It's time to shift from Short- to Long-Termism. For Good.
COVID-19 disrupts the world as we knew. Due to time and resource constraints, we’re dealing with this crisis sub-optimally, focused on survival in the short-term and on bringing back the situation to the way it was before.
But why didn’t we properly prepare ourselves? After the SARS outbreak in 2003 and MERS in 2012, experts predicted a pandemic of Corona viruses was highly likely to happen. Yet long-term plans to deal with or even to prevent infectious outbreaks were not or improperly executed as people and nations had other, shorter-term priorities. Looking back today, it is obvious and easy to say we should have executed those.Why then has short-term taken priority over long-term, especially during the past 2 decades?
Like World War II stimulated nations to cooperate and develop long-term plans for a better future, COVID-19 will be the tipping point of the 21st century. Highly complex threats and problems that need international cooperation (infectious diseases, climate change, water scarcity, …), will be prioritised. The result: our former robust and reliable systems developed to work under normal circumstances will become resilient and sustainable, allowing to handle crises faster or prevent them even from happening.
This article explains why Long-Termism in nations and companies will return stronger then ever, and suggests 3 ways how-to.
Companies & Nations : Two Decades of Short-Term focus
In liberal democracies around the world, we stimulate competition over cooperation and prefer to react then to setting a proactive agenda - not the government but the market should/will solve the situation. The past 20 years Short-Termism has become a habit in the western world, driven by 4 phenomena:
Stock market, tax optimisation and M&A driven decision making: Rising stocks are the main target result of policies and decisions and is triggering wrong behaviour as value-extracting activities like cost-cutting, price increases and share buybacks often gain more management attention then long-term plans. This focus is further strengthened through speculation and high frequency trading and incentives for managers based on stock-market performance. On top, international tax benefit competition resulted in complex corporate structures and reduced tax-income for nations to invest into infrastructure and social security. And last but not least, ownership shifted from long-term family ownership to third party investors like private equity and venture capital with much shorter horizons trying to resell companies fast.
Politics of never-ending campaigns: With splintered party landscapes, digital information speed and transparency and with the increased power of minorities, most popular politicians are now populists looking at the next campaign rather than on planning and implementing projects that have a lifespan covering multiple coalitions that deliver larger sustainable growth. Politicians want to make impact during their reign showing effects before the new elections start. Some examples:(1) The EU requests member states to respect spending discipline, to the detriment of necessary major infrastructure works. (2) Multinational organisations like the UN fail to agree on complex topics like climate change action as they have an immediate negative impact on government budgets with delayed and uncertain returns. (3) On a local level, activists block larger infrastructural works based on “not in my backyard”. (4) One-trick-pony populist parties and politicians are winning across the globe, focusing on refugee and job policies, reducing budgets for cooperation, infrastructure, social security and climate.
Globalised production & supply chains, optimised for low-cost/low-price and just-in-time rather than for resilience: The business school mantra’s of cost leadership through just-in-time and low cost sourcing lead to building systems with low redundancy and high dependencies on non-controllable third parties, that break with disruptive events. Once broken the supply chains, a setup for low/no-stocks, gets complex to manage becomes unsustainable based on expensive shipping via air and scrapping of goods that expire. Further, the offshoring/outsourcing wave also lead to longer supply chains that, when disrupted, take months to rebuild. Our global production systems have been built to support consumption growth at low cost/price. The focus on low-cost is a focus on rapid gains combined with unsustainable waste (transport/lower quality) and stimulates overconsumption.
We unlearned systemic breakdowns can happen: The vast majority (est. 95%) of people was born after World War II. Today’s leaders of nations and companies have never experienced a systemic breakdown. With the ethos of WWII fading, we have collectively forgotten. Our generations are formed by exponential technological breakthroughs and increase in wealth and possibilities. Of course, threats lurk around the corner, but the believe of most of us is that they will be solved automatically through joint progress, and that they will not be systemic.
How nations and companies can shift to Long-Termism
When the COVID-19 crisis is over, and the economic reality strikes even harder, we will not be able to go back to life as we knew it. Not only will we need strong global recovery plans to come back, we will still live in a VUCA world where the next crisis is around the corner. As we learned a lesson the hard way, we now know we need to improve our systems, processes, products & services to become resilient and sustainable - requiring Long-Termism. We have to develop such long-term thinking on 3 levels:
Governments need to develop rolling scenario planning for potential crises, for example they could follow the WEF Global Risk Reports issued every year. Based on these scenario’s, international bodies and governments should determine strategic activities, capabilities, resources and stocks that countries should develop against those potential risks including how to finance. These “Minimum Resilience Measures” should be supervised by UN, WHO, FAO, or other independent international organisations.
World Economic Forum, Global risks 2020. Climate and Water Crisis with highest likelihood with even bigger impact than infectious diseases.
Cities, countries and supranational entities need to define a clear vision of their future and re-establish rolling 5- and 10-year goals and plans. Such long-term planning should be led by a cross-functional scientific/political/economical/social expert group with a lifespan of multiple elections. History has brought us enough examples of larger scale initiatives based on vision that lead in the long-term to a better future: (1) After WWII, Marshall plans rapidly rebuild Europe, leading to the Golden Sixties. (2) Kennedy declared his vision “to put a man on the moon and safely return him to earth”, leading to a myriad of innovations including solar panels, insulin pumps, water filtration, wireless technologies, CAT & MRI, air purifiers, portable computers, LEDs, the internet… that brought prosperity and global leadership to the US. (3) China has a concept of developing 5-year plans, which is making China to the number 1 economy in the world, overtaking the US.
Companies should continuously invest in sustainable innovation (sustaining itself and making products and services that are sustainable). Sustainable innovation is more disruptive by nature as it is creating entirely new and better business models, has a stronger rationale as consumers demand greater sustainability and is more collaborative as it is a cross-discipline concept. To implement sustainable innovation in companies 3 things should happen : (1) Companies need to develop a balanced innovation portfolio: they should spend of resources on 70% on core business/incremental innovation with immediate effect, 20% on so called horizon 2 projects with impact in 3 years and 10% developing completely new businesses that will flourish in the next 5 to 10 years. (2) Companies need to include a minimum sustainability score to be reached for every project in stage-gate processes to prioritise sustainable products and services. (3) Companies should engage more in cooperation, being open to share rather than to protect and should use design thinking, lean-startup and agile methodologies.
Conclusion
In this article I highlighted where short-term thinking originates from and proposed three ways to solve this. First let's support each other to solve the current crisis, but in parallel take the time to reflect how to bring back Long-Termism structurally in your organisation. Now is the time. Exciting times ahead !
In my next article, I will explain how - even in this time of crisis - you can build as I did your personal purpose bringing Long-Termism to your daily life. I will explain why I built mine around sustainable water.
Photography by Matt Hardy & Markus Spiske from Pexels &WEF, Global Risk Report 2020
