More companies are declining to provide revenue or earnings estimates for their next three months of business. This is a disturbing trend that reveals a scary vacuum at the core of their strategic planning processes.
Two bits of recent research illustrate the problem:A third of the 600 companies responding to a survey by the National Investor Relations Institute said they'd limited or eliminated their forward-looking guidanceAlmost two-thirds of companies cannot accurately forecast cash flow within 10 percent, according to a study by a management consulting firm called The Hackett Group, Inc.So Intel declined to give any guidance a week ago on its upcoming quarter. Manpower Inc. did, too. BMW and SAP put up their collective financial hands and gave up on predicting the end of 2008...in November!
A host of retailers have not only retired from providing forward-looking predictions, but have stopped reportingpast month sales results (such as Macy's, Home Depot, Sears, and CVS Caremark).Why the cloudy corporate crystal balls? The current credit crunch, fickle customer demand, and other externalities that, according to the NIRI's CEO, means "If you don't know what the future holds and you can't accurately predict it, you don't want to be out there telling somebody something you don't have confidence in."So what do they know? A lot, it turns out...The laws of physics render the future an unknowable destination, so forecasts are the paths we follow to find it.
Businesses rely on forecasts for every function, from ordering parts/ingredients for products and hiring/training staff, to borrowing cash and making investment decisions. They do it all the time. Therefore, a claim that even the immediate tomorrow is somehow beyond the purview of a strategic planning model must mean:The company doesn't like what it sees, which means investors should be frightened, and/orIt really doesn't know how to deliver on its plans, which should send everyone running away, screamingIf the news looks like it's going to be bad, shouldn't a company be required to share insights as to why things might look that way, and what actions it will take to impact it?
The tools exist to collect and analyze more information in an instant than most individuals can absorb in a lifetime, and we're supposed to believe that the CEO has no visibility? Now, if that visibility is really and truly cloudy, and the business can't specify the activities it can rely upon (i.e. the reliable core of its plans that it can all but guarantee), doesn't that say something about a vacuum at the very core of its strategy?
Companies are responsible for understanding not just what should happen, but what they can make happen, while assigning meaning to it all. If the future is really a blank slate, the management should be fired, or the company simply boarded up. Jeez...even blackjack players assign percentage likelihoods to cards yet to appear face-up on the table.It's simply unreasonable for brand names to reduce perceptions of the fundamental drivers of corporate performance -- revenue and profits -- to the equivalent of a shrug.
I know, I know, Wall Street stock analysts are mean and unforgiving, and they punish companies if they miss their estimates by even a small fraction. I say deal with it. Everybody knows that you can't guarantee what the future may hold. We already know what should work might not work out. Businesses are in business to hatch plans, and then deliver them, and they have a responsibility to communicate to us what is a core, reliable plan, and what variables may affect it.That is...presuming they know.
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