SECTOR PERFORMANCE ASSESSMENT
Keeping a close eye on sector performance is vital. Sales that have been increasing in your part of the world may suddenly drop elsewhere due to whatever reason. It may or may not affect you, but it's better to be aware of it in order to plan ahead. Sectors interact which focuses these assessments on those that affect your business directly or indirectly. Another way to put it is that we measure activity before and after the customer arrives on your doorstep.
The automotive industry was hit hard as a result of the credit crunch. Businesses either bankrupted, closed shop or downsized, causing a rise in unemployment and a contraction of residual income. This affected car retailers, parts dealers, repair shops and suppliers all the way to raw materials producers.
Bloomberg January 5 2012: "The Conference Board’s confidence gauge increased in December to 64.5, the highest level since April, figures from the New York- based private research group showed on Dec. 27. One reason for the rebound in sentiment is the drop in firings. Over the past four weeks, the average number of jobless claims dropped to the lowest level since June 2008."
Don Johnson, GM VP, U.S. sales: "The increase in sales is paced by improving employment. Consumers are more confident and other underpinnings of our economy are either stable or slowly improving."
August 5 2011, Standard & Poor's cut its credit rating on the United States to AA-plus from AAA, citing concerns over the government's budget deficit and rising debt burden as well as the political gridlock that nearly led to a default. As you can see, there are many conflicting messages out there and sector sensitivity to various factors has to be factored into the assessment, even how other countries or marketing territories may be affected. Sector performance assessment is a heavy weight in terms of strategic vision and market risk management, for it unlocks the future.
THE STUDY OF DOMINO EFFECTS
The credit crunch of 2008 is the best recent example of what happens when a major domino chain tumbles down. It also shows how much we rely on credit and how sensitive the credit system is to short-term gain strategies. Leading up to the collapse, financial institutions lost sight of what really matters and set off an economic disruption that is still escalating.
The study of domino effects bears many names, among them risk management, quantitative, qualitative and predictive analysis, and business or market intelligence. The quality of a CEO’s decisions reflects how well the domino chain that affects his or her business is understood; the same applies to any type of leader. This understanding is the root of wisdom, a word that for some peculiar reason has not penetrated the business world (neither Steve Jobs nor Bill Gates are referred to as wise although both demonstrated that quality in their field).
The typical question the wise of the past were asked was: "What should I do?" The quality of the answer is reflects how well the domino chain involved is understood. This is what separates good leaders from great leaders and causes share price to rise and fall.
Unraveling the entire domino chain that affects a business is not that difficult to grasp, but to quantify its effect is another story. We know that rain increases crops which lower prices due to increased supply, but how does that affect Facebook's growth and profitability? The variables involved are so numerous that just mapping them out would be cost prohibitive. So instead of doing that, we identify the chains that affect the business the most and weigh them in to determine what variables should be monitored closely and which are practically redundant.
Many businesses are watching the wrong indicators right now. The appearance of Android and iPhone changed the market environment completely. Mastering social networks today is the equivalent of mastering a web page in 1999; things have changed and they have changed drastically. We have charted that change.
