Long-haul flights for me are a great way of catching up on articles. A recent Harvard Business Review article called “Stop Letting Quarterly Numbers Dictate Your Strategy” got me thinking that I needed to make my own post about it. Before we begin, I want to admit it’s more of “a new way to think about something” and less of “something that could actually happen.” Once I started to write said post and realized there was a lot to cover, I decided to break it down into two segments.
In this post, we’re going to talk more broadly about quarterly reporting. You can think of it as the 35,000-foot view (sorry for the buzzword). In the next post, we’ll discuss some of the inherent challenges of a focus on quarterly reporting.
The 35,000-Foot View
My point of view: quarterly reporting is a must. I say it’s a “must” because we are increasingly living in an age defined by data and metrics, and financial metrics are often the most important barometers to decision-makers at companies of all sizes. There should be regular check-ins on where the financials stand. Quarterly reporting is essential in that regard and how interim results should be interpreted in the context of a company’s long-range objective and strategy.
The first problem is that it stems from unrealistic annual -- and long-term -- growth expectations.
Whether derived from backward-looking reports or bold projections for emerging markets and new products, or lack of acknowledging failures, corrective actions for non-financial areas relating to human capital, customer satisfaction, retention, innovation, just to name a few. To many investors, growth is really all they seek -- remember, Amazon was making money for decades but wasn’t a profitable company until sometime around 2015.
I think we all probably know, or at least assume, that less of a focus on quarterly returns could be good for businesses. It would allow for:
- Less myopia
- More long-term strategy
- More investment in people
- Less “pivot on a dime” changes that run employees in circles
- More opportunities for innovation versus planning
- Less of a focus on money above all else
The second problem is the shifting business environment. This is somewhat nuanced, but I think we can all agree that we live in a more “VUCA” (volatile, uncertain, complex, and ambiguous) business climate. If you accept the idea of a VUCA-driven business environment, then an additional concept stands to reason: quarterly reporting is very much an “old-school” way of looking at the numbers. Does a new environment deserve new methods of reporting? (HBR has called this “the tyranny of old metrics.”)
I’ve seen executives change strategy on a dime, even 1-3 times per quarter, because of the possibility of new revenue streams representing growth or simply making the numbers. The traditional way we plan budgets and report quarters makes less sense in such a growth-focused, consistently-shifted environment. Look at the fourth bullet above: pivot on a dime changes running employees in circles. This is a real concern of the modern business climate (to me, at least), and one we’re not addressing enough. Rather, decision-makers are responding to an old system in a new era, and that’s one of the reasons people at the execution-level (the worker bees) are getting burnt out.
How exactly did we get here, and what can be done? That’s for Post II.
What else would you add to this topic?