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The rise of long-termism is not just a trend, but a reflection on the past era, and it is also a ladder to the new era. ”
Good text 6022 words | 10 min read
Author: Cheng Zhaoqian, Professor, School of Business Administration, Zhejiang Gongshang University, Director of Global Value Chain Research Center and Management Case Center.
In the past two years, long-termism has become one of the most popular terms, and it has become a fashion for business operation and management.
However, most of the people who talk about long-termism are general, and there are very few studies that truly systematically and directly analyze its conceptual connotations and core logic.
Such a situation is undoubtedly very unfavorable, people will float on the surface of the concept, talk rashly, and can not make practical practice in thinking and action, and sometimes because of its excessive popularity, it will become the object of ridicule.
This article will analyze long-term doctrine in depth from the aspects of era background, functional value, goal orientation, core logic, and prerequisites.
We believe that long-termism is a very valuable thinking framework that provides an important guide for the development of the "next stage" of Chinese enterprises, but it is also very picky and imperfect, and it also requires us to treat it rationally and cautiously.
1 Long-termism is the "antidote" of this era
Why is long-termism a sought-after concept at this time, here and now?
The popularity of a new concept is often a "reaction" to a certain existing concept or practice. As far as long-termism is concerned, it is "reactionary" to short-termism, currentism—the impoverishment caused by excessive pursuit of efficiency, following the mainstream, and adapting to the current environment.
It includes both ideological barrenness, lack of the ability to think independently and deeply, simply identifying with popular ideas, but also including behavioral barrenness, following the current, blindly imitating successful enterprises, lest they miss something, and the barrenness of results, the model is the same, a certain model dominates the world, and the characteristics are scarce.
But behind these barrenness seem to be the forces that are taken for granted – ambitious entrepreneurs, heavily funded investors, young and ambitious new employees, consumers who are increasingly impatient for immediate gratification, and they form a logical chain of epochal rationality that reinforces each other.
Long-termism is precisely an effort by people to break this chain of logic. It tries to be less sensitive to efficiency, willing to bear losses or losses of opportunity for a certain period of time, and maintain a certain distance and a certain degree of indifference to changes in the external environment.
It pursues independent and in-depth thinking, pays more attention to corporate personality and profound connotation, changes time from the divisor of division to the multiplier of multiplication, and nurtures higher value output in the future through the unique production device of "time".
In short, long-termism is the "antidote" of this era.
For example, today it is considered that Guizhou Moutai is the best and most honorable wine, especially in occasions where etiquette and "face" are valued, but this status of Moutai has not always been so.
From the 1980s to 1993, the boss of the liquor industry was Shanxi Fenjiu, known as "Fenda"; from 1994 to 2012, Wuliangye occupied the first place in the industry. But both companies have expanded a lot of sub-brands to make more profits after leading the way.
During this period, under the leadership of Ji Keliang, Moutai Wine focused on the main business, continued to work craft inheritance and quality improvement, and laid a deep foundation for the subsequent rise, which was both product-level and brand-cultural.
In 2012, because of policy reasons, the liquor industry was greatly impacted, and even Wuliangye cut prices by 30% in exchange for sales, but Moutai bucked the trend, insisted on not reducing prices, highlighted its scarce quality, and successfully surpassed Wuliangye to become the first high-end brand.
This exciting transcendence process perfectly embodies several elements of long-termism: long-term commitment, superior quality, and independent individuality.
2 Long-termism is a "ladder" from the present to the future
Another reason for the popularity of a new concept is often as a solution to the challenge of common headaches, the challenge referred to here is the UKAization of the environment (transliteration of VUCA).
Since the 1980s, a series of innovations in strategy, organization, leadership and management have basically been based on how enterprises adapt to the environment.
To sum up, there are basically three paths to adaptation to the environment, and they are coordinated and matched.
Path one: the core is prominent, and the periphery is released. Focusing on the main business can make the "contact surface" between the enterprise and the environment smaller, which makes it easier to analyze, study and respond to the environment, and the cognitive and organizational challenges are smaller.
But on the other hand, enterprises must have a certain proportion of exploratory business, innovative business, and cooperative business to create conditions for seizing new opportunities in the environment. The latter trend has become increasingly evident over the past two decades.
