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Evan Davis on... reaction time

Updated Thursday, 27th May 2010

Evan suggests companies and business markets should pre-act rather than react to financial events.

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There’s an old episode of Star Trek I seem to remember in which half the crew of the Starship Enterprise get apparently paralysed or frozen in motion. The other half of the crew are sort of wandering around trying to work out what’s happened to these people who appear stuck still. Well, it turns out the two halves are operating in two completely different time zones, two timescales. One lot are moving much more quickly than the other lot. So the other lot are alive, they’re moving, they’re getting on with their lives, but it just appears they’re frozen to the ones who are moving at a much quicker pace.

Now I think of that episode of Star Trek when I think of the difference between the financial markets and the people running real companies. The financial markets, they do react to the hugely quick pace to everything, pricing into bonds and shares events almost instantaneously, whereas companies in the real economy, they just blithely get on with their things at their own pace acting much, much more slowly.

Now there are advantages and disadvantages to being slow or quick. Of course, the disadvantage of being slow, being like someone in the real economy, is that you are just slow to react to things, you don’t see them coming and you could have probably responded to them more adeptly if you’d been a bit faster on your feet. But the advantage of being slow is you don’t react to things that didn’t turn out to be important, and those people in the financial markets perhaps are getting excited about things that then never materialise. There’s the old adage that the financial markets had predicted eleven of the last nine recessions. It’s a little bit like, incidentally, news providers. You know, there are some who like to be quicker with the news, they often will be quicker, but they’re more likely sometimes to be wrong than the ones that take their time over reporting it.

Is there in business some perfect way of combining the advantages of being quick with the advantages of being more often right? Well, it’s not easy. If I was writing a corny business book with its own silly phrase - and I’m not a great fan of those kind of books - I would say that if you’re in business what you need to do is to watch what the financial markets are saying and warning you of but you don’t need to actually respond to them; you need to pre-act to events. You need to prepare for what the financial markets are telling you without actually taking the actions that they’re telling you you need to take.

You need to get ready. You need to set out your options. You need to think about the scenarios that the financial markets are warning you of without actually worrying about them until you have more evidence they’re actually going to come about. That way, you are ready when things come, you’re not slow on your feet, but you have, if you like, thought about things, thought about events, grabbed them before they’ve actually hit you - pre-action, not reaction. That’s what companies need to engage in. They don’t want to be too quick, but you don’t want to be too slow.

That’s my view. You can join the debate with The Open University.

 

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