In today’s fast-paced business world, the pressure to deliver immediate results can sometimes lead organizations, leaders, and managers to make shortsighted decisions that aim to maximize short-term results but create long-term costs and problems. We might call this ‘biting the hand that feeds you’, ‘cutting off your nose to spite your face’, or even ‘throwing the baby out with the bath water’. Here endeth today’s lesson in idyoms ha ha! In short, often short-termism is a false economy.
Frequently these decisions are related to the employee experience and the consequences show-up later through costly challenges with performance, culture, and wellbeing. These decisions often undermine exisiting investments in these areas and over-time this drives disengagement, decreases productivity, stalls innovation, and compromises resilience, all of which hit the bottom-line, and hard! Worse, these decisions are often rewarded, and the dots between the short-term gain and long-term pain are not recognised, and so they cycle is reinforced and perpetuated.
In a VUCA environment, like the one we are currently facing, short-termism is an increasingly risky strategy, that the most effective leaders and managers are becoming better attuned to. Their approach has shifted to decreasing internal instability, in order to shore-up the business against external volatility. Rather than create more volatility, unpredictability, and ambiguity for their employees. Makes sense.
In this article, we’ll explore 5 common scenarios where this trade-off occurs, accompanied by case study examples to illustrate the consequences.
1. Neglecting employee development:
Scenario: Cutting training and development budgets to boost short-term profits.
Case Study: Enron’s lack of investment in ethical leadership led to massive fraud and eventual bankruptcy.
Solution: There’s a huge amount of waste in L&D and so cutting budgets here may not be such a bad decision. However, we don’t want to throw the baby out with the bath water. Instead, target training so it has maximum benefit by working with each team member on their personal development plan in line with current and projected business needs and then select one or two high-quality trainings for them to complete over the year. This is a great case of less is more. Cut waste and invest in value. You can also explore low/no-cost development opportunities can be created through project work, and cross departmental skills sharing.
Cost to investment: Development demonstrates continued investment in the employee, and when done well also boosts their value to the organisation, supports succession planning, and improves wellbeing. This saves costs in turnover, disengagement, and absence, as well as increasing loyalty and resilience. The cost cutting approach to this, destroys all this potential value.
2. Overemphasis on cost-cutting:
Scenario: Businesses relentlessly slashing costs, leading to quality and innovation decline.
Case Study: Nokia’s cost-focused approach led to market share losses and a decline in product quality.
Solution: Ongoing cost cutting is a race to the bottom, eventually you have nowhere to go. It places huge additional pressure on employees’ ability to perform and ultimately strangles the business. Instead, workshop cost-saving and efficiency ideas with your team, so they can help to find savings you may otherwise have missed. This has the additional added benefit that they feel vested in any decisions you make together and will be less resistant to them. Having employees implement them can also serve as a stretch activity in your succession planning strategy.
Cost to investment: Cost-cutting ideas generation can be a great way to eliminate inefficiencies and drive innovation that creates long-term positive impact. Carelessly, and relentlessly cutting costs by looking at the P&L alone, is like assessing the safety of the sea you are about to dive into by only looking at the 1m square patch where you are diving. There may be hidden risks lurking below that haven’t been a consideration of your hasty decision-making.
3. Short-term sales tactics:
Scenario: Overreliance on aggressive sales tactics without considering customer or employee satisfaction.
Case Study: Wells Fargo’s high-pressure sales culture resulted in widespread fraud and damage to their reputation, as well as significant impact of their culture and employer brand.
Solution: Provide the space for your team members to innovate new products and services using their customer insights. You can also ask them to consider upselling and upgrading value propositions that will not only help you out of a short-term sticky situation but create longer-term value and competitive advantage.
Cost to investment: The temptation to try to sell more of what you already have is generally fruitless, after all, if this was possible, then why weren’t you doing it anyway? Cracking the sales whip is likely to lead to the rise of toxic behaviours that do more harm than good. Cy Wakeman discovered that for every $1 a toxic rockstar made, they destroyed $3 of value in decreased moral and other employee challenges. Taking the time to better understand the true cost of our decisions, helps us to make better ones.
4. Sacrificing work-life balance:
Scenario: Encouraging long working hours at the cost of employee burnout, culture, and reputation.
Case Study: Tesla’s high-pressure work culture resulted in safety concerns and employee turnover.
Solution: Various statistics indicate that we are productive for only a few hours per week. Whilst busy, much of our time at work is spent on time-wasting activities and tasks that add no value to the bottom-line. The answer is not to add more hours and destroy the wellbeing, health, and moral of your team. Instead work to eliminate the waste by getting laser focussed on the priorities and channelling the available hours into that. Everything that is non-critical should be put on hold or eliminated all together.
Cost to investment: We have already seen a rise in legal cases for mental health damages brought on through unhealthy work environments and gruelling working hours, I expect this will become more common. So, avoid this risk and instead invest in strengthening the business for the long-term through a concernted project designed to develop a more effective use of time. And optimal result of this is enabling employees to perform at a sustainable 85% effort-level consistently.
5. Short-changing employee compensation:
Scenario: Keeping wages low to boost short-term profits without considering morale.
Case Study: Walmart’s low-wage policies faced criticism and protests, impacting its reputation.
Solution: Difficulty wakes up the genius (Ovid), so share the burden with others and get creative about reducing costs or increasing profits that can add long-term value, whilst minimising collateral damage to deal with down the line.
Cost to investment: Wage stagnation is a very prominent topic and alongside the rise in cost-of-living, employees are becoming less and less tolerant of payment that is perceived to be unfair. Decisions like this are unimaginative, lazy, and will become more and more expensive as time goes on.
While short-term profitability is essential for business success, leaders and managers must remain vigilant against making decisions that prioritize immediate gains over long-term sustainability. The case studies mentioned here illustrate the potential consequences of such actions. Historically, employees were prepared to put up with a lot more and had far fewer protections than they have now.
The very best leaders are the ones who can get employees to follow them in both the good times and the bad, the ones who maximise the value of salary investments by getting the most value out of each employee. Achieving that means maturing away from the old skool ‘make the people pay’ mentality, towards a mission of human sustainability as a strategy for long-term business success.
If this is something your leadership teams and managers are struggling with, I provide training, and consultancy to help organizations to grow stronger in times of difficulty rather than repeat the same mistakes of the past that either killed or seriously wounded organizations unnecessarily.
If you want to learn more about short-term vs long-term business decisions, I highly recommend ‘The Infinite Game’ by Simon Sinek, also available as an audio book