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About business and financial analysis

Business analysis

This page is a form of due diligence for stakeholders—observing and acting on "long-term" patterns in business activity and business evolution. In a litigious environment past accepted practice can suddenly become unacceptable and have severe, unexpected consequences. The foregoing is an example of strategic business analysis.

Warren Buffett refers to himself as a business analyst. In The Money Masters by John Train, Mr. Buffett indicated that the scuttlebutt technique was one of his main tools—a time investment. Also it is reported that he relies heavily on credit analysts rather than stock analyst for fundamental assessments. His almost unmatched success in betting the stock market roulette game comes from what he buys, the prices he pays and gets, plus the way he organizes his affairs using Berkshire Hathaway. 100 percent of his bets don't work out the way he anticipated. He says he pays almost no attention to the level of the stockmarket or forecasts.

There are thousands of "Wall Street" analysts—who talk the talk. It is extremely difficult for many of them to put together a long-term performance record that beats random selection. Almost none are confident enough in their analysis or thinking to borrow money at 5 percent with the expectation of 10 percent investment returns. The underlying data is not stable. This instability makes conclusions unreliable.

It is extremely informative to get a list of prominent or high growth young organizations forty, twenty, or ten years ago and track what happened to them. Superimposing financial work and financial statement preparation on the worldS of yesterday won't bring us to today!!!

Business analysis includes everything that could possibly impact a business—offerings, prices, processes and their costs, competition, global influences, interest rates, people decisions, organization forms, market standing, innovation standing, productivity, profitability etc.

More data doesn't improve the situation. Something strategic is needed.

The effectiveness of financial analysis and related tools

Financial analysis is a subset of business analysis and can't be divorced from it.

Financial data summarized in financial statements is of very little use foretelling the future. It is often misleading and misdirecting. It often lulls successful organizations into a false sense of security. There is nothing in the data itself to tell whether it is useful or not—it depends on something on the outside. Nothing in Kodak's long history would have given a clue that digital photography would present it with a tremendous life or death challenge. There are countless similar examples. More insight can be obtained by looking at the histories of the companies included in the In Search of Excellence study. See about change and non-linear articles in the news.

Historical financial data contains very little information on industry evolution or industry consolidation.

Nothing in an organization's financial history prevents new competitors (foreign or local) from entering the marketspace and making financial history irrelevant.

For genuine innovations there is no historical financial data because there is no history at first. Organizations that are capable of holding on to the innovator's advantage are not linear extrapolations of their earlier stages—they have discontinuous cost and revenue structures.

More powerful tools (worksheets, models, data mining etc.) are of little use if the underlying data is inadequate for a healthy future.

So, what needs doing?

My own experiences and observations with business and financial analysis lead me to the following:

The wealth that many prominent organizations generated came from ideas (people, products, services, processes, customers, markets, end-uses, distribution channels) and management—the discipline—that was non-existent in their earlier stages of development or in earlier stages of economic development in earlier times. This wealth—on both an organization and national level—is a magnet for intense competition.

Ongoing intel that examines the broadest current reality and looks forward may be helpful. A foundation for future directed decisions seems essential. Work investments that are outside current operations are needed.

See my strategic development assistance page for an approach to mapping work investments!!!

I also have a list of financial impact related work modules that could be explored.

TLN keywords: tlnkwbusinessdata

 

“The greatest danger in times of turbulence is not turbulence; it is to act with yesterday’s logic”. — Peter Drucker


The shift from manual workers who do as they are being told — either by the task or by the boss — to knowledge workers who have to manage themselves ↓ profoundly challenges social structure

Managing Oneself is a REVOLUTION in human affairs.” … “It also requires an almost 180-degree change in the knowledge workers’ thoughts and actions from what most of us—even of the younger generation—still take for granted as the way to think and the way to act.” …

… “Managing Oneself is based on the very opposite realities: Workers are likely to outlive organizations (and therefore, employers can’t be depended on for designing your life), and the knowledge worker has mobility.” ← in a context

 

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These pages are attention directing tools for navigating a world moving toward unimagined futures.

It’s up to you to figure out what to harvest and calendarize
working something out in time (1915, 1940, 1970 … 2040 … the outer limit of your concern)nobody is going to do it for you.

It may be a step forward to actively reject something (rather than just passively ignoring) and then figure out a coping plan for what you’ve rejected.

Your future is between your ears and our future is between our collective ears — it can’t be otherwise. A site exploration starting point

 

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