Look at data
If you’ve ever done a jigsaw puzzle, you know there’s a lot of time that goes into matching up the correct pieces. Similarly, when leading in a downturn, you have to spend a lot of time putting together the correct pieces of data in order to be successful.
“All you can do is make sure that you use every piece of information available to you, and then take a view using that information about what’s around the corner,” Manning says.
The key to doing this is looking at a variety of numbers and not just one statistic.
“There’s a whole jigsaw of numbers there that really need putting together in order to create a picture,” he says.
For example, in Manning’s industry, the obvious place to look is at housing starts. But that should just be the starting point. He says he needs to also check the inventory of unsold homes, more specifically, the inventory of unsold new homes versus the inventory of used homes. He also looks at mortgage applications, interest rates and unemployment rates, as well.
“Have you ever done a jigsaw?” Manning asks. “If you’ve got a piece missing, the jigsaw’s no good. That’s where a lot of businesses fall down. They actually do a lot of what they do extremely well, but if you’ve got one piece missing, the jigsaw is no good. Nobody’s even going to look at it.”
When looking at data, you also can’t rely on one month’s worth of numbers to get an accurate picture.
“You see headlines like, ‘Light appears at end of tunnel; end of recession almost here,’ and the reasons they say that is because there is one month’s numbers — foreclosures, repossessions, housing starts being registered — which pops up here just a little bit, and it looks good,” he says.
Instead take a longer outlook of your industry’s numbers.
“One of the ways to actually predict what’s going to happen is to use long-term trends,” Manning says. “Don’t rely on one month’s numbers, but use what we call moving annual totals so you’re actually smoothing out the trend, so you can actually see the history of what the performance has been in any particular part of the market. Use smooth trends, and they will actually point you in the direction of the line.”
For example, if you see the line falling off an edge of a cliff, you know you’re in a lot of trouble. But on the other hand, if you see that line start to level out, you can delve into the numbers more and start to predict what may happen three and six months out.
It’s also not enough to simply have these pieces of data. You should review the information regularly. Manning touches base with some mixture of senior people about the data they collect every day, and then, on a formal basis, his team reviews the information monthly.
The problem many leaders run into when it comes to data is their own fear.
“What you are actually doing is you’re making the situation very transparent to those around you,” he says. “If you make it transparent, then you have to make a decision. That’s fine because that’s what I’m paid to do, but a lot of people find that difficult.”
How you go about making those decisions is critical, as well.
“In this sort of situation, what is required is to make tough decisions quickly,” Manning says. “That’s the key to it. That’s why you need these statistics, because if you wait to see if it’s going to get worse and you keep waiting, then you’re always behind the eight ball. You’re always behind curve.”
The benefit to gathering this data and then actually using it to make effective decisions is that you’ll stay ahead of the downturn and be able to respond before your competition does.
“What that does is it puts you in better shape to handle what’s coming than any of the competition, and it means that you will maintain, if not gain, market share,” Manning says. “Your profitability will be propped up higher than everybody else’s, and the result of that is you’ll retain your work force better than the competition will.”
