End of Quarter madness

Like many people involved in the IT industry I’ve got used to the ritual of end of quarter madness over the years.

For many years it was my job as a manufacturer's rep to squeeze our distributors and resellers so that they placed their stocking orders at the end of the quarter. As the targets went up, and the numbers increased, the job would get harder and harder until this process started to seriously damage the relationship between the manufacturer and its partners.

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This end of quarter system creates a whole host of highly undesirable outcomes.

Here’s the top 11 consequences:

  1. Bully’s The manufacturer would bully the distributor and reseller into taking more stock than they needed, which caused resentment and damaged relationships. This is no basis to set up a long term relationship, and ensured other manufacturers were well received by the partners when they came knocking.
  2. Tied up capital Significant amount of reseller capital was tied up in stock, slowing the ability of the resellers to finance the deals they needed to do to shift the equipment. Capital can be thought of like oil in an engine. Having lots of it tied up in stock can have disastrous consequences.
  3. No Business Development All business development and marketing activities would go on hold for the last 3 weeks of every quarter.
  4. 10 week sales cycle All sales cycles HAVE to fit into less than 12 weeks, so any activity in the quarter could be measured and an ROI calculated for that single quarter. All business development and marketing activities had therefore to be no more than 12 weeks, and preferably less than 8 weeks long. This was true whether that made any sense or not.
  5. They learned the game Over time the distribution and reseller community learned that the best (only) special deals would get done in the last few days of the quarter. This strongly encouraged brinkmanship and ultimately deals being done which were bad for the manufacturer as it gave away margin, and bad for the reseller once they were lumbered with cheap stock they had to shift.
  6. So did the end users End users eventually realise when the best time to buy is, and like resellers wait until quarter end to place their orders knowing that this will enable them to get the best deal.
  7. Feast or Famine Internal processing at all levels of the transaction from manufacturer, distributor and resellers, as a result all live in a feast or famine world. The first half of the quarter they twiddle their thumbs, and the last week of the quarter they work 18 hour days.
  8. Margin Erosion The margin erosion is rampant. Because the supply chain is all too ready to do a deal at the end of quarter the ASP (Average Sales Price) is trashed at end of quarter to get the deal in. This rarely fully recovers during the next quarter and the supply chain bakes into its business model that no one ever pays full price. This attitude quickly destroys the meaning of list pricing.
  9. What have you done for me lately Companies are measured purely on their last quarter’s revenues, so long term investment and thinking are sacrificed on the altar of short term profits. As a result even companies that  want to invest in long term projects struggle to do so before investors (particularly the so called activist shareholders), demand a short term return, and a growing stock price.
  10. Weak management The United States economy appears to be have been completely overrun by the short term thinking of the quarterly fixated business model. Even private companies that are unconnected to the stock market rely on this system. Weak management often use it as a compelling event to ensure the sales organisation is doing its job. As an aside it always strikes me as an interesting point that the sales team is a bunch lazy, good for nothing wasters, appears to be regarded as an article of faith by many CEO’s (weak, bullying CEO’s perhaps, but it is a wide held belief nevertheless).
  11. Lose in the long term A quarterly based business will lose against a business prepared to take the long view. What started as a huge advantage for the US economy, a huge home market, able to raise money in, and sell to, a single homogeneous market is now becoming a source of weakness. Most emerging markets have nothing like the fixation on quarterly performance of the US economy and as a result give themselves more time to solve hard problems. It’s one of the reasons the other country with a single homogenous market, China, is able to think big and undertake the huge infrastructure projects now, to beat the US economy later.
  12. Gun Slingers Salespeople can be sneaky and they are like that because so are their employers. As I stated in a recent speech. Salespeople are a lot like gunslingers. They all know, or at least believe, that if they have a huge quarter management will either cheat them out of the commission, or raise their target to some insane level next quarter. Over 20 years of my own experience in this matter suggests they are right to believe this. As a result the vast majority of sales professionals will bottom draw (effectively hid, or simply not pick up orders), after they reach some threshold, typically somewhere around 120% of target.

I was good at it, even though I knew it didn't make sense

I built my early career on an ability to extract what was required from distribution and resellers. I like to think I was good at the process, but I also saw how destructive and counterproductive in the long term in became.

I even voiced my concerns to my superiors, who readily agreed, and reminded me that if I didn’t like it, they would happily find someone who didn’t complain about it, to replace me. I think that tells you everything you need to know about the dehumanizing effect of the system.

