Describe short-termism
Short-termism is when the actions of managers show total prioritisation over immediate issues, ignoring long-term ones.
Effects of short-termism
- Ignoring long-term risk with products and services, such as shift in consumer habits.
- A focus on takeovers to grow rather than organic growth.
- Inadequate expenditure on research and development.
- Minimal training budgets.
- A willing to cut the workforce quickly, leading to high labour turnover and loss of experience and skills
Criticisms of short-termism
- Business doesn’t focus on what it needs to do to build a stable competitive advantage.
- Business doesn’t focus on:
1) Market share
2) Quality
3) Innovation
4) Brand awareness
5) Social responsibility and sustainability
Outline what is long-termism
Companies willing to be more patient will often find themselves in a better position competitively in the long-term.
The Mittelstand sector in Germany is a good example of businesses taking a long-term approach to decision-making.
Germany has over 1000 companies which have been in the same family for generations yet still able to compete with the World’s best.
These companies contribute to 52% of the country’s economic output and employ 15 million people.
What are features of Mittelstand companies?
1) Family ownership.
2) Long-term investment focus and focus on R+D.
3) Investment into the work force.
4) Focus on customer service and innovation.
Causes of short-termism?
Focus on the following:
- Share price
- Revenue growth
- Unit costs and productivity
- Gross & Operating profit
Key influences on decison-making
1) Objectives/ budgets:
- Set the scene for how decisions are made
- A culture of strong budgetary control should encourage evidence-based decisions.
2) Organisational structure:
- Who makes the decision?
- Are employees empowered to make decisions to deliver more responsive customer service.
3) Attitude towards risk:
- Is risk-taking encouraged?
- What are the penalties for poor decisions?
Subjective Vs Evidence-based decisions
Subjective decisions are based on gut feel and experience. They are hard to justify and often involve significant risk.
Evidence-based decisions are based on data and analysis.
A down-side of this: time-consuming and costly; no guarantee of the right decision.
Why are evidence-based decisions becoming more popular?
- More widespread availability of data.
- Greater sophistication of data analytics & skills.
- Management expectation that data will be used wherever possible, particularly where a decision is significant to the business.
Outline what is corporate culture?
Corporate culture sums up the spirit, attitudes, behaviours and ethos of an organisation.
“The way we do things around here”
Strong Vs weak culutre
Signs of a strong organisational culture:
- Staff understand and respond to the culture.
- Motivated staff
- Retention
- Communication
- Innovation
Signs of a weak organisational culture:
- Poor communication
- High staff turnover
- Conflict
- Lack of structure/chaotic
- Efficiency could fall
What are the 4 types of culture?
- Power
- Role
- Task
- Culture
