shortrsightedness

Shortsightedness Or Why Wait for Tomorrow what I can put off today?
By Paul A. Herbig

Human Beings are complex and notoriously unpredictable creatures. This is why, despite all the efforts of hundreds of years and rational academics, marketing and especially consumer behavior is still considered more an art than a science. One of the most interesting and yet perplexing characteristics of people is their shortsightedness, their ability to sacrifice long term benefits for short term gains. It is not just our tweens and teens, those to whom long range planning means the weekend ahead, who are caught up in this, but all of us are at fault.

Several examples should suffice. During the early nineties, environmentalism was anew and green was being preached by students at many universities. One of their most fevered causes was recycling and the destruction of forests and depletion of natural resources. Bookstores took note and contracted to offer recyclable paper to students. What should have been an astounding success was a dismal failure: because it cost more few students bought it. The depth of their faith was shallow indeed.

Costco has been ranked one of the best companies to work for. It pays its people relatively well, provides benefits and services, and generally is admired by its employees. However, recently, stock analysts gave the stock the thumbs down. Why? Because of precisely those reasons. Walmart. Its main rival, is rewarded with a much higher stock price because it treats its employees with disdain , as costs, not people, with the philosophy of minimizing costs at every turn: poorly paying them, providing them with nonexistent benefits, and as such is rewarded with 100% annual turnover, poor morale, and token loyalty. The analysts say Costco must conform to Walmart’s policy to stay competitive and increase stock price. Costco’s comparative advantage is its loyal employees (by compensating employees generously, Costco gets lower turnover—1/4 Sam’s-- and higher productivity-25%), good employees treat customers well resulting in increased customer repeat business and higher per employee sales (Costco does equivalent Sales as Sam’s but with one-third fewer employees). Do away with that relationship and you might get several quarters of great results but at what future price (both to the company and workers)?

Speaking of Walmart, blue collar and white collar Americans everywhere are running scared of losing their jobs, to off-shoring to lower cost countries. Yet they swear by Walmart, buying nearly $300 billion dollars of goods there, a store notorious for its lack of American made goods, a store whose direct purchases from China approaches $20 Billion annually and whose cost pressures on their suppliers have for all practical purposes required their suppliers to locate their plants offshore. For the savings of a few pennies today, they are sacrificing many an American job (and possibly their own) later. How is that for not looking beyond next week.

And one last example should drive the point home. President Bush is being besieged by his opponent for a lackluster economy, a jobless recovery. Big Business should be supporting the Republican President for it knows he is the lesser of two evils. What can it do to help the President? If it is jobs that are needed to change the public perception of this economy, they can do it. If all of the Fortune 1000 and its service counterparts (Banks, Brokerages, Transportation, Insurance) were to not to layoff anyone else for the remainder of 2004 and to hire only 1,000 persons apiece during Spring/Summer (at an annual costs of only $50 million per year—a pittance for them in the short term for guaranteeing Bush getting another 4 years), 2 million new jobs would suddenly become available, the job and economic variable would disappear and Bush’s reelection would probably be assured. What is the probability of this happening? Zero. Their emphasis on short-term gains (quarter to quarter earnings) is so strong, they would sacrifice immense long term profits (in this respect, 4 more years of Bush), to keep their next few quarters strong and stock high.

Moral of the story: perhaps it is better to ignore that desire for short term gratification and pay just a little more (in dollars, in time, etc.) for that long-term gain. Yes, it is true that in the long-term we are all dead, but hopefully not for many more years and it is precisely those many more years that we should plan for.