Not just a kicking

On the grounds I like to suggest answers as well as kick ant heaps, I do believe there are a number of things that could help change this state of affairs.

  1. Dividends. Increasingly few companies give dividends on shares. It is a practise that has died over the last 20 years or so as the cost of money has dropped through the floor, and has never been part of the culture of the IT industry. Companies selling share to investors and paying them for the privilege would empower the business to be much less beholden to the banks, and history would suggest that investors expecting a dividend return think longer term, and are less troubled by the short term volatility of stock prices. There is also evidence that in the long term dividend stocks outperform the market.
  2. Stop pretending. If you’re not listed, stop pretending you are. Many businesses act as if they are NASDAQ listed even when they are not, and most likely never will be. As McKinsey & Company demonstrate long term thinking is what matters. So businesses not forced to wear the quarterly straight jacket should not do so. One has to question the role and wisdom of Venture Capitalists in this regard as well. Typically they invest with a view to get a return on their investment in 4-6 years. So why the slavish devotion to quarterly business plans when they have the opportunity to beat their competitors by thinking in some other time scale. Dell and Virgin are two excellent examples of businesses that threw off the tyranny of the quarterly thinking and have flourished as a result. For businesses to put themselves in such a straight jacket for no other reason than they can’t imagine not doing so, is the very definition of insane.
  3. Try regional differences. Try something different. If the business has three regions, Americas, EMEA and APAC for example put each on a different end of quarter. That way there is an end of quarter each month for a different region. The stress will be less each month, and the likelihood of caving into the unnatural acts desperation of the full end of quarter is diminished.
  4. Off set your quarter end. The end of financial year varies for different businesses, but the quarters are invariably: Jan-Feb_Mar; Apr-May-Jun; Jul-Aug-Sep; Oct-Nov-Dec. As a result every business is trying to put the squeeze onto their clients at exactly the same time as every other supplier. An important part of sales is producing compelling events, reasons to buy now, not at some undefined future data. To offset the quarter end by a month, so that your end of quarter happens a month before your competitors gives you much more time to interact with clients, gets your business out of the way before the madness comes and enables to you spend the clients money before someone else does.
  5. Yearly targets, split into quarters.Give salespeople a yearly target, or at least set the next 4 quarters worth of targets now. That way they will not fear bringing in a big number and worrying that it will bump their targets in the future.
  6. Whack the useless managers. Many businesses live with the world of short term quarterly business because they can’t imagine a world different than the one they are used to. A quarterly orientated manager doesn’t have to think long term, simply living day to day on a 90 day calendar. Every 90 days it’s groundhog day again, they get to cycle through the whole business model again. Planning for the long term requires better thinkers, able to have more of a vision. This exposes weak management, and is a great reason to adopt the long term thinking model.

Depressing examples of the short termism of the US Economy includes the appalling state of the freeways, bridges, airports, dams and other key infrastructure. The US seems incapable or unwilling to maintain what it has, let alone embark on a new era of infrastructure building The days of the huge projects to reshape and reinvent the country seem to behind the United States. They are most certainly not behind America’s rivals. Just one example, the South-North Water transfer Project will transform China. By comparison California can’t even build a single fast(ish) railway between two of it’s largest and most prosperous cities.

These things matter not just because they are examples of long term, versus short term thinking, but because a nation’s economy is based on its ability to move goods and services around efficiently.

The railways and then the interstate was the platform that spawned the massive US economic growth of the 20th Century. Where is the long term thinking and game changing technologies for the US 21st Century? Even US Internet speeds are falling down global rankings.

Good quality management is key to the long term survival of individual businesses and whole economies. Short term thinking in the form of the quarterly report is deeply damaging to the US economy and if the US is to maintain its preeminent position in the world economy its needs to stop with the tyranny of the quarterly based business and start to think long term.

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About the Author: Simon Dudley

Simon is a contrarian. He makes a habit of being the guy who questions the orthodoxy, the guy who doesn’t believe it just because the good and the great said it’s true. This has not always been good for his ascent up the corporate greasy pole. However it’s been very good for his employers if they are prepared to listen.

The Book The End of Certainty "How to thrive when playing by the rules is a losing strategy" explains why groupthink and the doing what you’ve always done is no longer the right move.

To keep tabs on his work please follow him on: ExcessionEvent.com

Source: https://www.linkedin.com/pulse/end-quarter...