1)In their excellent book, The Innovator’s Solution, Christensen and Raynor argue that it is very important, when establishing internal corporate ventures, to focus on early profitability, not just revenue growth.

2)In an experiment, students in a ceramics class were divided into two groups, one told it would be graded only on quality and the other told it would be graded only on quantity. Guess which group produced the highest-quality work?

Note also that when businesses operate outside the public markets (private equity, venture capital) there is still periodic reporting, usually quarterly. It’s just that the audience is smaller and (presumably) more knowledgeable about the business.

I think there definitely *is* a problem with market overreactions to small fluctuations is quartery earnings, but the problem is caused less by the quarterly reporting than by:
1)The presence in the market of many very-short-term investors
2)The presence in the market of many investors who really don’t understand the particular business in any depth, and can assess only quantitative information.
3)The growing role of computer-based investing approaches, which by their very nature can only look at quantitative data.

The need to report at arbitrary times also distorts the behavior of organizations as people try to accelerate or decelerate some activity in order to improve their numbers.

Things would be better if we could process organizational information as a continuous stream but even with computers I don’t think that will be possible anytime soon.

But we live in such an information age that by the time a corporate office in Chicago sees, at the of the day, how sales of their product are behaving in Mexico or Japan or how these markets are responding to their services, it is possible that the stock market had already guessed it almost exactly based on accurate historical trends and other information they are also getting and they have already taken your P & L’s into the ecuation.

Companies produce very exact daily, weekly and monthly reports so that managers can take corrective decisions in almost real time.
Trends can be viewed on a hourly, daily, weekly and monthly basis, one year is already too long for the market to work.

Company managers today are hard pressed between having to show good results at the end of the quarter and at the same time having a long-term growth plan. But markets are also mature enough to understand these issues and are train to keep an eye in long term potential.

I think the question is probably how long are we going to continue issuing quarterly reports before we are demanded to cut it down to monthly reports. After all, the market only wants is to know how predictable you company can be.