As business owners, we need to make sure we are making the right decision for our business. This is critical for the long-term survival of our business. In my line of work, unfortunately, I see a lot of businesses that make important decisions based on flawed information, a lack of future market analysis, or worst case, no information at all.
Decision-making is all about looking at the available information and research and then based on the analysis of this information, making an informed decision.
The range of data and information available to business owners of all sizes is immense. The scope includes things like internal performance measurement based on a range of KPIs such as productivity, financial performance, benchmarks against peers and external information such as economic data and economic forward projections, market analysis based on customer demographics, product, and innovation advances (especially in the early prototype stages). Economic indicators such as GDP, inflation interest rates etc should be included because they drive government policy and general demand factors.
We are seeing a rapid change in economic conditions caused by several factors. Foremost is the drive by western governments on a range of issues such as social policies, climate responses and the uncertainty of the global economic conditions The more developed countries such as the USA, Australia and most of Europe are more advanced in this area than most other countries.
The concerns are that social policies have driven up the cost of employment through compliance requirements, climate response has caused significant uncertainty in the energy markets causing a significant lift in the cost of energy, and economic uncertainty has resulted in several markets pulling back from the globalisation focus of the past couple of decades. This has resulted in uncertainty in the labour market, a steep rise in energy pricing and a difficult and uncertain supply chain.
From a business perspective, we need to be across all these measures, as failure to do so will result in business failure. A prime recent example is the construction industry, where recognition of economic drivers would have suggested that the combination of government pump priming by both federal and state governments to address the impact of Covid on the construction sector, and the disruption to the supply chain issues caused also by covid impacts would distort the market. The supply chain issues have been a good example of how unfettered expansion into globalisation without any risk assessment can severely impact on the price of material inputs. This is a good example of why we should base our information gathering and analytics across a range of sources, as supply/demand impacts have been the main causes of most of these business failures or at least the trigger that caused a spiral downwards. As with most market disruptions caused by market failure/distortion, it creates an extremely stressful business environment (both financially and personally).
I feel sympathy for these businesses, and, unfortunately, government policymaking does not come with a warning label about market disruption.
An article in recent newspapers about one of our largest building companies where they were losing bidders on a construction site and the business winning the contract recently went into receivership. The comment by the losing bidders suggests that they did not try to compete because the price was too low and exposed their company to price risks, exactly what happened.
This is why smaller businesses should gather a range of information sources to assist with internal decision-making.
My concern for small to medium-sized businesses is that while gathering this information is critical, what do we do with it once we have compiled all this data? The analytics will require some specialised knowledge, and in most cases, the SME sector will not have the required skill set to complete the analytics. This is because there is a huge range of tools available to the analyst, limited understanding of how the tools work, what are the limitations of the tool and using the right tool is critical to getting the right outcome.
You will need a good analyst, and getting a good provider can be difficult, as while knowledge of the tools can be widespread within the industry, specific knowledge of a specific tool or the right tool might not be so common.
Ideally, discuss with your data analyst the objectives of your needs, for example, you need to understand the current global market drivers, or what will the impact be on your business if interest rates go to 8% on our business and demand from my customer base. These are the types of questions you need to put to your analyst to get the answers to survive economic uncertainty.