradiction stems from Tables 5 and 6. While Table 5 illustrates several high-frequency examples of LTT action plans, Table 6 highlights how the practical difficulties hindering the successful execution of the same strategy plans are perceived as significant barriers to LTT. While there are significant challenges to the implementation of long-term action plans and strategies, the potential benefits are of such recognized value as to justify the long-term efforts. The lack of focus on actions aimed at influencing extra-organizational responses to counter STT does not suggest the insignificance of systemic risks and benefits, given that they are clearly expressed in Table 4, but more an inculcated reluctance to act on these alone. This form of empirical data adds to the wide literature available many of which is based on academic theory and not industry knowledge.

LTT is a Leadership and Governance Issue: Figures 6 and 10 and Table 6 illustrate how organizations look to those in leadership positions whether as shareholders, directors or managers to take responsibility for LTT; acting against short-termism and actively promoting long-term actions.

Conclusions

Based on the literature review and research findings the following conclusions become evident.

Long-term thinking has varying interpretations and conceptual time frames for LTT vary accordingly. The importance of LTT in business and industry is well recognized although this does not imply widespread implementation. Bridging the gap between recognition and implementation is a significant challenge. Departmental responsibility for implementation varies considerably.

There are clear and widely recognized benefits to be gained from LTT, the realization of which need not necessarily contradict incumbent thinking horizons. While some organizations (and perhaps even human nature) may be inherently biased towards STT, there are short-term benefits which can be reaped from LTT that do not necessarily come at the expense of short-term interests.

Similarly, the risks of failing to implement LTT are well-identified. Short-termism is embedded in many organizations, especially in those where managers are increasingly pressured towards short-term results.

It is within the existing capacity of individual organizations to take action to avoid some risks of STT and realise some benefits of LTT. Organizations have been able to implement measures that accommodate LTT, such as redesigned incentivization structures and longer term strategic planning while still maintaining a principal focus on core business. Organizational change must be driven from top-down.

Barriers to LTT are systemic and require holistic, collaborative redress at a multilateral level. Non-business risks, such as those founded in resource scarcity, regulatory, social and political uncertainty, represent broader societal issues which mitigate against LTT. These require redress through more forceful open dialogue and collaborative efforts between organizations, both within and across industry and business sectors and networks.

From the literature reviewed and the empirical evidence gathered and analysed, there are several recommendations which, if implemented, can assist to further LTT in business and industry.

Recommendations

Building on the findings of this research, a number of practical recommendations are proposed to address the barriers to LTT. These recommendations are broadly categorized as (i) actions that business organizations can adopt unilaterally at company-level and (ii) actions that require a more collaborative system-level approach.

Company Level

Advocate and Showcase Benefits of LTT

Business enterprises should be better informed of the risks of STT and the value of integrating LTT into the organization. Particular focus should be lent to overcoming aspects of strategic and environmental business risks, such as cultural inertia, poor understanding of market trends and emerging technologies and failure to attract skills.

Redesign Decision-making Processes

Businesses can develop improved knowledge gathering and management to more fully and responsibly account for the broader economic, social and environmental impacts of short-termism, and consider future scenarios and longer term strategies for risk management.

Transform Organizational Cultures

Enhancements in executive and managerial education and training must encourage the application of strategic thinking skills honed to deliver longer term sustainable value. Top-down focus on advocacy, awareness and training should promote the benefits of LTT at all organizational levels.

Ensure Cross-functional Capability and Responsibility for LTT

Responsibility for LTT must be multi-functional and embedded across all disciplines. All functions, albeit to a greater or lesser degree, can benefit from LTT. Cross-functional recommendations, achievements and opportunities need be actively communicated and championed.

Incorporate LTT in Integrated Reporting

Advocacy and awareness can be reinforced through corporate reporting and focusing on both ‘traditional’ short-term items and longer term deliverables.

Implement Target-setting and Incentivization that Recognizes LTT

Compensation structures and performance appraisal criteria must be more fully aligned with the longer term sustainability and business performance. Executive, managerial and employee compensation and bonus incentives must be linked to longer term objectives and goals.

Collaborative and Network Level

Openness and Knowledge Sharing

Some LTT benefits relate to non-business risk (e.g., exposure to commodities price volatility and regulatory uncertainty). In such cases, co-operation between corporations in the same and other sectors (inter and intra industry) can enhance strategies to implement LTT and facilitate cross-disciplinary scenario planning.

Advocate and Showcase Benefits of LTT at Sector Level

Businesses operating in the same, similar or related sectors with collaborative interests to overcome barriers to LTT can benefit from doing so. Engagement and dialogue should aim to identify collaborative opportunities to support longer term business and industry sustainability.

Lobbying External Stakeholders

The business community requires clear and consistent signals from stakeholders (government, shareholders, customers and labour unions) in order to confidently implement LTT. To encourage alignment from stakeholders, business should clarify and champion the value of LTT and identify where current stakeholder engagements mitigate against the effective realization of value.

Limitations & Further Research

Research Design

The research provided a ‘snap-shot’ analysis across a limited number of business and industry sectors. The sample size in some sectors was small.

Generalizability

While the findings were able to link current academic and practitioner literature to the chosen sectors, further research could focus on the generalizability of the findings to a wider range of companies and business sectors.

Further research could usefully focus on strategies and efforts made to overcome barriers to LTT. Longitudinal research would be beneficial.

Footnotes

Note

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