“If there is mounting pressure to deliver short-term results at the enterprise level, then the first step in resisting the pressures of short-termism is to correctly identify their source, but what is the root cause of short-termism at the enterprise level?”
Short-termism in big business is still under debate for some people. One of these naysayers would inevitably point out that if there was really an issue then there should have been a downturn in corporate profits over the last fifty years. We’ve been doing okay, there has been a suspicious lack of such a trend, but it is also self-evident that indigenous innovation has been dropping since the 1970s. Corporations aren’t coming up with as many truly new ideas. We aren’t solving the big problems. That’s perhaps why we are still driving on non-renewable resources and all our cellphones, movies, computers, and clothes seem to be the same. So, the symptom of short-termism is not a change in profits, but the level of innovation and growth in corporations.
There are still innovative ideas, but it seems to be the trend more and more for big business to acquire innovative small businesses rather than invest in becoming innovative themselves. This conscious decision to forego innovation is solving the short-term need to put out a new or improved product, but only temporarily. The small innovative company is absorbed and constrained by the same red tape. But there is only so much a corporation can acquire before it becomes too cumbersome to react accordingly to the market.
Corporations were not always fixated on the short-term. At one time, they were a positive force that invested in their workers and new technologies, everyone was prospering, but then slowly and over the course of a few recessions, something changed. With this change, the world seemed to speed up and organizations started playing with a quarterly mindset. They had very little consideration for innovation or issues that cannot be solved in the term of ninety days. By continuously absorbing smaller companies, we are just making it harder and harder to make innovative fundamental corporate improvements, but why? What is the root cause of this disease?
The corporations that absorb small businesses are eliminating the competition. They are identifying areas for profit and revenue, as well as expediting innovation, to the point that innovation-through-acquisition inevitably becomes the cheaper option. The reality is that the pain of not doing anything right away is just as painful as when the symptoms returns. Corporations maintain this toxic loop to maximize shareholder value as reflected in the current stock price. For as long as the stock market and the government continue to operate on the short-term concepts, big business will follow.
Breaking this rather dangerous cycle might be impossible, but the ramifications can still be alleviated by first admitting that these corporations are in fact applying a quick fix that creates bigger issues in the next decade. After admitting the we are merely easing the indicators, we can start considering how to enhance long-term incentives and making slow-gestating innovative concepts less risky. In the business world, this might be adjusted tax codes, a reevaluation of corporate governance laws, and spread out compensation packages, so that perhaps we can start solving some of yesterday’s problems with tomorrow’s innovative ideas.