Short Term vs. Long Term

Gustavo Grodnitzky Classic Capitalism

When organizational leaders are asked if they think in the short term vs. long term, there is a pretty consistent answer: “Long term, of course.”

Long term thinking would seem to make sense to all of us, executive, organizational leaders, middle managers, and employees. Long term thinking should create and sustain long term growth for all of our stakeholder (business partners, suppliers, employees, customers, shareholders, and by extension, community, society, and the environment), not just our shareholders. Rising water raises all ships. This is the model of social capitalism

Yet when we look closely at many organizations and their decision making process, it appears to be clearly short term thinking, too often driven by quarterly, “Wall Street” numbers, which focus on shareholder alone. This is a model of classic capitalism.

It classic capitalism, it is acceptable (if not desirable) to take profit at the expense of your suppliers. That may work for a while, until it doesn’t.

For decades, Walmart has been the poster child of pressuring suppliers to lower their costs, even if it was harmful to the supplier. This is part of Walmart’s classic capitalism model to increase shareholder value at the expense of suppliers. In July, 2014, the Wall Street Journal wrote:

“Walmart may not go the way of RadioShack any time soon. But Goldman Sachs says that customers are abandoning the big-box pioneer.”

Walmart has had 10 consecutive quarters of flat or declining growth. It is a $469B company. They will not go anywhere quickly, but as long as they do not balance the needs of all of their stakeholders, rather than just their shareholders, this is a decline which is very likely to continue.

By contrast, I have had two clients who both sell products to both Walmart and Costco. With both clients, at a time when both had to go to both Walmart and Costco to try to negotiate a better rate, the response from Walmart was that they wanted another 10% discount per item. The response from Costco was, what price point do you need, we’ll see if we can make it work on our end. In one instance Costco met the new price, in the other they didn’t. But, the fact that they were willing to have a discussion on price with their supplier suggests there are in it for the long term, thinking about all of their stakeholders, as an example of social capitalism.

So, as an organizational leader, are you thinking short term or long term?

Keep cultivating your culture!