Profit can be realized in the short-term by divesting and over the long term by investing. In the former management cuts costs, most likely by firing people and/or squeezing more out of those who remain. Because you can only squeeze people so much before the lifeblood of the people and the business runs out, this approach is quite shortsighted.
Moreover it is not a strategy that supports the viability of the business. Why? Because it runs counter to the elemental consumption-production dynamic upon which the conduct of business depends. The economic enterprise must not only create a product or service but it must also create demand for (consumers with the means to purchase) its’ product or service. Producing without having a population willing and able to consume would not be prudent—likely learned in Business 101. As demand is created and sustained the need for (and cause of) production is sustained. So as consumption continues the need to produce continues, it is a reinforcing cycle.
Cost or Cause
Labor can be seen as a cost of producing profit or it can be viewed as an investment toward enabling both production and consumption. Henry Ford understood the latter quite well, as he provided his factory workers with a higher hourly wage than could be earned elsewhere. This strategy not only improved the morale of the workforce making them more productive, it provided the Ford Motor Company with willing consumers who could afford to buy what Ford produced.
An article by Bernard Condon (an AP Business writer) suggests corporations are quickly approaching the limit of their cost cutting profit maximizing strategy. Unfortunately, such a strategy is for scoring short-term profit not for sustaining a business. It is a strategy formulated in the minds of shortsighted people who have little or no concern for what lies beyond the short-term. To such people nothing else matters except what can be gained (especially for themselves) before the end of the current term. Short-term thinking limits the life of the business!
Though hindsight can inform foresight—understanding history can help to avoid repeating it—it doesn’t mean that using the present versus the past comparisons, as the basis of decision-making, is the best way to manage. Yet, most if not all management reports (intended to incite action) place the focus on the present against the past—variance reports abound. The concern is for increasing such things as profit, revenue and shareholder value in the short-term. The following question is representative of the type of questions that seem to consume management’s focus of attention: How did we do this quarter versus last quarter or versus this quarter last year? They don’t quite understand that, although with two points a line can be drawn, two points don’t constitute a trend and the long term is not the linear sum of short-terms!
Mindful of the Future
However when the future becomes a concern, then realizing progress and taking the long view become important considerations in management decision-making. Once we realize that the future is where we will spend the rest of our life, looking forward becomes the means of assessing our current position. It means we don’t forsake the future for gains today. Then progress, not growth, becomes a key measure of success—the point of reference is the future not the past. Shortsightedness no longer rules the day.
Realizing progress means that the viability of the organization is improved and not diminished by the decisions one makes. This means that management relates to employees as subjects and not objects; to view people as people, not as a thing called labor. That is, to ensure viability management must invest in, not divest of, people. With this commitment to invest management will increase the likelihood that the people employed are talented people.
Today with knowledge continually advancing and challenging organizations to adapt, learning becomes a critical aspect of an organization’s capability. Thus toward sustaining viability, making a commitment to continually develop the potential of people by providing opportunities for learning is paramount. However, the benefits of education/learning are not (fully) realized in the present or short-term, but rather most likely in the long term. The need to take the long view and make such a commitment should be clear.
Though we cannot predict the future with certainty, we certainly do influence it. We do in deed participate in creating the reality we will experience. Since we will live in the future doesn’t it make sense to turn our attention to it and invest in it? Doesn’t it make sense to conduct business differently?