Short term bias in organizations

Some thoughts inspired from reading Daniel Kahneman’s thinking fast and slow, I highly recommend reading it.

All organisations that I can remember working for have had a bias towards short term decisions. I some times hear this being blamed on the need to keep the stock market happy, but I have seen the same in both state run organisations as well as in privately own companies of different sizes. One reason is my own perspective that is biased towards the long term which of course colors my view on organisations. But there are actually many reasons for organisations and the people operating them to be short term biased, which I will argue in the rest of this blog post...

A lot of people in the organisation will want quick rewards, you might not plan to be in the org five to ten years from now, so you want results now. When you start in a new position in an organisation you have little track record of what decisions were taken historically that put you in the current situation. This makes it difficult to learn from others over long time and for others to see the long term effects of your actions and reward you for them.

There is a risk aspect to this as well. Even the best plan can be bad because of events altering the situation down the line, for all you know the organisation might not even exists when the long term benefits are realized, the average life time of a fortune 500 company is less than 18 years and expected to decline, and that means that a lot of companies have much shorter lifespans. For this reason it is reasonable to be slightly shortsighted and jump on opportunities at least when they be exploited with bad long term effects.

Very small effects have big impact over time. This means efforts might not be rewarded properly since they might appear as small efforts done a long time ago. However when you do it wrong you might not be left to feel the pain in the organization and those in it might not even be aware you caused it. This leads to some of the actions needed to be considered details not worthy of discussion or worth the time to argue over, but down the line several of those small details is the difference between competitive or not.

I have observed that organizations sometimes are too happy to accept fairly good things as long as they are comfortable and conform to the previous traditions. Fairly good solutions that don’t need new thinking nor require controversial changes are sometimes selected because they are considered smooth and easily managed. There is rational thinking in this since too many controversial changes at the same time could lead to chaos but as argued above even very small differences between good and slightly better makes a huge difference a few years down the line. Change management is an art in itself and requires a lot of effort so trying to reduce or avoid it is rational to an extent.

Another thing contribution to higher rewards for doing something quickly or picking the easy solution is that many in the organisation will likely lack the detailed expertise to see the difference between good and slightly better, and might be perfectly satisfied with the report that something has been accomplished without asking for minute details regarding how it was achieved, everybody is busy with their own tasks. Typically when it comes to details in quality you quickly get into the realm of opinions which can be pointless to argue further about unless you all have plenty of time to dig further into the topic over an extended time.

New and shiny projects will always come along, these increase the risk that very important improvements and fine tuning to existing things don't get proper attention. Capabilities that are valuable to the organization and already exist can easily be undervalued because they are a bit boring compared to the new and shiny things, and as a consequence it can be hard to find resources and motivation to improve it that little extra but that would make a huge difference in the future, the greatest immediate kick is much more likely to come from something new.

Being agile and taking baby steps is a good way to start and personally I love pragmatic work with tangible progress. However there needs to be a vision that gives direction or you might either stray away and progress to the wrong place or risk stopping to early simply because what you have achieved looks pretty good and seems good enough. Another issue with the investment taken during the baby steps might lead to a sunk cost fallacy, down the line all the previous effort might need to be sacrificed to achieve a new level of performance that can’t be achieved with the current solution. There is no reason to be overly sad about this, the understanding and wisdom needed to understand that something different is needed is a valuable thing that you bought with the previous journey, even if something is thrown away that was a necessary investment.

How do we make better decisions to end up in a better future? A marshmallow test for your organisation...