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Short termism stunts innovation

20 Feb 2013

Managers should be more broadminded and focused on the long term

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By taking on challenging projects and cases, companies are forced to rethink standard approaches, leading to an increase in experience, learning and innovation, according to London Business School research.

The research, entitled ‘Selection at the Gate: Difficult Cases, Spillovers, and Organisational Learning’, looks specifically at the success rates of fertility clinics.  Freek Vermeulen, associate professor of strategy and entrepreneurship and his co-author Mihaela Stan found that the fertility clinics that admitted fewer difficult cases initially enjoyed higher success rates in terms of live births.  However, this advantage disappeared quite rapidly as the clinics that treated relatively higher numbers of difficult cases and were more inclusive learned quicker from prior cases and in the long term they saw higher success rates.  Admitting more difficult cases enhances learning because it requires organisations to depart from routine processes.

In a business environment, often when organisations and managers are faced with pressure they turn to short-term solutions such as downsizing programmes, adopting new process management systems and outsourcing jobs to maximise results.  These short term solutions are often at the expense of a long-term competitive advantage for organisations.

Discussing the findings’ implications on the business world, Dr Vermeulen said: “Some of the popular management practices really make firms shoot themselves in the foot; they generate great results in the short-run by implementing short term solutions such as outsourcing but it can make a company much worse off in the longer term. The problem is, managers only see and understand the short-term benefits. The message to managers is they need to be more broadminded.”

The long term advantage can be attributed to the organisations that take on more complex cases that forced them to step away from routine processes and be forced to consider new solutions.

Dr Vermeulen concluded: “Many organisations, companies and institutions choose to build their strategies around guaranteed short term success, rather than achieving it through risk and failure over the long term.  The advantages achieved from quick wins from guaranteed success were seen to wear off rapidly.  

“Doing more difficult cases fosters an environment of working differently across an organisation, gaining deeper insights and can set them apart from the competition.”

To see the research paper please click here