Imagine if every three months you were expected to make more money, lose more weight, be a better community member, and more. Imagine if every three months you had to prove that you had accomplished more and were doing better than the three months previous to that one.
At first glance, you might think it’s workable, but after a couple of years, how much better can you possibly get? At what point are you accomplishing what high performance sports coaches call, "peak performance," and how can you keep topping that? Even the notion of peak performance is all about training and optimizing the body and mind for one specific moment in time. The whole idea is that there is a build up to that moment, and then some rest and recuperation after it.
So, why is it that we expect our publicly traded companies to return better results every quarter on quarter?
Last month, I spoke to one of the larger publishers of newspapers in the world. During the Q&A, one of the executive editors asked how their company could get better at discovering new business models and advertising opportunities, while at the same time increasing their current revenue base. The answer seemed obvious at the time: you can’t.
In order to truly innovate, companies are going to need a reprieve from trying to create record profits every quarter.
It’s the one conversation that the music industry never had with the general public, and you don’t see many newspaper publishers doing it either. Why doesn’t the CEO of one of these companies stand up in front of their stakeholders and say something like, "listen, if we don’t take two years to innovate – which will probably mean that we won’t make our quarterly earnings… in fact, we’ll probably loose money – we won’t be around in two years."
What would you rather have: record profits for two years and then nothing, or two years of innovation (with limited profits) and decades of prosperity?
Look at the layers of complexity that businesses face today: companies are forced to produce record profits quarter after quarter, the recession has affected almost every industry we know in the media landscape, and a lot of the traditional channels are grappling with the new realities of the digitization of their products, services and operations. That is the new reality.
Something has got to give.
You’re playing my song, Mitch. I’ve long believed that the Street’s expectations for quarterly results are at the heart of the biggest problems facing North American business. I once heard a retired Fortune 500 CEO on a talk show complain that the demand for meeting those projections kept him from investing in longer-term, investment-heavy opportunities.
I worked for a company once that haid a layoff once a quarter; they’d reduce SG&A in order to get the numbers where they needed to be to satisfy the analysts. Then, a year or two later, they’d wonder why they didn’t have the expertise in the company that they thought they had. Of course, that expertise had been laid off six quarters ago. It created the same problem with institutional memory and continuity.
It’s a terrible, terrible system. Sadly, it ain’t gonna change, either.
Newspaper execs must be getting awful sick of all the good advice these days. And that is good advice. Corporate may be on a quarterly time frame, but individual newspapers often find it hard to look farther ahead than one month or one week. That’s blindered to the point of dysfunctional, but that’s the American way.
The time to take two years off to reinvent would have been when things were still reasonably flush. Instead, newspaper companies went on a buying spree. Now, they have to pay off the credit cards, or go bankrupt. Period.
Meanwhile, “evolution” will take place in nooks and crannies of the media economy, and who knows which species will survive and advance?
At one time newspapers where privately owned and the jewel of the town or region. Once they started becoming investments, that was beginning of the end.
It’s true with most public businesses. It is a major problem.
When investors are involved and major money is in the game a company most grow revenue non-stop until it runs out of gas. Then it is squeezed all the way into the grave.
Having once worked for a publicly-traded company that recently declared bankruptcy, I’m very happy to be working for SAS now. Our CEO Jim Goodnight said earlier this year he would accept lower profits in 2009 so as to avoid laying people off. As a result, we’re doing our jobs and getting things accomplished and continuing to develop new products, not waiting around for the other shoe to drop.
God, GREAT post. The entire system has been designed this way, and public companies are a farce as a result. Good job with this dude.
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