Advice for high-tech CEOs: Have a forecasting culture

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By Denzil Doyleforecasting

If I had only one piece of advice to give CEOs in the high-tech industry, it would be to work hard at implementing a forecasting culture in their companies. The most visible sign of such a culture would be a bonus system that rewards employees not only for meeting budgets that have been approved by senior management, but for their ability to forecast how close they come to doing so.

Most CEOs give forecasting a low priority; it’s often seen as another level of reporting that is not worth the effort. In fact, there’s also little agreement on the parameters to be included.

The cornerstone of any forecasting system is the sales forecast. At the beginning of each month, every salesperson and sales agent in the distribution channels should be required to forecast their bookings (orders received) for each of the next four quarters. In the jargon of the trade, this is referred to as a monthly updated four-quarter rolling forecast. Then, at the end of each quarter, every salesperson would have his or her actual booking figures compared with those that were forecast at the three intervals during the quarter.

Those forecasting “figures of merit” should play as large a role in the sales reward system as the actual sales performance figures do – that is, the “performance against quota” figures. That is to say, if a salesperson met his or her quota for order intake, but submitted three radically different forecasts during the quarter, none of which was close to the actual, the salesperson’s commission would be reduced by an amount to reflect that differential. Naturally, there would have to be an agreement when the budget is set at the beginning of the year on the arithmetic used in the figures of merit. That arithmetic can be a powerful management tool because it can be tailored to reflect such things like lead times and unusual competitive factors.

As for the benefits of a well-managed forecasting system, they come mainly in the form of better asset management, particularly inventory and cash, and are usually worth the extra paperwork. It also forces salespeople to pay closer attention to the long-term buying intentions of their customers. This can lead to all kinds of benefits, which includes better account management.

Image: freedigitalphotos.net

Denzil Doyle’s involvement in Ottawa’s high technology industry goes back to the early 1960s when he established a sales office for Digital Equipment Corporation, a Boston-based firm that had just developed the world’s first minicomputer. The Canadian operation quickly evolved into a multi-faceted subsidiary. When he left the company in 1981, Canadian sales exceeded $160 million and its employment exceeded 1,500. In his next career, Doyle built a consulting and investment company, Doyletech Corporation, that not only helped emerging companies, but built companies of its own. In recognition of his contributions to Canada’s high technology industry, he was awarded an honourary Doctorate of Engineering by Carleton University in 1981 and a membership in the Order of Canada in 1995. 

/// COMMENTS

3 Comments »
  • Andrew Moizer

    September 26, 2013 1:23 pm

    Right in line with Geoffrey Moore’s definition of Market Cap “Present Value of forecastable future earnings from current & planned operations, discounted for risk”. I like this definition a lot, unless you predict something, there’s no real certainty that it could happen again.

    I like to add a “Perceived” in front of the whole definition, just because perception is reality.

  • allan isfan

    September 26, 2013 5:51 pm

    A big challenge associated with time based quotas, and I suspect rewarding based on hitting forecasts, is the manipulation of closing dates. If you’ve hit the quota for a time period and if you’ve met your forecast, it is tempting to delay closing a deal until the next period (month, quarter etc).

    Also, doesn’t rewarding the meeting of forecast lead to “safe” forecasts?

  • September roundup: What does it take to get technology to market? | Francis Moran & AssociatesFrancis Moran & Associates

    October 01, 2013 10:22 am

    [...] 26: Advice for high-tech CEOs: Have a forecasting culture, by Denzil [...]

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