The value of
How much business analysis is
needed at small companies?
There is often a big argument about how much business analysis is needed before a decision can be taken. But before I proceed any further, let me just state two
interesting facts below:
Many empirical studies have shown that a passive index strategy will outperform actively managed portfolios over the long run. Or in other words, you can simply invest in a few index funds
(or more commonly called as ETF or index traded funds)
and check your portfolio on retirement. No fees to be paid, no hassles, and no need to reallocate your portfolio, ever.
Fortune is reporting that year after year most analysts fail at their prime objective: making money for their clients. All those high profile, supposedly
super-smart analysts that are on media have as much clue about stock market direction as a monkey throwing darts. By the
way, our smart friends on Wall Street are notorious for
being obsessed with business (particularly quantitative) analysis.
In many large corporations,
similarly, nothing really gets done unless it has been analyzed a million times. Many executives in Corporate America are true believers in analyzing almost anything to a point that eventually everyone gets sick and tired of everything and does not know what the real conclusion
of the business analysis is. The senior management doesn't care about the outcome of the business analysis anyway. They typically decide what to do based on what they want to do; they just expect that some fancy business analysis with lots of charts and tables will provide the cover they need to impress some Wall Street analysts.
for competitive intelligence)
But there is value in business analysis…
Yes, too often most business analysis is done just for the heck of it. But it is also true that decision-making process will be chaotic without business analysis. Managers will be forced to rely on their gut instincts for almost everything. What needs to be done, however, is to put some boundaries around the analysis and agree on a timeline for completion. Here are some of the steps that many companies have taken to make business analysis more
meaningful and productive:
Clearly agree on the outcome that can then determine the process, team structure, resources, and
Bring in outside consultants to bring a structured format, objectivity, and a capability to challenge the
current thinking within an enterprise
Make sure that the process moves forward steadily, senior management is engaged in the process and
is aware of preliminary results, and the business
analysis process concludes with recommendations that can be summarized in less than five PowerPoint
slides that make sense to the guy who turns off the
lights every night.
So how much business analysis should a small company do?
A lot more than they currently do. Sounds contrary to what my comments above would lead you to believe. Well,
small companies need to bring business analytical frameworks to their
decision-making, which is currently not there. I have
observed that they are constantly pressed for resources
and do not always have the time and the wherewithal to
constitute internal teams supported by outside
In the absence of such a system, the
decisions are often taken without a clearly laid out
framework. This not only results in confusion among
the employees, customers, and suppliers (since they do not
know if there is a process in place) and ignores the
inherent risks in the decision (Related link: Risk
management for small businesses).
Robert Kraft, Founder and Chairman of the Kraft Group of Companies (the current owner of
the New England Patriots), and a Harvard Business School
graduate, believes that decisions should be rooted in sound business analysis even if they are eventually taken based on your gut feeling. He admits that he has taken decisions that were not sound in the opinion of his financial advisors but when he took those decisions based on what he felt in his heart (for example, purchasing the New England Patriots), the business analysis was there for him to look at.
Thus, he along with everyone else, knew what the risks
were and if his decision were not to work out the way he
anticipated, they had a risk management framework in
place. That is the value of business analysis.
Many small businesses
today continue to rely on the gut feelings of the leadership team rather than generating hard, fact-based data for
at least a high-level business analysis. There is absolutely no need to put task forces in place, have endless meetings, and come up with conclusions that confuse everyone but a simple, neat, analysis will go a long way in laying out the facts for everyone to see so that even when a decision is taken based on gut feeling, the risks are known to
everyone and can be managed using a process that is
transparent and understandable.
Recommended articles: Case
study of risk management at Pfizer Keep
your analysis flexible
How to screen a new market opportunity
Questions, comments or