Profits flow like water over Niagara Falls when you have the benefit of irresistible forces. But when is a drop of water the start of such a stream and when it is it just a drop of water?
Like static heard on a radio during a passing thunderstorm, some random events will always be occurring. If these events don't constitute a shift in irresistible forces, do nothing.
When you gather a lot of reports that contain information that could mean something, you need to be carefully discriminating in interpreting the data.
By considering two circumstances differently -- the degree of shift and the duration of shifts in behavior -- you can approach the ideal best practice for locating changes in irresistible forces. If the amount of shifting is great enough, it can be an irresistible force even if the shift doesn't last very long.
For instance, suppose you announce a new service to begin in eight months, and then orders suddenly dry up for your existing service. Unless you do something now, your announcement will have a large, negative impact on your business.
On the other hand, the degree of shift can be modest; but by continuing over a long period of time, the shift can become very significant.
For instance, customer loyalty (continuing to be a customer with the same or a higher level of purchases) dropping by one percentage point a year only becomes a crisis if it continues long enough. Keeping an existing customer is usually at least five times more profitable than adding a new one.
If you have to replace too many customers, your profits and cash flow will all vanish at some point.
You need to build on that perspective to consider variance from the most you could possibly accomplish in light of the current conditions.
For example, if competitors' customers start buying twice as much, and no more from you, this change won't affect your performance versus budget, but your share of industry profits will become much smaller. Presumably, there was some profitable way that you could have captured some of this increased volume for your business.
A great help in selecting data that are important versus data that are not is to be sure you know what areas have large economic significance and to track them in some visual way (like a graph).
Such visuals are even more effective if they have show a historical trend line or the extrapolation of that trend. New data falling way above or below the trend line can be the first sign that something new is going on.
Copyright 2008 Donald W. Mitchell, All Rights Reserved
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