Influences on business decisions:
These can have a long term impact on the business.
Strategic decisions have implications for:
Finances.
Human resources.
Operations.
Click on the picture:
1. Corporate culture.
'The way things are done'.
Is the organisation risk averse?
Is the culture creative?
Is the organisation open to new ideas?
Business culture can also be 'toxic'. Click on the headlines.
3. Business ethics.
Some organisations have a strong commitment to corporate social responsibility (CSR) and this will impact on decision making.
4. The impact of the decision in the short and long term.
'Short-termism'
1. Maximise short-term profits.
Managers are focused on quick financial rewards, such as quarterly profit or sales figures.
Cost minimisation and maximising revenue are likely to be objectives.
2.Invest less money in research and development.
The view would be that spending on R&D would be risky.
There is no guaranteed return from R&D.
3. Invest less in training.
The view would be that training is expensive and the returns are not immediate.
4. Return cash to shareholders.
There may be special dividends to shareholders.
'Activist investors' may try to force a business to return cash to shareholders.
Wikipedia definition here.
BBC news article here.
5. Engage in asset stripping.
The company buys a struggling business and sells off the profitable parts.
This is considered unethical as the interests of the stakeholders (such as the staff) are not considered.
Click on the headline:
6. Pursue external growth rather than organic growth.
Organic growth is considered too slow for companies with a short term approach.
7. Arrange more short-term contracts with suppliers or staff.
BBC Article. Details here.
Click on the headline:
‘Quarterly capitalism’ is short-term, myopic, greedy and dysfunctional
Drawbacks of short-termism:
The long term profitability of the business might be threatened by focusing too much on the short term.
By not investing in R&D the business may miss a lucrative opportunity.
If a business fails to invest in new products and technologies it will lose its competitive edge.
Remember Nokia?
A business that focuses on the short term is likely to produce quarterly financial reports.
The time and effort of producing these reports is a drain on management time.
Reliance on short term contracts does not improve staff motivation or the relationship between the company and suppliers.
Long-termism:
Operating not just to meet monthly or quarterly targets but on a much longer time frame.
A yearly rather than quarterly financial statement.
This involves investing in staff, product development, R&D and other forms of innovation.
Likely to involve corporate social responsibility (CSR) and ethical behaviour.
Long term contracts with suppliers to build meaningful and profitable relationships.
Zappos: in for the long term.