Path two: Make your organization more agile, more flexible, more open, and more adept at learning. Methods include making the organization more "flat", authorizing downwards, opening up horizontally, or making the organization more "small", subdividing business units, such as Kazuo Inamori's Amoeba, Hando's group system, Huawei's three-three system, etc.
Or make the organization more open, build a learning organization, establish a wide range of inter-enterprise cooperation, and acquire dynamic small and medium-sized enterprises, so as to solve the problems of bureaucracy, slow response, and fading vitality brought about by the "big business disease".
Path three: improve the "leadership intelligence" of the enterprise and overcome the limited rationality of the leader. Methods include attaching great importance to the construction and improvement of corporate governance structure, teaming senior executives, exploring the rotating CEO system, and planning and arranging the handover as soon as possible.
For example, the time point for the main founder to retire from CEO to chairman is greatly advanced. Huang Zheng of Pinduoduo and Zhang Yiming of ByteDance were only 40 and 38 years old when they resigned as CEOs.
However, these measures are basically carried out around structure or in the spatial dimension, which seems to be lackluster and rare in the temporal dimension.
Most notably, researchers such as Tom Peters, Peter St. Giles, Jim Collins, and Peter Drucker have identified and affirmed the importance of vision, mission, and core values (collectively known as MVV).
However, although many entrepreneurs and managers have embraced this view and carefully designed various "tall" MVs in the enterprise, they actually exist more in a formal, totemic way. MVV and the real operation and management of the enterprise is disconnected, vague, and even contradictory.
In our view, long-termism has the potential to fill this logical "gap," truly connecting the two and becoming a ladder from the present to the future.
One end of the long-termism is the vision, mission and core values, and the other end is rooted in specific management and management practices, the former as the guide and standard, so that all current activities serve the realization of long-term goals, rather than sacrificing the long term to achieve the present.
3 Long-termism for building competitive advantage
Open up a "new field"
The third reason why long-termism is popular is that it can help companies build a competitive advantage in the "secret garden", which is a new field that is not easy to see and the threshold is very high.
In the past hundred years, under the incentive of competition, the basis and way for enterprises to build competitive advantage have changed greatly.
One of the trends is from the perspective of customer interface, the composition of competitive advantage from "point" to "surface" to "body", a single competitive advantage must be upgraded to a comprehensive competitive advantage, and finally give customers a composite, immersive value experience.
For example, Huaxizi does not simply sell a certain product, but builds a product system, from style, color, shape, to materials, recipes, and even creates a unique "Huaxizi" font.
The second trend is that from the perspective of the composition of the foundation, the foundation of competitive advantage is deeper and deeper, more and more extensive, from "point" to "line" to "body". Competition has increasingly become a competition between value chains, supply chains and industrial ecology.
In the past, a good product can make the enterprise moisturize for several years, but with the intensification of competition, it requires that the enterprise must have the ability to continuously launch new products, and the field of competition will move back to the ability, process, team, and mechanism, and then later the enterprise finds that it must break the habit of not inventing itself, and borrow a wider range of forces to cooperate.
The third trend is that the point of action of competitive advantage is more and more combined with the "human heart", in other words, it is more and more invisible and subtle, and the "end point" reached by the two above-mentioned changing trends is also the "heart" of the customer. Being able to grasp the psychology of customers and obey their cognitive laws is especially important in today's surplus economy.
The perfect diary that is popular with women and the entrepreneurial team of Hua Xizi are all men, and the reason why they can succeed is because of the accurate grasp of women's consumer psychology.
Once again, we found that the above-mentioned construction and exploration of competitive advantages are concentrated on the spatial dimension, digging deeper and deeper, digging more and more extensively, but still paying less attention and thinking less in the time dimension.
When competition in the spatial dimension becomes increasingly fierce and the available resources and competitive advantages become more and more crowded, is it more likely to create a competitive advantage if you work the time dimension? Absolutely. A very good example is Huawei's breakthrough in 5G technology.
Competitive advantage based on path selection and long-term time, with a natural isolation mechanism, that is, uncertainty and high opportunity cost.
Therefore, out of the instinct of risk aversion, most people are not willing to make such a choice, prefer to consider more closely when making decisions, see more what others are doing, and if others succeed, they will imitate it themselves, and the probability of success will be higher.
In this way, the opportunity to build a competitive advantage is naturally left to those who are insightful, adventurous, and believe in the power of belief.
