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Short-Termism is Hurting Your Bottom Line
May 18, 2021

What is short-termism? Short-termism, when applied to business, is a term that refers to a focus on short-term results at the expense of long-term interests. This is commonly done in pursuit of manipulating quarterly earnings reports to show better returns in the short term. Delivering higher quarterly earnings is often achieved at the expense of long-term value creation, attention to strategy, research and development, upskilling workers, managing risks to their business, and foregoing investment opportunities [1]. These short-term savings have a butterfly effect which can drastically add up to significant long-term losses. Short-termism is a wolf in sheep's clothing.

Mckinsey researched the effects of short-termism versus long-termism over 14 years, and the results are staggering.

For companies that practiced long-termism rather than short-termism:

  • Economic profit was 81% higher
  • Average revenue growth was 47% higher
  • Average earnings growth was 36% higher
  • On average, 12,000 more jobs were added
  • Average annualized growth rate of 6.2% (vs. a 5.5% growth rate of short-termism companies)
  • In the financial crisis, earnings declined less and rebounded faster
  • 50% more likely to be in the top decile and quartile for total shareholder re turns in their industries
  • 10% less likely to have total shareholder returns below their industries' medians [2]

If all companies practiced long-termism and performed like the researched companies, U.S. GDP, over the last decade, could have grown by $1 trillion, and 5 million additional jobs could have been generated [3].

During the financial crisis, these two company types became increasingly apparent. One of the main differences seen between the two types is the level of investment in research and development. Long-termism company's R&D spending grew at an annualized rate of 8.5%. Short-termism companies grew at a rate of 3.7% [4]. This is a 129% difference in spending rates. The thought process behind why this is important is that long-term companies continued to invest in future growth and long-term value creators, despite challenging economic conditions, and this resulted in greater returns and rewards. The companies which cut spending and had short-term financial goals did not see nearly the returns that companies with a long-term strategy saw.

Long-termism provides drastically better outcomes than short-termism. Even though this is apparent, short-termism is a widely popular practice. 400 CFOs of large public U.S. companies were interviewed, and almost  80% reported that they would sacrifice long-term economic value for their business to meet the short-term quarterly earnings expectations [5]. Clearly, practicing a long-term strategy that outweighs the desire to meet short-term quarterly earnings report expectations is rare. This is unfortunate because if long term strategies were followed and investment in the company's future was paramount, the company would be much more profitable.

Short-termism is seen in businesses currently with a hesitance on pursuing an industry 4.0 business model. This model requires a long-term strategy. Investment in workforce education and technology is required. Even with the benefits that industry 4.0 can provide, most organizations do not have a strategy that supports investment and embraces the change because of an acute focus on the short-term goal of meeting earnings expectations.

Deloitte conducted a report on industry 4.0, which exposed short-termism and a lack of strategy in most companies. Deloitte said, "the fast pace of disruption in Industry 4.0 makes it critical for organizations to maintain holistic, integrated strategies and seek long-term growth opportunities" [6]. This report made it clear that most companies were far from having the required long-term strategies to adopt an industry 4.0 model. In fact, only 10% of companies have a comprehensive, holistic strategy, 23% are developing a broader strategy, 47% are taking an ad-hoc approach, and 21% have no formal strategy [7]. All but the top 10% lack the required long-term strategy to adopt an industry 4.0 model and reap the numerous benefits of transformation.

Suggested: Read the Benefits of Industry 4.0 blog!

A company can start to adjust its focus on long-term goals by increasing workforce education and technology investments. This is an excellent first step to embrace long-termism and, simultaneously, industry 4.0 goals.

How Can Your Business Easily Launch an Effective Upskilling Program That Supports Long Term Goals?

Upskilling your workforce has numerous benefits like increasing revenue, performance, loyalty, productivity, profitability, and the list goes on. Upskilling is the best place to start your long-term goal focus and industry 4.0 strategy. Upskilling is possibly the single most powerful driver of digital transformation. Enterprises that upskill & reskill their workforce see a​ 300% increase in digital transformation acceleration. Thankfully, it is easy to provide upskilling to your workforce! Partner with an online learning platform and upskilling course provider for the best results.

