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Lecture 16

GMGT 1010 Lecture Notes - Lecture 16: Balanced Scorecard, Executive Compensation, Human Nature

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Department
General Management
Course Code
GMGT 1010
Professor
Farhan Islam
Lecture
16

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Class 9 short/ long termism
What is short-termism? An over-emphasis on short-term economic performance
Short-termism Short-term tactics help a firm deal quickly with crisis or rapid change. Because these
actions are quick and often low cost, their effect tends to be incremental: for example, refining a
product rather than developing something entirely new. Usually the benefits and costs appear quickly
and are easy to measure.
Through long-term actions, firms seek to achieve more significant, even transformational changes that
will enable durable success. They may invest in new infrastructure or business areas. These investments
take longer to pay off, and can be difficult to quantify in advance but can act as game changers for a
firm.
Short-term and long-term actions are both important for companies But In the modern economy, the
short-term tends to dominate
What causes short-termism
a) Investor pressure Companies that are financed by the stock market are often pressured by
investors who want quarterly returns maximized
As a result, companies often report quarterly earnings with sales targets focused on maximizing profits
during these periods
Short-Term investors: Mutual funds, investment companies
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