Companies Need to Create Long Term Value to Survive the Uber Competitive Market

The 24/7 Real Time Global Marketplace Makes Firms Live for the Moment

The present global marketplace as well as regional and nations marketplaces are uber competitive and in addition, dominated and driven by rapidly changing market conditions where short term thinking triumphs and the scenario is complicated with the incessant buzz of 24/7 news cycles which add to the “noise” instead of creating value.

While such distractions and disturbances need to be addressed especially when consumers and customers themselves seem to be susceptible to short term trends, the fact remains that the age old principles that govern capitalism and which can be found in any textbook on the topic as well as management related topics, all emphasize longer term value creation as the basis for building truly sustainable and long lasting businesses.

Indeed, in times when it is easy for both businesses and consumers to be “lost” in the constant buzz of the Smartphones bringing alerts and breaking news almost on a real time basis, it becomes difficult for management experts and authors such as we to emphasize the fact that longer term value creation should be the norm rather than the exception if you want your business to last generations instead of you outliving the company.

What is Longer Term Value Creation?

Having said that, one must also clarify what longer term value creation means especially when startups and just launched businesses become Billion Dollar “Unicorns” in no time.

This is especially the case with technology firms that ride the crest of the waves of exponentially accelerating technology and land with “eye popping” market shares leaving even established businesses envious of their success.

Longer term Value Creation means that businesses and companies can consistently, reliably, and sustainably deliver returns to all stakeholders and not just the shareholders over decades instead of years or months.

We have used the term stakeholders to emphasize the fact that businesses and companies are accountable not only to their shareholders (who are anyway the primary stakeholder) but also to their consumers (who are the reason for their existence) as well as to society at large in terms of their social and environmental responsibilities.

Further, delivering stellar returns one quarter or a year and then tapering off is certainly not the way to longer term value creation. In addition, polluting the environment or disturbing the social fabric is again not a good way to create longer term value and instead, reeks of irresponsibility.

Characteristics of Longer Term Value Creators

Now that we have defined what longer term value creation means, we can look at what the characteristics of such firms are.

To start with, longer term value creators have a strong inbuilt mechanism to survive and weather the “storms” that are so common to capitalism in terms of market turbulence, passing or retiring of the key personnel, ethical misconduct, and general atrophy.

Indeed, firms that create longer term value also need to be conscious of the fact that they must build institutions instead of mere shallow firms that are glorified versions of “fly by night” operators.

Moreover, longer term value creators must also have enough cash reserves for years instead of months, have adequate assets and asset bases wherein the assets need not always be physical since the Digital Economy firms are mostly owners of Intangible Assets though they tend to have physical assets as well.

In addition, longer term value creators must invest in building human capital in terms of investing in their human resources so that they become as prized as their other assets and resources and indeed, more important than the latter in terms of their contributions to their bottom line.

Longer Term Vision vs. the Reality of Being Profitable

Having said that, as mentioned earlier, these days we hardly find companies and businesses who can justifiably and proudly say that they have lasted decades without compromising on any of the aspects discussed until now.

Barring a few exceptions, most firms and corporations have been found wanting on some aspect or the other though some of them have been venerable and respected in their heyday.

Indeed, when scandals strike even firms such as Infosys that were always seen as beacons for corporate value creation, then one starts to wonder whether the basic principles of market economics and capitalism are wrong.

However, it is our view that the uber competitive contemporary marketplace makes even bellwether firms susceptible to losing sight of the Big Picture.

Thus, the central challenge of the Emerging Generation of Business Leaders is to ensure that the firms and businesses they run return to the basics and start focusing on creating longer term value for all stakeholders.

Creative Destruction

On the other hand, there are some management experts who believe that firms must exist to make profits and as long as they are profitable, it does not matter if they are profitable for a few years or a decade and then atrophy. Indeed, their contention is that capitalism works by Creative Destruction wherein periodically, the firms that innovate and are inventive survive and those that are stodgy get left behind.

While this is indeed true, it is our contention that longer term value is also created by what we described as human capital and hence, the fact remains that this is again a characteristic of longer term value creating firms. Thus, we want to emphasize that sustainable profitability is possible whichever view one prefers and hence, to conclude, we would ask our readers who are the business leaders of tomorrow to focus on the longer term instead of being “blindsided” by the short term.

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Managerial Economics