Corporate short-termism nets less than the long view
Tom Gegax - August 09, 2006
Toyota’s recent record profit announcement; its move into the #2 sales spot, replacing Ford; and anticipated eclipse of GM in the coming years are testaments to the value of the long view. To be sure, Toyota has some serious recall issues to contend with. But their move to hybrids and more gas-efficient cars have fueled a remarkable rise. Businesses of all sizes—any organization, really—could learn this Business 101 lesson.
In a nutshell, the Japanese automaker recognized that the act of manufacturing automobiles—the design, development and production cycle—is a long one. Toyota took short-term earnings hits (and became the butt of not a few jokes) when it developed and released the Prius, their hybrid centerpiece. As they looked beyond the horizon, they saw a few factors that would spike the demand for better fuel-efficiency. First, management believed that consumers would gradually become more environmentally aware. Second, they believed that gas prices would rise, due to the increased demand (especially from China and India), naturally decreasing supply, and a stormy geopolitical environment, especially in petroleum-producing countries.
Nobody was thinking the same thing at GM and Ford. Both companies consciously declined to trade certain short-term costs, like redesigning and retooling, for possible long-term gains. Not unusual for large, risk-averse corporations. They’d rather be safe than sorry. Let tomorrow take care of itself, is their mindset. You won’t hear them talk that way in public. But despite what American automakers’ TV commercials would have you believe, they got left in the dust, buried in confusion over what the public is clamoring for today. Bill Ford, Ford’s CEO, seemed to want to take some risks but shareholder pressure caused him to back down rather than stick to his guns. Toyota’s visioning and long-term view proved out.
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Posted by Tom Gegax at August 9, 2006 09:50 PM
Comments
1. Posted by
yogi-one
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on
August 9, 2006 10:30 PM
LOL Yogi!
Dear Tom,
Nice piece. It all depends upon whether you are a long term player or a short term one. To me personally, it makes more sense to be a long term player if one wants to have lasting success in any business.
Cheers!
Navin
Toyota is setting itself up to be the leading automobile company in the coming years. If things continue moving in the direction they are now.
I am not quite sure why the other companies seem to be teetering on the fence.
-A
3. Posted by
atm4382
on
August 10, 2006 07:29 AM
Tom:
I had blogged on a topic that is very similar "Why Successful Companies Fail" at http://www.businessmusings.com/?p=67
where I reviewed thoughts in the book "The Second Cycle". The problem with most successful companies is that they become complacent and dont look forward.
In real corporate world:
Nothing Fails like Success!
The problem with GM, Chrysler and Ford go beyond their own failures - it is symptomatic of the failure of the US political system in many ways!
We all know that GM has an additional $1400-odd added to its every car just because of the pension costs it has! So, even if Toyota and Honda or Hyundai were to set up a plant in the US - as they have - their costs have already undercut GM's by a large margin!!
I can see the demise of Ford and GM in the near-term horizon... or at least as we know these companies today (who knows their plants maybe bought by different companies) - but the Titanic is on its last leg of the journey.. all the antics of Wagner etc are simply efforts to straighten the deck of the Titanic!
Cheers,
Desh
Business Intelligence: www.BIMusings.com
4. Posted by
Desh kapoor
on
August 10, 2006 07:56 AM
Hi,
I think Toyota has done to Ford and GM what Maruti had done to Ambassador and Fiat in India in the early 1980s. Assured of their virtual monopoly in the Indian car market, Ambassador and Fiat were twiddling their thumbs when Maruti, an elegant, sleek, small and fuel-efficient family car, burst on the scene, and took the wind out of their sails. It didn’t take Maruti long to turn Ambassador and Fiat into museum pieces.
It is said that staying at the top is much more difficult than getting to the top. This is especially true in a market-driven capitalistic economy. In more recent years we have seen private banks, insurance, and telecom companies stealing a march over the “natioanlised” corporations here in India. Ever since these private players have entered the market, the managers of nationalized corporations have begun to learn the meaning of “Customer Satisfaction!”
Private companies have a clear-cut carrot and stick policy of employee recruitment. Perform or Perish. The bureaucratic honchos had no choice but to pull up their socks too!
“Innovate, innovate and innovate; rest not on your laurels” is indeed the mantra of durable success in business.
Sanjeev
5. Posted by
klumsyklutz
on
August 10, 2006 11:19 AM
Dear Tom,
Impressive resume,
Whatcha think about East-Europe?
and business opertunities?, now and the nearby future?
Love, (it's a spirit, thing Tom, don't, ;), Passion!
6. Posted by
marek dariusz podsiadlo
on
August 10, 2006 12:42 PM
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Recent Comments
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marek dariusz podsiadlo commented on Corporate short-termism nets less than the long view
Dear Tom,
Impressive resume,
What -
klumsyklutz commented on Corporate short-termism nets less than the long view
Hi,
I think Toyota has done to Ford and
-
Desh kapoor commented on Corporate short-termism nets less than the long view
Tom:
I had blogged on a topic that is v
-
atm4382 commented on Corporate short-termism nets less than the long view
Toyota is setting itself up to be the leading a
-
Navin commented on Corporate short-termism nets less than the long view
LOL Yogi!
Dear Tom,
Nice piece. I
Yup. All the US automakers seem to know how to do is run themselves into bankruptcy, then whine for the federal government to bail them out and give them huge tax breaks.
Oh yeah, and let the same CEOs that run them into bankruptcy collect multimillion dollar golden parachutes.
My heart bleeds for them. I have to cry myself to sleep now.