Executives are vastly underspending on measuring competitive health

No company is insulated from industry trends, advances in technology, and encroaching competitors. To stay on top, executives must look beyond their walls and use external information to help them map the course to sustained success.

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Executive teams know their companies far better than anyone on the outside — at least, that's what they tell themselves. But what if an outside perspective were more useful than internal information?

That’s the argument Jorn Lyseggen makes in his new book, “Outside Insight.” A former research scientist at the Norwegian Computer Center, Lyseggen founded his company Meltwater in 2001 with a goal of using media data to provide executives with up-to-the-minute information on who’s talking about their company and what’s happening in their industry. Today, Lyseggen believes businesses are still stumbling into obvious obstacles by favoring biased, internal data over external truths.

The numbers make it clear that executives care far more about internal information. While global spending on enterprise software in 2015 hit $314 billion, media intelligence spending over the year prior only reached $2.6 billion. According to Lyseggen's calculations, that means that for every dollar companies allocated to understanding internal data, they spent about 1 cent analyzing external information.

In doing so, executives limit themselves by ignoring valuable information contained in external data — and open their companies up to potential disaster.

An incomplete picture of health

Not only do most companies fail to recognize the benefits of outside insight, but many ignore external metrics altogether — particularly where financial forecasting is concerned.

Per KPMG, 60 percent of companies ignore external drivers in their financial forecasts. KPMG also discovered that the average forecast misses the mark by 13 percent. That discrepancy makes sense when we consider that internal quarterly financial reports are incomplete, lagging indicators.

Projecting next year’s performance based on last quarter’s revenue numbers, profit, and cash flow may paint a rosy picture, but it fails to account for changing market tides, disruptive competitors, and shifting consumer preferences. Year-on-year growth will not tell executives where they stand against their fiercest competitors.

What’s more, investors who look only at a company’s internal data to determine valuation and future performance are missing all the external factors that may have an even greater impact on that company’s future success.

Executives go through financial information with a fine-toothed comb; why not set their companies up for future success by supplementing that information with externally focused competitive health indicators?

Outside information drives internal results

By leveraging industry and competitor information that’s publicly available online — what Lyseggen calls “online breadcrumbs” — executives can begin to fill in the gaps in the larger picture. Even the most basic public data can tell them things about their companies and competitors they never knew. Factors such as job postings, patent filings, and social media presence all provide individual nuggets of information.

By using AI and machine learning to analyze external data about the company, the market, and the competition, executives can uncover illustrative patterns that inform future-facing decisions — flagging threats, uncovering lucrative opportunities, or exposing the holes in the bucket.

General Electric, for example, engaged in a massive digital overhaul, leveraging external data to upend its procurement process and boost its bottom line. Using predictive analytics, the company drew the curtain away from suppliers’ transactions outside the walls of GE, discovering that numerous records were duplicates, and some suppliers were charging different amounts for identical items.

This initiative — part of a larger cleanup process called GE Digital Thread — allowed GE to clearly see where it was losing money. Armed with this external information, GE course-corrected and ended up saving about $80 million when all was said and done.

Start mining external data now

Every executive should begin embracing external information today. The revelations that data provides might lead to drastic changes within the organization, but planned change is preferable to change forced by an evolved market.

For instance, in his book, Lyseggen talks about how RaceTrac (a retailer mostly present in convenience stores) stayed ahead of a tight market by mining external data about its products and guests.

Former CEO Allison Moran wanted to eliminate low-demand products and maximize margins through predictive modeling. After contracting with a predictive analytics company, RaceTrac reduced its margin of error in forecasting by 15 percent — enough to project its financial future with confidence, year over year.

Had the company stuck to internal information, Moran never would have known whether the company was truly performing well or simply operating within a boom market. Today, the company is doing better than ever, thanks, in large part, to outside insight.

Unfortunately, not every company has been as forward-thinking as RaceTrac. Kodak, most notably, dominated two-thirds of its global market just 20 years ago. In 2012, it filed chapter 11 bankruptcy.

How did things go so wrong so quickly? Kodak had all the technology and money it needed, but executives could not see the writing on the wall — digital cameras were replacing analog film permanently. Kodak's CEO at the time, Antonio Perez, tried to reposition the company in 2005, but by then, it was too late. Competitors Nikon and Canon already owned the digital film space. Kodak lost its position by failing to account for something those outside the company could’ve seen coming.

No company is insulated from industry trends, advances in technology, and encroaching competitors. To stay on top, executives must look beyond their walls and use external information to help them map the course to sustained success.

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