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ADVFN believes in a long-term approach to investing. I believe in a long-term approach. According to an independent review by Sir George Cox, he and the Labour Party believe in it also. The problem is, as the report points out at the very outset is that UK business has become entrenched in short-term strategies. When a company is stuck in a short-term thinking mode, investors have an unusual burden when trying to determine where best to place their money for future growth.
Short-termism, according to the review, “curtails ambition, inhibits long-term thinking and provides a disincentive to invest in research, new capabilities, products, training, recruitment and skills. It results in drastic cost cutting and staff-shedding whenever revenue growth fails to keep up with expectation.”
Whilst I would not disagree with nor criticise Sir George’s report, I might state the cause of short term strategy entrenchment more a bit more succinctly as firms (and governments) getting caught up and stuck in crisis management. Typically it starts out with a need to manage a genuine issue, one large enough to keep a company afloat. Then the leadership gets stuck in that mode and can’t seem to find it’s way back to the more productive and beneficial practice of long-term strategy and growth.
The report cites the importance of correcting course when it says that “What is needed is a strategic approach for the pursuit of long-term growth. This has nothing to do with ‘picking winners’ or getting involved with the way companies are run. It has everything to do with creating a structure from which winners emerge.” You might call it the difference between a manager or being a leader. Many are qualified to manage a crisis, but few have the savvy and fortitude to lead a company out of one.
Sir George points out that potentially devastating results of short-term thinking by showing that it “curtails ambition, inhibits long-term thinking and provides a disincentive to invest in research, new capabilities, products, training, recruitment and skills. It results in drastic cost-cutting and staff-shedding whenever revenue growth fails to keep up with expectation.” Anyone with half a brain can lead a company into that kind of mindset.
It takes a leader with an astute mind, an understanding of strategic management, and a vision for achieving and maintaining a plan for a long term growth that outlasts and temporary crisis or impediment. In Sir George’s words, “Economic growth needs to become an objective, with strategies to achieve it, not a forecast on which all other decisions are dependent. Only by overcoming short-termism will we grow the UK economy and ensure the UK can pay its way.”
The best guiding principle for long term strategy that I have used it this:
- Develop a sound long-term strategic plan.
- Stick to the plan.
- When an apparent crisis or opportunity comes along, ask “Does this fit our long-term plan?”
- If the answer is yes, do it.
- If the answer in no, ask the next question.
- “Is this important or significant enough to change our plan to accommodate it?”
- If the answer is no, move on.
- If the answer is yes, consider how to amend the plan to include the issue without diverting or diminishing the plan.
Labour Shadow Business Secretary summed up the report saying, “For too long Britain’s potential has been held back by short-termism, hitting our ability to compete internationally in an increasingly globalized world. We need an economy structured to deliver the jobs and growth of the future, focused on sustainable, long-term success rather than the fast buck.”
Labour Shadow Chancellor put the explanation point on it all saying “It’s vital that we take action to kick-start our flat-lining economy, but now is also exactly the right time to make the long-term changes we need to make our economy stronger, more balanced and better able to attract new investment and create skilled jobs for the future.”
To view the entire report click here.
