The importance of having a long-term view
“Every company requires a long-term view.”
– Jeff Bezos
Short-termism seems to be everywhere today. Companies with a long-term perspective have however finally been proven to outperform their short-term-focused peers, at least as to a study from McKinsey: “Long-term firms exhibited stronger fundamentals and performance than all other in the last 15 years.” Not only did the long-term firms perform better on revenue, earnings, and market capitalization, but the long-term firms were also found to invest more and added considerably more jobs to the overall economy than others.
Unilever under the leadership of Paul Polman is a great example of this principle. Under his leadership Unilever seems to have managed to balance several horizons and interests in parallel; short-term, mid-term, and long-term, but with a clearly expressed focus on the long-term. How did that happen? When Paul Polman became the CEO of Unilever in 2009, the company was in the midst of the financial crisis. As a new CEO, he felt that the company had far too much focus on the short-term, which was making the situation worse. Instead, he suggested a different path with a focus on the long-term, putting customers, employees, and communities first on the agenda, rather than quarterly earnings. All lead by a higher purpose. And as Unilever put its Sustainable Living Plan and social responsibility at the very core of its business strategy, the move proved to pay off, also for its shareholders.
Resisting short-term pressure is however a huge challenge to many top executives today. So, how go about it? In the book Go Long; why long-term thinking is your best short-term strategy the authors describe several practices of long-term leaders. One is to be really clear about your long-term goals and strategy, and ongoingly help directors and investors to understand how your business is making progress in relation to those. Another is to pay executives for long-term results rather than short-term to support the behavior that you want.
Finally, in her book The Strategist (2012), Cynthia Montgomery outlines five critical questions that can help you and your management team to develop your long-term and strategic thinking. The five questions are:
- What does our company add to the world?
- Does it make a difference?
- Are we relevant?
- How do we add value?
- How can we remain relevant and still add value in the future?
What would it mean for your company to become more long-term? What would need to change? What will you need to do differently? And how would you answer Cynthia Montgomery’s question? And what would be implications of those answers for your business and organization; short-term, mid-term, and long-term?