While you were eating hot dogs and watching fireworks, your Finance team was sorting through the quarter close numbers. How did you do? How did you do it?

“Summer time and the living is easy” does not apply at a company where the pressure to make every quarter is on and the Q2 close is followed by 2018 operating plans, strategic plan updates and, depending on how you finished the quarter, that uneasy feeling that the volume you pushed in Q2 just increased the pressure on Q3.

For those of us with a lot of experience marketing and selling physical products, what Finance is scrutinizing are the end of quarter decisions designed to make sure that operating plan goals were met or exceeded. Sometimes those decisions are clear cut. Sometimes, in the current environment where companies get judged by the markets or by their boards quarter-to-quarter, leaders at all levels face the challenge of deciding whether or not to “push” volume.

Over the past few weeks I have heard from a number of friends and former coworkers all longing for “others” to have a longer-term view of the business. Many are concerned that Sales may have “stuffed the pig”(as we used to say) to bring in Q2.   I admit that my perspective on this has evolved a little bit over time as I have worked on different businesses, at different levels, in different countries. There are a few exceptional situations where you want significant inventory builds ahead of consumption. Having said that, most of the time there are clear signs that you are filling Wilbur’s trough one too many times.

Consider the following as you look in the mirror to see if you can pass the “red face test”:

a. If you had to increase your incentives to convince a customer or channel to buy at the end of the quarter (discounts, dating, accruals, etc.), then you, my friend, are stuffing the pig. BTW, Sales alone can’t be blamed since Finance, Brand, Ops, and GMs are typically involved in the decision to change terms/increase discounts.

b. If these quarter-end orders also exceed the long-term trend in your customers’ inventory you have “filled that porker good”, and you know it.

I have a friend from high school who has two beautiful homes and a couple of country club memberships built off of his retail diverting company that trades mainly in paper goods. I have railed against his business for years and his response is simple and clear: ”If you guys didn’t cut them crazy deals, I’d be out of business”.

c. If your brand is flat or declining and you are selling-in increasing amounts of inventory without a MAJOR program to drive consumption at the other end…

The problem stuffing the pig causes is not related to stock price. It is the impact that the decision has on organizations for months to come.

About 90% of the time, by selling day 18 of the 1st month in the next quarter you are already getting questions about why the business is “suddenly soft” and the answer “because we pushed volume in channel X or Customer Y” ain’t an option. Instead, you have just sentenced your organization to hours of  “analysis” designed to find alternative explanations for the slow sales. Better yet, there will be contingency planning exercises focused on both profit protection and incremental spend (seems contradictory but it happens all the time). The point is, just when you need folks to be focused on the business and the planning for next year, you are pulling their focus away from what should matter.

Exception(s) to the Rule (I’ve learned along the way)

In my 30 years of experience I have seen two channels/markets where “pile it high and watch it fly” applies. In both cases they had the common element of being channels built on independent owners and small chains.

a) French Pharmacists on a seasonal product – a staunchly independent channel, for seasonal products like Allergy medicines it’s a race to stuff the channel one store at a time. Just imagine that every time they walk in to their stock room they think “Mon dieu, j’ai beaucoup de Reactine/Zyrtec à vendre”.

b) Independent Optometrists – like their brothers and sisters in pharmacies, convincing independents to bring in or commit to large inventories results in increased share. As a couple of good friends of mine who have had senior jobs at more than one Vision Care lens company say “a loaded customer is a loyal customer”.  True but limited since most volume flows through wholesaler/distributors and corporate accounts’.

A better way

It would be easy to say the lesson here is never miss your numbers. Short of sandbagging your plan or finding a miraculous way of hiding a hedge somewhere in gross to net, these are unrealistic and unsustainable strategies in any sophisticated organization.

Instead, I offer an exemplar of business leadership, Peter J. Valenti, currently the President of Skeletal Health at Hologic. Pete was also the Global President of Bausch + Lomb Vision Care and was instrumental in turning that division around when it was owned by private equity. He was also a partner at the New England Consulting Group before I joined NECG.  He has a long and successful career that includes Iconic companies like P&G and J&J. I have known him since 2006 when he and I worked together on the integration of Pfizer’s consumer health business into J&J’s McNeil and CPC divisions.

Pete has turned around a number of businesses and has grown others wildly above market rates. His formula is very straightforward. He gets his organization to develop and focus on a winning strategy then stays on message with all stakeholders. He manages expectations and explicitly cautions everyone that the results may happen a little faster or slower  but they will happen and they will be superior. He is clear on operating plan goals and stretch goals. While he pushes for financial performance, he is relentless about hitting the strategic milestones and progress even if the division falls short financially in a given quarter.  He keeps everyone focused forward in the narrative. It is intense, but energizing, and vastly superior to having to make excuses every fourth month of the year.

At NECG we have helped a number of our clients build this kind of approach for their brands, portfolios, divisions and companies. We do it by helping them find those elements of their culture and their products that can be leveraged for significant advantage. Sometimes we do it with them from scratch and sometimes we do it after another consulting form has come and gone, leaving behind a 200 page document and a lot of confused and frustrated line managers. We do it often enough that one of our clients named it 2nd Opinion. We do it because it is the shortest distance between today and accelerated growth. Its one of the reasons I chose NECG. After all, I was a client before I was a Partner.