Long Term Thinking

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Long Term Thinking
July 18, 1995

By Bill Gates

Just because someone with a calculator recently deemed me the richest businessman in the world doesn't mean I'm a genius.

My success in business has largely been the result of my ability to focus on long-term goals and ignore short-term distractions that can be misleading. Taking a long-term view doesn't require brilliance, but it does require dedication.

As a leader, you must constantly ask yourself: Did I build that technology so it works long-term? Is that customer relationship long-term? Is my distribution strategy long-term? Is the way I set up salaries and incentives inside the company something that will work in the long run?

Perhaps the greatest test of a business leader's long-term thinking comes when structural change looms. When your business appears extremely healthy, it's difficult to behave as if you are in a crisis.

That's why one of the toughest parts of managing, especially in a high-tech business, is to recognize the need for change and make it while you still have a chance. You have to be vigilant to spot a sea change in advance, and it's not always easy to face up to one.

When a company's competitive environment is changing, it's very helpful if the leader gets up and says, "Let's get ahead of this. Let's avoid denial. Let's take some of our resources and really get our arms around this."

Unfortunately, this happens too infrequently.

What often happens is that a few employees who see a big change coming will sound an alarm. This warning may be followed by a lag period in which nothing seems to change, prompting skeptics to challenge the alarmists: "Those guys said we'd be in trouble by now, but sales are great!"

Well, the alarmists may have been wrong about when the sea change would come, but perhaps they weren't wrong to be alarmed.

Structural changes don't happen overnight. The tire industry, for example, took decades to feel the fall-off in sales resulting from radial tires, which last twice as long as the bias-ply tires they displaced. Radials were introduced by Michelin in 1948, but it wasn't until the 1980s that tire plants started shutting down in large numbers and once-proud tire companies, such as Firestone, were sold off to rivals.

It is easy, after the fact, to fault leaders who fail to adapt their companies to changing conditions.

If the U.S. car manufacturers had recognized how much better the Japanese were at manufacturing, and had used that as a rallying cry a decade earlier, they could have headed off some of the pain they went through.

If IBM and other manufacturers of big computers had recognized the importance of the PC years earlier, they might have adapted more successfully to the diminished role of the mainframe computer. Instead, it was the misfortune of John Akers to be running IBM when it became absolutely apparent that structural change had overtaken the company.

Akers was an outstanding chief executive, very professional. If he had run IBM during a stable era, he would be lauded today. Instead, he abruptly stepped down in 1993, in part to signal how much his company had to change. I admire the way he put his company's interests ahead of his own.

Akers' fate serves as a reminder of how wrong things can go when even great leaders fail to look far enough down the road. It's easy to lose focus on the future, because you don't pay the heavy price of long-term mistakes for a long time.

A company should have short-term goals, of course. But long-term goals and strategies are essential to long-term success.

Companies that take a long-term view don't waste effort driving up short-term earnings or stock prices. They strive to build technologies, systems and relationships that meet anticipated requirements.

At my company, for example, we tend to hire people with potential over people with experience, because potential is more valuable in the long run. If employees threaten to quit if they don't get a raise or a promotion, we usually let them leave even though it creates short-term problems. In the long run, the company is better off with consistent employment policies rather than ones driven by short-term considerations.

A decade ago I foresaw software on compact discs, and Microsoft got way out in front on that one. The market took years longer to develop than I expected, but we kept investing for the long term. This strategy has proven very valuable.

Much more recently, I've concluded that the wild success of the Internet signals a massive structural change in the computing and communications industries.

I have long expected computer networks to achieve historic importance, but it has only been in recent months that I've come to expect the Internet to become mainstream.

My thinking changed when I realized that communications costs are coming down so astonishingly fast that the Internet can, in the foreseeable future, evolve into a network able to serve hundreds of millions of people. Technical obstacles to the Internet's success are falling by the wayside.

This sea change is prompting us to critically reevaluate our plans--short-term and long.

One of our highest priorities has become building extensive Internet support into Windows, for example. And the Microsoft Network, like other commercial on-line services such as CompuServe and Prodigy, is evolving to become a part of the Internet rather than strongly distinct from it.

I doubt that even a year or two ago any of the on-line services foresaw the Internet assuming an overarching role. But now that the sea change is becoming apparent, services are rushing to embrace it.

This is exactly the right thing to do. When change is inevitable, you must spot it, embrace it, and find ways to make it work for you.