4 Goals of long-termism:
Become a strong, healthy and beautiful enterprise
Scale is supreme, speed is king, and the scale of the enterprise can be done in the shortest possible time, which is the most common pursuit of Chinese entrepreneurs in the past four decades.
This strategy is not only popular among post-60s and post-70s entrepreneurs, but also seems to be more favored among post-80s and post-90s entrepreneurs, who are more anxious and urgent, and more aggressive in action because it is easier to obtain capital blessings than their predecessors.
However, in the pursuit of scale, many serious problems have been exposed. They send a strong signal that Chinese entrepreneurs must make major adjustments before they can draw a second "growth curve."
The first prominent problem is "for the big and big" and "big but not strong", the profitability is weak, the cash flow is not healthy, and the core technology is "stuck in the neck".
In every era, there are companies that find the "trick" to become bigger – diversification, low-cost expansion, cross-border mergers and acquisitions, or exaggerated and even deceptive marketing , etc. – to become the star enterprises that were in the limelight at the time, but in fact they are huge on the outside, empty on the inside, very fragile, and cannot withstand the wind and rain.
Such examples include giants and three plants in the 1990s, Delong and Sanjiu in the late 20th century and early 21st century, and Anbang, HNA and Luckin Coffee in the past two years.
The second problem is "big but not beautiful", where "beauty" refers to the performance of enterprises in ESG (environment, society, corporate governance).
Many enterprises in the process of development to destroy the environment, suppress employee welfare, harm the interests of customers and suppliers, bribery and collusion with government officials, etc., their development at the cost of social "external costs".
In 2018, Changsheng Bio was exposed to falsifying production records during the production of rabies vaccines, triggering waves of doubts about the quality of Vaccines in China.
The third problem is "big and not long", that is, the short life of the enterprise. This is closely related to the first two problems, because the "causes" they planted bear the "fruit" of the shorter life expectancy of Chinese enterprises.
For example, the melamine incident and the vaccine fraud incident led to the "sudden death" of Sanlu milk powder and the immortal organisms respectively.
Time and again, these questions are a stinging pain to keen entrepreneurs and business and management thinkers.
A new goal pursuit has emerged, that is, to make the enterprise stronger, healthier and more durable, better, and develop symbiotically with stakeholders (employees, customers, and society) to achieve co-creation and sharing of value. This is exactly what the long-termists seek.
5 Long-term thinking and action framework
So, how to achieve such a goal? What are the key elements? In other words, what should a long-termist (the business as a whole) look like?
In our view, long-termists have three important characteristics.
The first is commitment and persistence, long-term commitment to doing one thing, ten, twenty or even more, and committed to extremely high goals.
Behind it is the scarce, remarkable leadership, including the insight to see prospects that others can't see, a tremendous energy that must get things done, a sensitivity and tolerance to identify, attract, and use talent, and a spirit of sacrifice that is willing to give up and share your fame and benefits in exchange for the cooperation of others.
The second is a strong spirit of altruism, because they know that only by creating value for others can we win the genuine investment of stakeholders (e.g., customers, employees, partners, investors, etc.).
There is one word that is particularly reflective of the positive interaction, and that is "symbiosis". Symbiosis is an ability to build, develop, and renew symbiotic relationships, and it is a very scarce and valuable ability in this era.
Recently, there has been a lot of controversy surrounding the Hongmeng system developed by Huawei, and many mobile phone companies are not willing to adopt it, fearing that they will be subject to Huawei.
Huawei knows that as an operating system for the Internet of Things era, the Hongmeng system must have enough users to truly generate value, so a rare scene in the history of the enterprise occurred.
Huawei announced that it will donate the basic capabilities of the Hongmeng system to the Open Atom Open Source Foundation to form an OpenHarmony open source system that everyone can build and share. Once successful, Huawei will become one of the most symbiotic enterprises in China.
The third is the paradoxical integration of thinking and action ability, which not only attaches importance to traditional inheritance, but also seeks innovation and change, and constantly "seeks change" on the foundation of "unchanged".
Jim Collins and Jerry Pollus argue that the most important thing for a forward-looking company is to "preserve the core and stimulate progress", where the "core" is not the core business, but the "core values", which is equivalent to "the genetic code in nature... Unchanged in the changing and evolutionary nature of species".
