The above emergent perspective on strategy is in contrast to the other popular view from Porter that considers strategy as a more deliberate exercise. The reality must be somewhere in between as the former recognizes the forces managers have to factor while the latter recognizes their element of choice.
After working with many firms for close to two decades, and now putting it all together to feed into my research work, one phenomenon that has intrigued me the most is short-termism. It's only recently, as I have been going through academic literature especially in the areas of Strategic Management, Economics and Finance, that I could map my observations of a phenomenon pertaining to managerial behavior to a well-defined academic construct.
Short-termism is defined as excessive focus and prioritization of short-term interests at the cost of long-term. Since firms' strategic position is a function of managerial choices and decisions, most scholars use the term managerial short-termism. It has been widely studied from various angles e.g. shareholder pressure, markets & signaling effects, organizational & social influences, incentives, competition, information asymmetry, bounded rationality, etc. While the degree of short-termism varies across types of firms and the larger context they operate in - some firms are more short-term than others - the existence of short-termism has been well-established empirically. An optimum level of short-termism and thus the positive sides of short-termism have also been investigated and recognized.
While there's that academic side which I am uncovering with immense curiosity, at the same time as I sit to do my job every day, I see short-term tendencies in most things leaders do in our companies. I have closely observed short-term behavior patterns and tendencies in the IT companies that I have worked for, and they are almost always driven right from the top and in the process get enmeshed in organizational cultures. And it gets extremely concerning when the actions jeopardize the companies in mid to long term. For example, making aggressive risky and difficult to deliver commitments to clients, even contractually signing up for those and agreeing to hard penalties - just to close deals, especially large ones - coz there's pressure from shareholders that's transferred top down all the way to sales and delivery teams on the ground. And if you monitor market reactions to such announcements - large deal closures or number of large deals signed - you would think the pressure is real and the immediate outcome is worth the short-term thinking.
You may look at it as leaders taking leap of faith, that somehow the company will make it work and manage to deliver what they're committing today. It can be called risk taking; but then, there is a significant difference between being quixotic and taking calculated risks based on thorough evaluation of all underlying parameters and extent of possibilities realistically. In other words, these are two extremes even within risk taking.
One may argue - what are customers thinking! how do they end up buying into unrealistic stories? The answer to that is two fold, in my view. Firstly, technology, the efficiencies it can bring and possibilities it can present are difficult to predict, and have often thrown pleasant surprises. Therefore, a strong case can be made that it's a dark tunnel worth walking into, coz in the past light has often appeared from unpredictable directions. So both customers and service vendors make those bets. And that's where the second factor becomes important - the fundamental capabilities of firms to tap into emerging possibilities, incorporate them into their businesses and bring value for themselves and their customers. Companies rarely are on the same plane in all aspects - capabilities, maturity, vision, values, readiness and agility. Therefore, when opportunities present themselves to a company, depending on their nature and that of the company itself, the value derived can vary across firms.
For example, automation has been a buzzword for over a decade now. Extent of automation has become a benchmark, which forces IT service providers to commit to those benchmarks. However, various companies sit on various points on the automation spectrum, where some companies have almost perfected automated service delivery while many just promise it but still do it manually to a great extent by putting more people to save time and appear fast enough. The limitations, which make it difficult to automate, may be both from the customer side and the service provider side. Same is the case with Generative AI now. There's lot of talk by everybody, but very few may really be in position to bring it in any material sense right now. And the gap in their ability to do so will broaden with time, although the benchmarks for efficient services leveraging generative AI will be set for everyone to try and meet.
This can make or break companies, or can bring fundamental shifts if there is an adequately strong long-term drive. For the latter, a company would need to consciously insulate itself from the pressures demanding short-term outcomes (go private? sell a story?). But that's possible only if there is willingness to do so. Shrinking average CEO tenure further exacerbates the tendency to show quick results and make a quick buck. But there are numbers on both sides of an average. And hence, there are companies which evolve, grow stronger for longer term - at least have extended phases of that - and then there are many who drown in their own pool of commitments and expectations.
The answer really depends on what's our question. Are we arguing that the fundamental responsibility of a firm is to sustain itself for long-term? Or is it to work for its stakeholders? Or to deliver the greatest value to customers in the market it operates with the resources it has access to? Or is it to create a workplace for people to collaborate, contribute and earn respectable livelihoods? Or something else? Perhaps a lot else. I think all of these are true to various degrees, which also vary based on countless factors. It's also a philosophical question. It's also a matter of personal opinion and will rarely garner clear consensus. But each question can be further qualified with a temporal color. When?
I would therefore see this phenomenon as a key contributor to the evolutionary process of a business, as it thrives in an environment of competition, customers, vendors, shareholders, employees, etc. all making their own moves and counter moves while the firm itself makes its strategic choices as it tries to answer the above questions for itself and put up its fight in the arena.
What's your take on short-termism?
