Will the recovery be a U-shape, a V-shape, an L-shape, a W-shape, a Nike Swoosh? Yes. All of the above. You’re asking the wrong question.
Some say “we’re all in the same boat” with this coronavirus pandemic. Not true. We’re in the same storm, but not in the same boat. Amazon and UPS are doing great right now; clothing retailers are not. Same storm, different boats.
Oversimplification
Beware of oversimplifying something like the economy. The economy is volatile, uncertain, complex, and ambiguous. Few, if any, really understand it. We appropriately rely on simplified summaries. But please use caution. Social media, news, and politicians feed us hashtags, soundbites, and anecdotal stories of one person in one situation. Entertaining yes, but informing…🤷♂️
From Scarcity to Abundance
When I was a kid, we had 3 television channels, we got a newspaper once a day and a magazine once a month. Today there are screens and speakers flooding us with information everywhere we go. And when we find a rare moment of silence, what do we do? We pull out the 5” screen and speaker in our pocket!
Interestingly, this exponential increase in information hasn’t led to a corresponding increase in being better informed. We have an abundance of information, but it’s shockingly shallow. Instead of being more informed, we’re more distracted and deceived. We want more and more of less and less. Soundbites and tweets are too long. Even hashtags are too long. Now we’re down to emojis! 🤣🤣🤣
We want more and more of less and less.
Averages
Before you say, “Okay boomer”, let’s get back to understanding oversimplification and what to do about it. We frequently rely on metrics that describe averages – things like GDP and unemployment. Averages can be helpful, but be careful. Sometimes average metrics do more harm than good. For example, take the case of the 6-foot-tall man who drowned while wading across a river that was only 4 feet deep on average. Yes, it was 4 feet deep on average, but at its lowest point it was 12 feet deep.
On average, the recovery is looking like more of a U or a Nike swoosh instead of a V. But that doesn’t really tell you anything about what the recovery will look like for your organization.
Timing
Many of the most referenced metrics on the economy are devastatingly delayed. Preliminary GDP numbers aren’t released until nearly 2 months after the 3-month quarter ends. And those GDP numbers for that period get revised 3 months later and aren’t finalized until another 3 months after that!
Relying on some of these numbers to steer your business is like driving your car by looking in the rearview mirror!
Accuracy
Many of our most important numbers on the economy are not as accurate as we wish they were. These metrics rely on samples and sometimes samples don’t represent the whole. The methods of requesting and gathering the data will always have biases. And, if you’ve ever participated in a survey or had to submit information to an organization gathering data on your company or industry, you’ll probably agree we don’t always provide the best answers.
The government and other credible organizations do their best to be accurate and often release revisions. But these revisions rarely make headlines even when they are significant (unless you’re a politician or opinion-page columnist accusing the other party of lying!).
Models and Forecasts
To look through the windshield instead of the rearview mirror, we often rely on data that’s closer to real-time (but less accurate) and models/forecasts. Please remember, “All models are wrong, but some are useful” and, “It’s tough to make predictions, especially about the future.”
Look at the wide range of forecasts between models developed by reputable sources to predict the future of the coronavirus pandemic. Or, for a good laugh, go back after the dust has settled on a big event and look at what the models and forecasts were saying before the event happened or shortly after it started.
Many of the sources we rely on for models and forecasts are trying to get noticed in a crowded space. Bold, extreme positions get more attention, but are the least accurate.
Example
Recently, I was helping a client do some preliminary evaluations of a trucking company he was interested in. He asked what the company’s rate per mile was and I shared the number from the latest P&L. He asked if that was good or bad.
I don’t think he liked my answer. 🙄
I think he was hoping I could reference a prior period’s number, a competitor’s number, or an industry number and then say if this company’s number was higher or lower and if the variance was a “little bit” or “a lot.” I told him I couldn’t form an opinion without understanding what type of freight was being hauled, what markets they were servicing, their average length of haul, their deadhead, transit time, equipment requirements, service expectations, days to pay, etc.
I also shared a story of a company nearly driven out of business by incentivizing their salespeople to raise rates. They raised rates, but they did so by booking freight that didn’t fit their network, equipment, systems, processes, and driver preferences.
Solution
Please don’t throw out the baby with the bathwater! Don’t go to one extreme and ignore all information or to the other extreme spending all your time and resources trying to understand everything.
When it comes to being informed, I suggest:
- Stay Informed: Lasting success depends on being informed. Don’t be ignorant of what’s going on outside of your organization.
- Enough: Once you have enough information, move on! Don’t waste half your day trying to read every article on every website or every marketing e-mail.
- Source: Focus on the best sources. Go to the original source if possible. There are lots of sources trying to get your attention. Few of them are focused on telling you what you need to know. Most are focused on getting noticed (and selling ads) and persuading you to believe what they believe. Many of the journalists writing these articles are trained in journalism, not statistics or your industry.
- Charts: Don’t limit yourself to just numbers. A simple trend chart is powerful! There’s an art and a science to selecting the right type of chart and choosing the right frequency and scale, but once you get it right it will change your life!
- Consistent Reports: Create a standard set of reports with industry data that gets updated and distributed on a standard schedule in the exact same format. Your mind will thank you. Instead of wasting mental energy familiarizing yourself with a report, use that energy to spot trends and see correlations, variances, and outliers.
- Gossip: There’s a place for listening to gossip and reading headlines. But don’t waste too much time on it. Just skim those headlines or have a short chat at the water cooler. 95% of this can quickly be forgotten. On the other 5%, get more information. “Listen to anecdotes; act on data.”
- Application: When reviewing this data, focus on identifying actions to take based on the information you read. Take a critical approach. Act like an attorney cross-examining a witness. Is this a reliable source? What’s the context? Is it relevant? What’s the margin of error? What’s the current value? How much variation is there within the population? How is it trending? Assign a letter grade (A,B,C,D,F) or color (red/yellow/green) or emoji to it. What do you think next month’s numbers will be? How much are you willing to bet on it? What’s 1 action you can take based on this information? Write your predictions and action items in a journal you review each month when the new reports are delivered.
Success
It will take some experimentation and practice before you get it right, but the juice is worth the squeeze! When done right, being well informed is a high-leverage activity that is easier than you think.
Does your organization need help identifying what they should be looking at, or framing it and applying it to your needs? Please contact me at richard@dpxconsulting.com and I’ll be happy to have my team help you take a giant leap forward!
