These three graphs represent the performance of three different “somethings” over time. Could be the performance of three Olympic weightlifters. Could be the performance of three rock and roll bands. Could be the performance of three Fortune 500 companies.
The Y-axis depicts performance; the higher the line on the graph, the better the performance of whatever we’re analyzing.
The X-axis represents time. As we follow the line on the graph moving from left to right, we can learn how performance has changed over time. The graph lines end at the vertical dotted line, representing today.
Let’s get more specific. Let’s say that these graphs represent the gross revenues of three different Fortune 500 companies.
A quick study of the three graphs reveal that all three have virtually the same gross revenue at the present point in time. But, quite clearly, their respective results over time have been very different. They each got to where they are now very differently —
- One company’s performance was much higher than it is currently, but over time has gradually fallen to its current level.
- The second company’s performance was much lower than it is currently, and over time has risen to its current level.
- The third company’s performance has been essentially flat, although over time it has oscillated up and down…
The new graphs on the right now have that new information, with the dashed line extending from the current gross revenue up and to the right, indicating they are future projections.
You once again take note that their strategic targets are essentially the same — all aspire to go from where they are today to that 2X level a few years out.
Without knowing anything else, which company do you think has the best shot at meeting their gross revenue target?
Let’s now say that these companies are in the same market space, serving essentially the same customer base, and that each are courting you for an executive-level sales and marketing position, one which you would unquestionably like. Oh, and did I mention the 50% bonus you would get if the company performs to the strategic plan and hits that target?
Without knowing anything else; what’s your preference?
“Not fair!” you say. Way too little information!” Of course it is. But, come on; we’re having an innocuous little thought experiment here; you’re not making a career decision! At least not yet…
Does past performance matter? Or, more generally, does how you got to where you are make a difference at all with respect to how you will go from where you are to where you want to go?
While past performance doesn’t predict future performance (the boilerplate disclaimer for any stock prospectus) it certainly does inform…
There could be a whole bunch of reasons why that once high flying company saw that sustained slip in their gross revenues. Some of those reasons might not give you pause in the least; others would have you running away in a NY minute.
And can’t we say the same for the other two scenarios? The fast growing company may initially look the most promising, but how do we know their particular execution decisions didn’t mortgage the future; therefore they may not be positioned to continue the trajectory? The third company is on a roller coaster ride that has seen ups and downs; who knows if it is now ready to break out to the upside, succumb and slide into oblivion, or simply continue to go sideways …
Given those respective track records, how loyal are their customers? How committed are their investment partners, or how aggressively have they reinvested profits to position for the planned growth? How engaged are their employees, and what is their capacity to deliver? And what’s the state of their respective leadership teams and their potential to lead and manage at higher levels of velocity and complexity?
And on and on; I know you have more.
The “over time why” and “over time how” matters.
Looking at past trends and understanding past dynamics is critical to informing plans for strategic growth. In all three scenarios, the pieces/parts are interacting in very specific ways to cause such patterns. And there is undoubtedly a structure that is causing the pieces/parts to interact that way… Find that structure, and you get very close to having the answer to enable that future performance.
So it really does make sense to take a close look at what has happened yesterday, to be able to get a read on what will happen tomorrow.
Back to the future.