I've been thinking a lot about the subject of time recently.  It all started with the UK Secretary of State for Business, Vince Cable who launched a review into economic short-termism in autumn last year.  A long-term focus for corporate Britain called for evidence about market short-termism and as I write, the UK Business Department is  ploughing through all the responses with a view to coming up with some firm proposals to address what it feels is a serious weakness of the UK corporate governance and capital markets system.

One of the key problems is that UK listed companies are held by a diverse range of shareholders, some of which hold shares for a matter of seconds - if that - and do not have the long-term interests of the company at heart.  This has led to situations such as the much-publicised takeover of the UK chocolate icon, Cadbury by Kraft where the destiny of a company that had been built over almost 200 years was determined by short-term investors.

Now we could probably discuss this issue on its own all day and perhaps look at different ownership models where there is a dominant shareholder such as a family or government which would better ensure a long-term focus.  Indeed, as part of our preparation for the CIMA World Conference in Cape Town in October 2011, we are working on a new report (due in April/May 2011) with the working title, 'Building world class businesses for the long-term'.  This looks at the prevailing view that all would be well if only businesses could abandon the evils of short-termism and adopt a long-term outlook.

It occurred to us that this is one of those things we find ourselves saying, but when we stop and think, we realise that it raises further questions.  For a start off, there doesn't seem to be much agreement as to what long-term actually means.  I've seen everything ranging from months to eternity!  And then there are questions such as what a businesses long-term horizon actually should be - and is that long enough in view of the looming challenges of environmental sustainability?  We also emphasise the importance of not forgetting the short term - after all, if you aren't getting the cash in today, you aren't going to have a long term to worry about! 

As part of our research for the report, we also recognised that, quite apart from short-term market pressures, companies could unwittingly and quite unnecessarily have short-term perspectives because of the way they have organised their profit centres and performance management targets.

This very issue is explored in more depth in a CIMA research executive summary Using management accounting to lengthen the time frame of managers by E Pieter Jansen of the University of Groningen in the Netherlands.  It looks at the case of a Dutch car dealership, Van den Udenhout (VdU) which wanted to lengthen the time frame of the company's managers.  Although the most important asset of a car dealership that affects long run performance is customer relationships, sales staff were basically incentivised to concentrate on transactions rather than building and maintaining a network of loyal customers.

The case study illustrates how VdU sought to shift from an emphasis on profit centres and transactions to one on profitability throughout the customer life cycle.  The change required revised information requirements and a different set of key performance indicators as well as shifts in attitudes and behaviours on the part of sales staff and managers.  It's well worth a read and could help prompt you to consider whether your KPIs and targets are properly aligned to the main drivers of profitability.

But in the meantime, I'm interested to know how you define the long term!!