Based on the above understanding, we propose a framework for thinking and acting on long-termism.
In the inner circle, it is made up of five elements: MVV drive, strategic focus, deep execution, customer value and symbiotic relationship. In the outer circle, it is a pair of "paradoxes" that both preserve the core and continue to innovate.
The relationship between the above elements is clear: under the traction of MVV, the company formulates a medium- and long-term strategy, and then combines the support of symbiotic relationships to achieve goals that others cannot achieve through deep execution, creating unique customer value.
Together, they output competitive advantages and the accompanying barriers to competition, the "moat", which consists of two dimensions and complements each other:
First, for a long time, it will take quite or even longer for others to catch up, and in this time, the forerunners are also improving; the second is high standards, the most important embodiment of which is that the quality, technology, customer experience, and brand reputation have a very high standard.
For the preservation core and continuous innovation of the outer circle, its importance is more reflected in the cycle and sustainable development. They are a higher-order part of the long-termist framework, exercising the function of supervising, evaluating and analyzing decision-making.
6 Long-termism is a very critical strategic choice
Although long-termism is very important, valuable, and future-oriented, it is also a very critical strategic choice, not a strategy that everyone can implement, and even if it is acted in accordance with the principles of long-termism, it does not necessarily mean that it can be successful.
The "pickiness" of long-termism means that it needs the support of some important conditions. First, there is the scarcity of leadership, and nothing in the business world is more scarce. In the final analysis, holding on to one thing for a long time without being tempted by others is an extremely draining process of mental energy.
However, further, one wonders whether if a great leader withdraws because of his age, energy, knowledge structure, etc., will there be a leader of equal level and with great mental flexibility and flexibility and learning ability to follow.
Our proposal is to achieve leadership upgrades that inject lasting power into long-termism by upgrading individual leadership into an integrated, team-based, echelon-based, culture-based and institutional, networked leadership that permeates all departments and levels of the organization.
The second support condition is sufficient financial support.
Long-termism often means giving up the opportunity to make immediate profits and making sustained investments, with a longer period of return on investment. This is very "unfriendly" to anyone involved, whether it's an entrepreneur, an employee, or an investor.
There seem to be two main solutions. The first is to form a healthy cash flow internally. The second is to find "foreign aid" outside the enterprise and obtain patient long-term capital.
A widely circulated "paragraph" is that at the end of 2007, when doing the company inventory, Liu Qiangdong was shocked to find that 70% of customer complaints were concentrated on logistics distribution, so he decided to build his own logistics.
However, this is an undesirable decision, the investment is large, the cycle is long, the number of personnel and the complexity of the operation are greatly increased, and Liu Qiangdong is under great pressure.
In 2010, he approached Zhang Lei with a $75 million investment, but Zhang Lei's response was to invest $300 million. In the end, the logistics and distribution system that continues to be built on a large scale constitutes the most important competitive advantage of JD.com.
The third condition is that the organization and its surrounding ecology must become a nutrient-rich "black soil".
Long-termism is like planting a tree, from a seed to a growing tree, from a single tree to a lush forest, relying on a larger supportive ecology involving partners inside and outside the organization.
Pointing out these supporting conditions not only makes us more clearly aware of how difficult it is for a company to implement long-termism, but actually reveals its vulnerability:
If the leaders change, will they break the original direction and motivation? If the company's finances are really "out of control" for some uncontrollable reason, will long-termism become "empty talk"?
Problems such as these are so numerous that many times people suspect that the so-called long-termism is nothing more than "survivor bias" and "after-the-fact mannerism" – of course we do not think so.
The rise of long-termism is not just a trend, but a reflection on the past era, and it is also a ladder to a new era.
Whether active or passive, enterprises need to seriously consider how to incorporate long-term thinking and action into their own organizational construction, strategic management, and market competition.
It will help enterprises to think about the foundation and way of existence of enterprises at a more fundamental and long-term level, be more determined in strategy, more thorough in implementation, integrate resources inside and outside the organization, and continue to work towards a stronger, healthier and better enterprise.
Of course, this is also a difficult journey, and only with a strong heart and enough wisdom can we enjoy the sweet fruit brewed by giving and time.
This content has been abridged
Original article "What is true long-termism"
Published in the October 2021 issue of Business Review
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