Obtaining an Accurate Forecast for Your Business

Most weekday mornings I get up around 5:00 A.M. to get ready for my work day. Part of my morning routine involves turning on the television to catch the weather forecast. I live in a climate where the weather can be quite variable. In the morning people may be wearing layered clothing and jackets and by the middle of the afternoon they are wearing shorts and T-shirts. Or some days it is just the opposite; you start out in short sleeves and before the day is over the temperature has dropped 20 or 30 degrees and you are grabbing for your jacket. Precipitation here also varies considerably. One moment there is not a cloud in the sky and a few minutes later it is dark and raining so hard you can barely see to drive.

I watch the weather forecast in the mornings in order to be prepared for these temperature and precipitation changes. I feel more prepared for leaving the house if I know what to expect. The forecast enables me to know whether to wear a sweater, jacket, or raincoat, or if I need to take such items with me for use later in the day. Knowledge of the forecast also helps me make an informed decision regarding footwear - Is it okay to wear leather shoes or do I need to wear shoes that are waterproof? Do I need to take an umbrella?

Once I leave home and begin my commute to work, I begin to notice other people on their way to work or school. Observing them, I sometimes come to the conclusion that many of them either did not watch a weather forecast before leaving home that morning or, did so but ignored it. I decide this because I will see people out in short sleeves with no jackets with their arms crossed over, shivering in the 49 degree morning. On other occasions I see people trying to cover their heads with a newspaper or anything else they can find as the rain pours down on them and they have neither a raincoat nor an umbrella.

Unfortunately, I observe the same lack of preparedness in some companies who do not affectively anticipate the behavior of consumers. Some businesses try to be successful by looking to other companies as models of excellence. In an article on factors affecting success in business, written by research professor Spyros Makridakis and published in the European Management Journal, this approach of looking for prescriptions from past success stories is discouraged. Makridakis argues that management theories and tools are like the fashion industry in that they have their moment of glory and die. He observes that very few survive and sometimes their passing leaves extensive corporate damage. When reviewing the large number of theories that have briefly blossomed from the 1960s onwards, he suggests we avoid extrapolating from those past success stories.

Why? It seems intuitive that if a strategy worked for others and enabled other businesses to not only survive but also thrive, why shouldn't we look to these as models? Makridakis advises against it because the environment in which our businesses operate is continually changing. He purports that companies will stand a much higher chance of success in the future if they follow a strategy of expecting change and adopting an attitude which accepts that future performance will be directly linked to accurately predicting forthcoming change and correctly assessing implications.

Thus, Makridakis expects change and believes that if our businesses are to succeed we must also expect change and be cognizant of how that change will impact our company's success. This expectation of change is consistent with the view of many Americans. Recently, the National Political Research Institute (NPRI), a division of the National Business Research Institute (NBRI), completed a public opinion survey that measured respondent's attitudes about the economy. The sample included nearly 2,400 residents from across the U.S. When asked about whether they believed the U.S. economy would stay the same, decline, or improve over the next 12 months, 40% believed it would decline and 36% believed it would improve, compared with 23% who thought it would stay the same. Over half of the respondents (63%) believed their household expenses would increase over the next year. Americans themselves expect change. In addition, the NPRI survey revealed that 72% of respondents perceived that the economic downturn had negatively impacted them. When asked what single factor contributes the most to their overall quality of life, 58% reported that it was the cost of living.

The bleak outlook that many in the U.S. have of the economy and its impact on their lives can be cause for concern for companies. We want sales of our products and services to increase, not decrease. But in this economic climate many consumers are cutting back on expenditures. So how can we obtain an accurate forecast for our businesses? The answer is simple: we must manage our human assets well. This means we have to be knowledgeable of the attitudes and perceptions of our customers. But our customers are not our only human assets. We must also be aware of the attitudes and perceptions of our employees. These two groups are intricately related.

Jeffrey Pfeffer, the Thomas D. Dee Professor of Organizational Behavior at Stanford Business School, and John F. Veiga, the Airbus Industrie International Scholar, professor, and head of the Department of Management at the University of Connecticut, both agree that putting people first is key to organizational success. Both scholars report that they have seen a disturbing disconnect in organizations in which they ignore the fact that there is a direct relationship between a company's financial success and its commitment to treat people as assets. The results of numerous rigorous studies have led them to conclude that we must take seriously the adage that "people are our most important asset" if we want to experience increased profits.

