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Data Driven Crisis Management: Early Indicators

This is part 4 of a 6 part series on Data Driven Crisis Management.

No crisis lasts forever, and the companies that identify signs of recovery first are the best positioned to take advantage of the market growth that results. The earlier you invest capital and prepare, the more likely you surf the recovery wave to a leadership position in your industry. 

However, the cost of prematurely investing in a recovery is high since a crisis puts strong pressure on your financials across the board. If you invest too early you might run out of capital before the recovery materializes. If the recovery takes longer than you expect, you might run out of capital before being able to take advantage of your early action. 

How, then, do you identify when a recovery might be starting? 

The most important thing is to identify the earlier indicators. There are a number of types of early indicators and places to look for them, here are some examples:

  • Customer Behavior Indicators. Customers lead any market, so watching for signs that customer behavior is changing is the strongest early indicator of a market shifting. The very last part of the customer buying journey is a purchase, so don’t rely on purchases as they will be a trailing indicator of these changes. Shifts in advertising conversions, increases in activity and jumps in customer support requests can all indicate that customer behavior is beginning to shift. If possible, watch all possible customer segments since you never know which ones will give you the early indications you need. 
  • Market Indicators. While individual customer segments and product purchases might be too noisy to discern indications from, the overall market performance can blend these smaller signals into a larger signal. The problem is that small changes need to add up to large changes to move the market metrics, which means that by the time the market metrics change the indications might be lagging behind. Even so, looking for even small shifts in overall market performance can be an important hint to look deeper for other indicators that are hiding below the surface. 
  • Competitive Indicators. Watching your competitors can be one of the most important early indicators of change. For example, if your competitors are having massive layoffs it’s possible that they are struggling and their customers are vulnerable for you to pursue. Even more likely, if you see your competitors pursuing specific segments of customers with specific promotions it’s likely they have found green shoots of opportunity that you can capitalize on as well. There is no penalty from learning what others have found, and if you see a number of competitors pursuing the same strategy that can be a strong indication. However, beware following the crowd as they might be running into a wall as a group so make sure you are convinced that there are reasons behind their actions. 

Even the best early indicators can mislead you, and it’s easy to mistake the signals for a recovery with normal fluctuations in the midst of a crisis. To avoid letting your desire for a recovery bias your decisions, it’s important to set out a criteria before looking at the data. What will your early indicators have to show you for you to be confident a recovery is underway? What kind of thresholds or trends do you need to see? Make sure to write down those criteria and always refer back to them, as it will provide important objectivity even if emotions run high.

If you are diligent and data driven, you can turn the crisis into a competitive advantage by riding the recovery earlier and more effectively than any other companies. 

Quote of the Day:   Life is like a game of Chess, changing with each move.” – Chinese proverb