In Business Is It More Important To Think Long Term Or Short Term?

Prioritizing short-term projects in business can lead to significant ups and downs compared to businesses that keep their focus on a long term view. A short-term focus may also expose a business to greater risks. A business characterized by short range planning to the detriment of long term vision is likely to be less attractive to investors and potential allies than a business with a strong long range mission and clear plan for growth over the long haul.

Evidence for the Value of Thinking Years Ahead 

A 2012 study by George Serafeim, Francois Brochet and Maria Loumioti of Harvard Business School gathered provocative data on this issue. The researchers' paper, "Short-termism, Investor Clientele, and Firm Risk" categorized companies as short-term or long-term based on the language each used and analyzed their financial status, including stock performance. The short-term companies were riskier and tended to attract short-term investors. Firms with longer-term visions were less volatile, attracted long-term investors and had a lower cost of capital.

The Tension Between Short Range and Long Range Plans 

Steady growth, even if it's slow, looks more stable to investors than extensive ups and downs. Yet short-range projects give a business an opportunity to test out new ideas, open new markets and take calculated risks that may boost growth. Still, without long-term planning and the ability to think ahead and plan for contingencies, businesses increase their risk of adding to the grim statistics of businesses that fail.

Finding Balance With Goal Setting 

A tool for balance that's as valuable to business as it is for personal resolutions is setting measurable goals. This involves writing specific goals, evaluating each goal's viability and setting measures for achievement. For example, a hat company decides to launch a junior line for summer to expand its sales to a younger market. It sets specific objectives: to launch a web page targeted for juniors and to distribute to five junior shops with a goal of increasing hat sales by at least 10 percent.

Orders from the targeted web page and junior-specific retailers will provide measurable data for evaluating the success of the campaign. The short term results can guide long term strategy. The business will be able to evaluate the cost of producing and marketing junior hats and analyze how the hats affected profits for the season. By balancing long-term thinking with strategic short-term plans, businesses of all sizes can thrive in this challenging economy.

Jeff Ramson is a New York based Investor Relations expert who understands the value in understanding your companies short, and long term goals.