Short-termism is the practice of prioritizing short-term goals over long-term interests. In particular, tech companies are highly susceptible to the effects of short-termism.
Investor pressure forces publicly traded tech companies to focus too much on quarterly earnings. Instead of focusing on long-term value creation and fundamentals. Venture capital firms put similar pressure on startups. As a result of these pressures, tech companies often reduce their R&D expenditures. Other long-term investment opportunities get overlooked. These decisions affect a company’s ability to develop sustainable competitive advantage products. Which can result in tech companies making products with no value. In addition, short-termism also hinders employee development, motivation, and retention.
In 2022 – 2023 many tech companies had layoffs. This is an example of short-termism in action. Companies reduced costs by laying off employees and cutting benefits in the short-term. Eventually however these short-term cost reductions will have long-term consequences. Those who remain after layoffs are demotivated to work.
This has a significant impact on productivity. For example, when employees worry about layoffs, it is a challenge to produce high-quality work. Additionally, prospective employees may reconsider joining a company that has a history of layoffs. As the economy recovers companies will seek to expand their workforce. This follows the natural cycle. However, tech companies that had lay offs will face challenges in attracting top talent.
Tech companies like ServiceNow deserve kudos for their recognition of this dilemma. CEO Bill McDermott took a admirable stance, pledging there will be “no layoffs in 2023.” Specifically, such a commitment empowers employees to focus with unwavering motivation.
Other tech companies should follow what ServiceNow has done. Forgoing short-termism for cultivating enduring value for investors and employees alike. In order for more tech companies to prosper they will need to adopt a long-term perspective.
