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The evidence that long term thinking gives better results

August 23, 2017

As practitioners of strategy in the context of the future, we at SAMI have always instinctively believed that this approach is better than strategy with a good view in the rear view mirror. Views of the future allow you to think long term and make informed decisions for the long term.

And there is increasing evidence that long term thinking pays results. Also this implies exploring how the long term might be different from the here and now. So in this blog we will review the evidence that long term thinking gives better results in the corporate sector, where visible indices can be derived from publicly available annual reports. In later blogs we will talk about the sources of disruption now, the characteristics of people successful at seeing potential futures, some tools to help this thinking, and some case studies of situations that provoke organisations to focus on acquiring views of possible futures. Further – we would argue that monitoring possible futures should be ongoing in disrupted times such as these – and in Beyond Crisis described how this could be achieved.

But returning to the immediate question – what is the evidence that long term thinking leads to better results – a recent McKinsey report on Long Term Thinking looked at evidence over 10 years – see https://bymckinsey.com/global-themes/long-term-capitalism/where-companies-with-a-long-term-view-outperform-their-peers. The report has led to the launch of an index of long time horizon companies, as evidenced by their public reports relating to investment, earning growth, margin growth, quarterly management and earning per shares growth. “Finally, Evidence That Managing for the Long Term Pays Off” can be found at https://hbr.org/2017/02/finally-proof-that-managing-for-the-long-term-pays-off The implications for Finance Directors are drawn out in an article in the Harvard Business Review, https://hbr.org/2016/03/how-cfos-can-take-the-long-term-view-in-a-short-term-economy, and in May 2017 they published a series of articles under the Managing for the Long Term umbrella, with the overall theme: “In this package we examine how a focus on maximizing shareholder value can threaten companies’ health and financial performance”: https://hbr.org/2017/05/managing-for-the-long-term .

The topics covered are:

  • The Error at the Heart of Corporate Leadership
  • The CEO View: Defending a Good Company from Bad Investors
  • The Board View: Directors Must Balance All Interests
  • The Data: Where Long-Termism Pays Off

A paper evaluating corporate performance linked with foresight by Professor Renee Rohrbeck is https://www.researchgate.net/publication/236897761_The_Value_Contribution_of_Strategic_Foresight_Insights_From_an_Empirical_Study_of_Large_European_Companies.

Directly tackling the evidence through evaluation in different environments, we know of a classic book on the use of Foresight in Research – which for instance evaluated how to get better results from Delphi following 25 years of experience in Japan – Research Foresight, Ben R Martin and John Irvine, Pinter, 1989. A more recent article is Martin, Ben (2010) The origins of the concept of `foresight’ in science and technology: an insider’s perspective. Technological Forecasting and Social Change, 77 (9). pp. 1438-47. ISSN 0040-1625

So why do organisations make decisions for the short term, based on current and past conditions, despite the evidence that long term thinking gives better results?

The focus of much of the discussion on this is on whether metrics such as shareholder value, or regulatory environments, drive short termism. This debate is important, and it is also important to think about the other factors that underpin a shot term approach that disregards the fact that the world is changing.

We understand the reasons why many organisations find a strategy based on views of the future to be uncomfortable: the future may be different from the past. And experience – the rear view mirror – to be comfortable. After all, the senior people in the company have good experience of the business environment which has pertained as they made their way in the organisation or industry. So many organisations see no need for views of the future, until too late.

Our focus is on strategy in the context of the future, so we explore possible futures – one of which may be Business As Usual – before developing strategic options. Options which are good under all futures are called “robust” – other options may deliver only under some possible futures – and then a management view needs to be taken on the next steps, eg more investigation, research with customers and suppliers? Or set up early indicators, events that would happen under if a particular scenario was unfolding? One classic example of an early indicator is from Peter Schwartz’s “Art of the Long View”:

“In 1983, we presented the Royal Dutch/Shell managing directors with two scenarios; one called Incrementalism, and the other called the Greening of Russia. By that time, we knew enough about the Soviet Government to say that if a virtually unknown man named Gorbachev came to power, you’d see massive economic and political restructuring; an opening to the West; arms control; declining tensions in the West; and major shifts in international relationships. It was not that Gorbachev, as an individual, would cause the changes. Rather, his arrival in power would be a symptom of the same underlying causes.”

Organisations need signposts like these in our disrupted times in order to take a long term view.

Written by Gill Ringland, SAMI Fellow and CEO.

The views expressed are those of the author and not necessarily of SAMI Consulting.

If you enjoyed this blog from SAMI Consulting, the home of scenario planning, please sign up for our monthly newsletter at eSAMIsignup@samiconsulting.co.uk and/or browse our website at http://www.samiconsulting.co.uk

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