So, it is with people that we must begin if we want to obtain an accurate forecast for our business. I recommend beginning with employees because they have a direct impact on the perceptions of our customers. Regular employee surveys (at least once a year) can keep us well informed of attitudes and perceptions. Provided the survey is well designed and properly analyzed, its results will reveal the key drivers of our employees' behavior. This means we will have what we need to forecast employee behavior. Surveys help us to easily identify areas in which we need to concentrate our change efforts in order to get maximum returns. By quickly taking action on survey results, I have seen the scores of some companies improve as much as 30 percentiles within a time span of only a few years. Pfeffer and Veiga both believe that when organizations look at their people and see them as the fundamental resources on which their success rests, anything is possible. However, if we do not recognize how valuable our human assets are, change efforts and new programs become gimmicks and no army of consultants, seminars, and slogans will help bring about change.

Once we have a process in place for forecasting employee behavior, we must add a process for forecasting customer behavior. Customer surveys can provide us with the means of better understanding our customers. One of the key pieces of information we can obtain directly from our customers is their overall satisfaction. Customer satisfaction has an impact on behavior. Even more importantly, we can also learn whether our customers plan to return and do business with us again. It takes less effort and money to keep the customers we have than it does to recruit new ones. Another piece of information customers can provide that broadens the scope of our forecast, is whether they will recommend us to others. This may be one of the most crucial pieces of information because it requires a high level of confidence in the consistency of a product or service. You put your own reputation at risk when you recommend a business to someone else. What if the person has a bad experience with it?

A few months ago, a friend of mine recommended a restaurant to me. It was a small, locally owned restaurant located in a strip mall. My friend told me the restaurant was cozy, the food was excellent, and she had received great service. Not long after she made the recommendation, a vendor invited me to lunch and asked me to pick a restaurant. Alas, I suggested the restaurant my friend had recommended. When we arrived, we found the place to be cozy as my friend had said. We were invited to sit wherever we like and chose a table in a quiet spot. Immediately a server came to ask what we would like to drink. Just a moment later, the vendor I was with looked down and saw something on the table and determined it looked like blood. "Surely, it isn't...." we hoped. Then the vendor realized there was more than one spot. We decided to move to another table. The vendor decided to go wash her hands and after she returned from the restroom, I did the same. On the way back to our table, I noticed more drops on the floor. Another server came and brought our drinks and we made her aware of the situation. A few moments later, we heard her explain to someone who appeared to be a manager or perhaps one of the owners, that the server who initially had taken our drink order had cut himself but was refusing to bandage the cut. At that point, we left the restaurant never to return. Now I must say, I will think twice about patronizing a business recommended by this friend. I did tell her about the experience (later that same day, I might add), and she did not want to return to this restaurant either and I got the feeling that she will be hesitant to recommend places in the future. Bottom line, if our customers will recommend us to someone else, they have faith in our ability to consistently provide high quality services/products.

If our forecasts are going to be useful to us in managing our human assets, they need to be accurate. To obtain accurate forecasts we need survey instruments that are of high quality. That is to say, they must be scientifically constructed. Without a high quality instrument, we will not get high quality information. I have a colleague who purchased an inexpensive voice recorder for his work a few years ago. It worked well for about 18 months and then quit working. He owned a number of other products by this same manufacturer that had held up very well so he decided to purchase another voice recorder by the same company but this time he would get a more expensive model (assuming that it would be better than the first). This new recorder did not last as long as the first! It still records but the sound quality of the recording is so poor that you cannot determine what is being said, making the product worthless. So once again, he is going to purchase another recorder and this time, from a different manufacturer.

Unfortunately, I know of companies that have purchased cheap, poorly constructed surveys thinking they were saving money. In the long run however, they discovered the results were not useful and they had to start all over with another firm and instrument. When selecting a research firm to conduct employee and customer surveys it is imperative to hire a firm with:

• well qualified consultants (preferably people trained at the doctoral level in organizational theory, statistics, and research);
• survey instruments that have been standardized based on hundreds of thousands of responses;
• the ability to provide you with benchmarking data; and
• executive summaries that identify the drivers of your sample's perceptions.

This will provide you with the depth and scope of information you need to get an accurate forecast of your business. Armed with an accurate forecast, you will be prepared for whatever weather conditions await you.

If you would like to have more information on how NBRI can help your business obtain an accurate forecast, contact us now at 1-800-756-6168.

Cynthia K. S. Reed, Ph.D.
Organizational Psychologist
National Business Research Institute, Inc.