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The Race to the Bottom

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Short-termism is marketing creeping back into business culture and strategy but is it a good thing for businesses and brands that need to work on their long-term viability or is it a race to the bottom, asks Sheena Horgan?

On reading IMJ editor, John McGee’s recent article in the Sunday Independent on the topic of Zero-Based Budgeting, it struck me how increasingly prevalent either this practice, or at least this thinking, is. One contention, however, is that a driver of all of this is short-termism.

Call it an understandable reaction to the recession if you will, but there is something in the corporate air these days that is giving oxygen to organisations’ focus on the short-term.  And even the term itself is shrinking as what might have once been a year or so, is now consider on a quarterly basis.

From a marketing perspective, the immediacy of social, and the rapid advancement of new technologies supports the ‘here and now’ and is, however valid, a distraction nonetheless from longer term contemplation. The desire and intense need for brands to be engaging, and the concentration on data and numbers, that appease the FD and the board, is palpable in many companies. But at what cost?

Short-termism can reap valuable rewards such as sales spikes, and has the luxury of not being obliged to go through the pain and tension of strategic alignment, and business division integration, that so often accompanies longer term thinking .

There’s usually a quick win with a short-term plan, and within the bluntness of the immediate gratification is its attraction. Though as with everything, if there is a winner there is inevitably a loser and the potential fall outs and their associated risks, should not be side-lined or overlooked.

Sustainability is an issue with short-termism. It’s a tactical option that can serve a good purpose if set within a broader long term strategy for sure. But by its nature it’s not sustainable – the sales influx will eventually ebb to a normal flow, the capacity of the work staff will inevitably break under the weight of the overload, etc.

Technology has a role to play in short-term thinking, both as a cause and an effect.

It is the irresistible lure of a shiny new technological development that woos businesses onto that particular bandwagon. That reminds businesses of the importance of the need to be ‘modern’ and not be left behind. Brands embrace technology at the behest of marketing departments for the sake of the technology and the accompanying short-term satisfaction, rather than the long-term vision.

Of course the other aspect to technology’s advancement over the last decade or so, is its replication or more to the point, the decreasing length of its lifecycle and the speed at which tech is copied (and arguably also replaced by another tech trend). This should not be a reason to ignore such trends, but rather brands should commit to innovation – as opposed to a single technology – and take a laudable long term view.

The measure of short-termism’s merit requires careful consideration. A McKinsey report sought to measure whether a long or a short-term strategy benefits an organisations most (in the long term!) And found that those that adopted the former, came out on top in terms of profit – on average, 36% more than short-term firms between 2001 and 2014 – and performance measured by employment growth and shareholder return. But you’d expect that wouldn’t you.

However, in a recent report in the Harvard Business Review Lawrence Summers presented an interesting perspective of the report. He suggests that the metrics favour the companies with vision and an innovative outlook ie. by their nature companies that are willing to invest in the longer term.

I agree that what drives management decisions should be the vision and mission of the organisation, and how both the day-to-day and the longer term strategies satiate these.  But arguably what colours management decisions is competition both internal and external. Internally, because one division is competing for attention, budget and personal plaudits against another division. And externally, because the competitive set should rightly be watched in the rear view mirror.

CEO tenure is also up for grabs in Summers’ article, as a guiding and also unreliable metric. Longer terms he suggests, often indicate better performance, but in the same vein are also associated with greater costs and often risky behaviour. So I guess the jury’s out with that one.

In the end, it’s of course all about balance. Weighing up the near future with the idealist distant one. So let’s return to ZBB then, does this have a place in the discussion?

Investment is a business’ oxygen. That may be the investment of time, people or money, but it is the critical allocation of resource that feeds an organisation’s mission and makes its vision possible. There will always be short-term gains to be had, and for some businesses these gains are what lets them survive to fight another day. But take them knowingly, seek out their dis-benefit counterparts, and consider the opportunity costs.  And most importantly apply the achievements of short term tactics to the longer term strategy. Because really, all business should be about the long game.

First published in Irish Marketing Journal (IMJ May 2017)© to order back issues please call 016611660