Forewarned is Forearmed

In these turbulent times, almost every firm is affected by factors beyond its control. The credit crunch and plummeting consumer confidence are behind a raft of recent reports of job losses and profit warnings. Yet three recent but very different examples show how some firms cope with market turbulence better than others. JJB, the UK chain of sports shops has announced big job cuts whilst General Electric, that exemplar of US business excellence, failed to meet its earnings forecasts. By contrast, Experian, the credit-checking firm, saw sales rise 21% even though its big bank customers pulled in their horns a lot. These differences, and what they can teach the rest of us, can be understood by management research.

General Electric advertising sign

The simple explanation is that firms like Experian had more foresight than the others. They read the runes of economic, political, social and other changes to anticipate the market and acted accordingly. Academics call these things the “remote environment”, in contrast to the “near environment” of customers and competitors. But the broader and more practically useful question is how did they do this; how do some firms manage to draw sense from the cacophony of the business environment?

There are three sets of management research ideas that help us to answer this question:

The first is that about how managers “scan” the market. This shows that we all do it differently. For example, some of us are ad hoc, whilst others are systematic. This research also tells us that complex environments need more rigour and process and that management teams need a blend of scanning styles.

The second is about how firms make sense of what they see. This shows that data, information, knowledge and insight are different things and the core skill is converting data into information, then into knowledge and then sieving valuable insight from a mountain of knowledge.

The final idea is about how managers create strategy from insight. This shows that it is a much intuition as analysis and that it often comes in a flash of inspiration. Managers need to gather relevant past lessons and synthesise them into a new vision of the future. To do this, they have to have clear minds and not get lost in the detail.

Put like that, it all seems common sense but, as Voltaire said, common sense is not so common. Many firms think market insight can be made just by throwing enough computing power at enough data. They get obsessed with algorithms and data collection and lose sight of the unique power of human beings to synthesise information from many different sources. Good firms, by contrast, follow some simple rules to avoid this trap, such as combining quantitative and qualitative data and using that data testing their long-held assumptions.

And the practical moral of the story? Don’t be fooled by the patter of the IT salespeople. There are mountains of good, and unbiased, management research about how to make sense of the market, research that helps you to be both forewarned and forearmed.

Further Reading

• Open University Course B201 - Business Organisations and their Environments.
• Strategic Intuition: The Creative Spark in Human Intuition by William Duggan, published by Columbia Business School Publishing,
• Creating Market Insight: How Firms Create Value From Market Understanding. By Brian D Smith & Paul G Raspin from Wiley.
• The Marketer's Stone by Dr Brian Smith, Dr Hugh Wilson and Professor Moira Clark, published in The Marketer, 2006 (article available free on request)