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September 28, 2011

Comments

Tim Newman

The most effective thing they can do is to reduce the uncertainty firms face about future competitive threats.

The most effective thing governments can do to encourage long-term thinking from companies is to reduce or eliminate regulatory ambiguity or changes in taxation. This is an enormous problem in the US right now as companies are waiting to see how ill-drafted legislation will be enforced in practice. In Nigeria, oil companies have held back on multi-billion dollar investments for three years as they wait to see if a controversial oil reform bill gets passed by the government. Short-termism drives businesses in Russia because the regulations change on a monthly basis, making planning impossible. The UK's imposition of a windfall tax on North Sea oil has done little to encourage long-term investment in its declining fields.

Paolo Siciliani

Fair enough, but you forget that often there is an element of endogeneity, in that firms's investment decisions may shape future demand.
Treating future demand as totally out of control - as based on an analogy with finacial options model (real options when referred to firms' investment decisions) - sounds sometimes as an excuse for a reactive/adaptive strategic stance, which is induced by peer pressure typical of excessive managerialism (e.g., benchmarking, best practices and all sort of things advocated by outsourced strategic consultants).

Tim Almond

"The other bias is the planning fallacy. Complex projects take longer and cost more than expected. Had we had a little more short-termism, we’d not have wasted hundreds of millions on rejigging NHS IT systems or on building a tram system in Edinburgh."

NHS IT wasn't about someone underestimating the time that it was going to take, but not understanding the scope and lacking direction.

Many IT projects go over by around 25% on their estimates because people are too optimistic about timescales. The ones that go way over that generally have a problem with scope or management.

CMcM

"The other bias is the planning fallacy. Complex projects take longer and cost more than expected."

Well, yes, sometimes or even quite often. But complex projects of some sort have to be undertaken anyway. They may be different values for the variable *have to be undertaken* in different historic periods of course. It would be shame to live in a world without,say, the Pyramids or Versailles but it could be done. Life without the London sewers, in the other hand, might be somewhat more problematic....

Gary

I work in business where a 'strategic' investment is a euphemism for a 'makes no sense' investment asking for an exemption from critical analysis.

When I hear 'long term' in politics I hear the same thing; I can't make the logic/numbers stack on this idea, so I want it re-badged as 'long term' to evade critical evaluation.

Lee T

All very well, Mr Chris, but how is this going to win you any votes?

gastro george

The problem with IT projects, as Tim and any fule in the industry will tell you, is one of scope and focus. Projects should be managed in incremental stages, or broken up into smaller-scale projects. They should be tightly defined. They should avoid technological or knowledge lock-in, and knowledge needs to be held internally. They should have multiple potential suppliers.

Many don't come close to that, especially when driven by executives with a "vision". That's not really anything to do with short-termism, just avoiding stupidity.

Keith

I think there is an error of language or thinking when "short termism" is used this way. I think that what people like milliband are really attacking is irresponsible action driven by greed. Lending money to very poor black people aka sub prime is not short termism but a fraud. Using traditional criteria to asses if a borrower can repay would have ruled out most sub prime borrowing. But Bankers ditched any standards and thought they could avoid any consequences, and they were right, as the state bailed them out. This was perfectly foreseeable based on past financial abuses. If the state actually regulated finance at all it would stamp out this sort of thing. It require no extraordinary powers of futurology to grasp that allowing sales driven by commission, high power selling, fraud, dishonesty etc will produce a financial boom followed by a bust. And thus allow poor uneducated people to be duped into bad deals that will ruin them. Same with Euro banks allowed to build unlimited apartments in spain or help Greece cheat on its borrowing limit. The problem is that when people like milliband are in power they do nothing to stop the abuses. Talk is cheap.

Lee T

Keith

I may need correcting on this, but I thought that much of the sub-prime problem you cite was as a result of the US govt interfering to encourage lending to people who couldn't afford to borrow?

Will Davies

Knight himself identified a number of different responses to uncertainty, and trying to convert it into risk via calculation is only one of these. One of them, as Paolo's comment implies, is to try and reduce the level of uncertainty, by acting deliberately to shape the future. 'Leadership' and 'employee engagement' rhetoric tries cack-handedly to do this, trying to bind everyone together via 'vision' and 'values'. But really, if firms were less subject to short-term demands of equity holders (including private equity), then that problem would take care of itself.

Metatone

Not sure that the Edinburgh tram system is a particularly good example. The city still needs a transport solution - there is no particular uncertainty about the need - and it's probably going to be a big project, whatever it is. That's transport in a nutshell.

NHS IT is better because you can argue it's unnecessary... but it seems. Chris, your thinking is becoming less and less clear and more and more bound to your hobby horse...

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