Here are some key elements an online learning platform should have to serve your company and employee needs best:

  • Custom branded online learning platform to drive brand loyalty 
  • Custom curated upskilling courses that are relevant to your employees and always up to date 
  • Easy to use and intuitive social media-inspired interface design that requires no training to use and drives engagement 
  • Engaging, community building platform features like discussion boards and video conferencing capabilities 
  • Easy integration with other learning tools 
  • Integrated A.I. technology to pull accurate, up-to-the-minute data, provide automation for grading, and personalize the learning experience to make it more engaging 
  • Integrated advanced data analytics to pair with A.I. to provide personalized learning insights to employees and provide insights and reports to the employer 
  • Proven high retention rates on the platform  

If you start to focus on long-term goals and strategies now, your company can reap the benefits of long-termism, industry 4.0, and upskilling combined. This can revolutionize your company and make it a powerful player in the future.

Amesite Offers a Single, Easy to Use, Scalable Solution 

Launch a world-class upskilling program for your company to combat short-termism and continuously upskill your workforce to support long-term goals of growth, revenue, and industry 4.0 adoption.

Amesite is an easy-to-use, Artificial Intelligence software company that offers customized cloud-based scalable solutions to make world-class content creation easy and seamless. We create custom online learning platforms and content for businesses and universities.

Amesite's online learning platform is the key to providing upskilling programs for your company. Amesite's high-tech AI-powered online learning environment is custom-branded to each specific company to build brand loyalty and meet the unique needs of the employer and their employees. We have subject matter experts who design innovative and custom content for courses that provide excellent value to your employees. A host of self-paced, highly engaging, and intuitive courses can be ready for your company in as little as 30 days.

Amesite creates outstanding learning experiences delivered on its advanced platform, providing an excellent user experience for employees. Using A.I. and advanced analytics to provide fresh content keeps learners engaged. Coupled with outstanding services, these experiences deepen professionals' interest in subjects important to their company's goals. Amesite's unparalleled retention rate in the enterprise sector is 100%.

Let Amesite help your company leave short-termism in the past and create a more profitable future! Request a Demo!

Check out some of our customer success stories: The Henry Ford,Wayne State University.

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Resources:

[1] CFA Institute. 2020. Short-Termism.https://www.cfainstitute.org/en/advocacy/issues/short-termism Accessed May 11, 2021.

[2] McKinsey. Aug. 4, 2017. The case against corporate short termism. https://www.mckinsey.com/mgi/overview/in-the-news/the-case-against-corporate-short-termism; Accessed May 11, 2021.

[3] McKinsey. Aug. 4, 2017. The case against corporate short termism. https://www.mckinsey.com/mgi/overview/in-the-news/the-case-against-corporate-short-termism; Accessed May 11, 2021.

[4] McKinsey. Aug. 4, 2017. The case against corporate short termism. https://www.mckinsey.com/mgi/overview/in-the-news/the-case-against-corporate-short-termism; Accessed May 11, 2021. 

[5] Harvard Business Review. Oct. 9, 2015. Yes, Short-Termism Really Is a Problem. https://hbr.org/2015/10/yes-short-termism-really-is-a-problem Accessed May 11, 2021.  

[6] iScoop. 2020. Industry 4.0: the fourth industrial revolution – guide to Industrie 4.0 https://www.i-scoop.eu/industry-40/#:~:text=Industry%204.0%20is%20the%20current,called%20a%20%E2%80%9Csmart%20factory%E2%80%9D. Accessed May 11, 2021.  

[7] iScoop. 2020. Industry 4.0: the fourth industrial revolution – guide to Industrie 4.0 https://www.i-scoop.eu/industry-40/#:~:text=Industry%204.0%20is%20the%20current,called%20a%20%E2%80%9Csmart%20factory%E2%80%9D. Accessed May 11, 2021.