There is not much place for waiting in today’s marketplace. In fact you can think about the whole capitalist system as being designed to get us to take actions and spend money now – and those businesses that are more successful in that do better and prosper (at least in the short term).
A recent study by colleagues of mine at Duke** demonstrates very convincingly the role that self control plays not only in better cognitive and social outcomes in adolescence, but also in many other factors and into adulthood … Controlling for socioeconomic status and IQ, they show that individuals with lower self-control experienced negative outcomes in [health, wealth, and public safety]…These results show that self-control can have a deep influence on a wide range of activities. And there is some good news: if we can find a way to improve self-control, maybe we could do better.
An interesting analysis. Ariely’s thesis is that over time, people who are better at resisting temptation tend to do better in life (at least with respect to health, wealth, and public safety).
What he doesn’t explore, however, is what happens to companies that are able to resist the allure of immediate gratification. Put another way, is there any material difference in “prosperity”1 between a company that focuses on quarterly profits versus a similar company that looks quarters or years down the road?
In many ways, Jim Collins’ Built to Last tried to answer this question. It profiled 18 companies and compared how they conducted themselves both internally and externally. And while Collins and co-author Jerry Porras concluded that it was better to focus on the long-term, what they couldn’t predict was that nearly half of the companies they profiled have had one trouble or the other in the decade since the book was originally published.
Ten years on, almost half of the visionary companies on the list have slipped dramatically in performance and reputation, and their vision currently seems more blurred than clairvoyant. Consider the fates of Motorola, Ford, Sony, Walt Disney, Boeing, Nordstrom, and Merck. Each has struggled in recent years, and all have faced serious questions about their leadership and strategy. Odds are, none of them today would meet BTL‘s criteria for visionary companies, which required that they be the premier player in their industry and be widely admired by people in the know.
So it seems that if we look long term and the companies that focused on the long term, not all have done well. What’s more, if we look long term at the companies that focus on the short term, some of them have done well, calling into question at very least the applicability of Collins’ conclusions.
And so the question remains: is it better to resist temptation and pursue long term profits, or is it better to give in to the temptation of short-term profits?
- However we choose to define that word, whether it be stock price, market cap, quarterly or yearly profits, or any other metric.