Tuesday, June 6, 2017

Long-Term Corporate Decisions Add Value

A study in the Harvard Business Review indicates that long-term decision making leads to greater corporate performance. The study reviewed the performance of 615 nonfinancial U.S. companies between 2001 to 2014 and found that long-term behaviors increased firm value while short-term decision came up "short".

The difference between short and long-term choices influence outcomes such as average revenue 47%, average market capitalization 58%, average company economic profit 81%, average job creation 132% and average company earnings 36%.

The study also found that if that if companies took a long term approach over $1 trillion in asset value could be realized leading to a total market cap of about 4%. A total of 5 million additional jobs could have been created.

While the study doesn't address this issue there are reasons why strategic decision makers often focus on short-term results. They must prove themselves, show profit, and please their shareholders. They need quick results to justify their positions. With an average job span as a CEO of a few years time keeps getting in the way.

Barton, D., Manyika, J. & Willamson, S. (May-June, 2017). The data: where long-termism pays off. Harvard Business Review, 95 (3), pg. 67.

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