22 May 2015
What time is it, Eccles?
I’m old and daft enough to enjoy the Goon Show. In one
famous sketch (https://youtu.be/-tjHlFPTwVk),
Bluebottle admires Eccles’ ability to tell the time, because he’s got it
written down on a piece of paper. If someone asks the time, he shows them the
piece of paper. The paper says 8 o’clock, so if it isn’t 8 o’clock, Eccles
doesn’t show them the piece of paper. There’s some suggestion the clock is a
forgery as the plot unfurls. It’s just a piece of Spike Milligan script magic.
There is a business equivalent to this that I see all too regularly,
which you might dub the Clock Graph. To explain it, I need you to imagine a
graph where the ‘X’ axis is time and the ‘Y’ axis is some kind of financial
performance, perhaps sales or profits (or cashflow, or orders, or downloads –
you get the picture). There’s a single line showing the historical and future
performance.
Often, the historical data is at a different slope to the
future, perhaps even like this:
It’s not just that the graph looks like the hands of a
clock, but you also know what time it is, don’t you? It’s Q4 in year 1, of
course (to copy Eccles, if it’s not that time, I don’t show them the graph).
The past is a disaster but we’re about the turn the corner. The orders are
about to come in, adoption is about to take off and sales are about to explode.
At stake is the credibility of the CEO, because more often
than not, a quarter later things will have slipped and the graph may look like
this. The CEO may be maintaining his or her optimism but the graph tells
another story:
It’s still a clock: we know that it’s now Q1 in year two.
This forecasting can be career limiting for the CEO. Any
change in the slope between historical and projected performance needs to be justified
– it may well be correct, it just needs an explanation. This company is doing
nicely, for example, but it’s clear the clock is showing the time as Q4. What
is happening to the business to increase the future growth rate? Is a new
product about to be launched, or is a new sales channel coming on line? Or is
it just over-optimism?
So if your graph is telling you the time, you’d better have a
believable explanation ready.
