By Peter Lorange and Karin Mugnaini
In business, as in a host of other contexts, timing is everything. While sensing the optimum moment for a given course of action may require more art than science, we can at least be aware of the indicators that we should be looking out for.
In businesses’ quest for profitability, in a world that seems to be more and more demanding, and also in a journey where achieving success is increasingly challenging for most business leaders – high competition, rapid technological changes, various sorts of crises (economic, political, health, …) and so on, to be able to better understand and obtain a certain excellence in timing could the most promising way to secure a reasonable profit margin. To know when to accelerate one’s engagement in a business, as well as when to decelerate, appears key. It seems to be a matter of skill regarding “ins and outs”.
It is also important to consider that these “ins and outs” are not only about entering and exiting a business, but rather can also refer to turning on or off a “business dial”, which can be more another type of action, e.g. opening or closing a division, changing or upscaling or phasing out a product, growing or stabilising a revenue stream, spending or saving, etc. There are signals out there for all of those types of decisions, too. Perhaps by concentrating more broadly on “ins and outs” and its classical reference to only entering and exiting a business, we are thinking too narrowly. We suggest considering timing, breakpoints, and signals in different contexts depending on significant business decisions.
All businesses are different. This implies that each business leader must develop their own lead indicators. Our book The Future Ready Leader (Lorange and Mugnaini, 2024) provides support when it comes to this. In our work we have reviewed some 70 books and also conducted around 21 high-level interviews. While none of these explicitly identify lead indicators for guiding “in/out” decisions, they all seem to have been developed in this spirit. Thus, many authors whose works we have reviewed, as well as most of the executives interviewed, seem to have had a central concern for lead indicators, i.e., how to perceive indicators and better forecast various types of decisions. Accordingly, leaders might be inspired by our book to establish their own tailored factors.
So, how can leaders come up with better ways of doing this? Are there factors that leaders might follow which might signal that there is time for action? And such signals may have value only if they can be considered to be exclusive for a given decision-maker. If the signal-reading is available to all, in contrast, there could be relatively little to gain. In such cases, it can be unrealistic to come up with better timing decisions, at least those that others in the market would not have picked up on. The trick will be to identify factors that are unique to that person or entity, ideally before others see similar or comparable indicators. Our aim, with our book, has been to contribute towards this.
To explore how to find such “weak” signals for guiding in/out decisions, we thus surveyed 70 books, written by a wide array of practitioners totalling some 15,000 pages. Further, we interviewed some 21 senior leaders from business and politics. The result is summarised in The Future Ready Leader. In the following, we shall discuss how these learnings could help leaders to improve timing decisions. We shall offer a conceptual scheme for coming up with lead indicators, based on inputs from our book. Further, we will aim to illustrate how our approach might work when applying this to three specific businesses.
We tout the importance of intuitive and counter-intuitive thinking, creative thinking, and ways that recognise that weak signals are just as valid or important as strong ones. In other words, learn by the not-so obvious, learn through the “side door”, learn through daily nuggets, not necessarily from the established teacher or guide but also from learners or the unexpected. Thus, it may become critical for an executive to be willing to break typical learning patterns and go beyond what may be at first the most obvious of lessons. In many large organisations, perhaps particularly in significant, bureaucratic ones, it could be particularly important to keep this in mind. Impact from support entities might tend to be particularly “frozen” in many established organisations.
A Conceptual Scheme for Better Timing
We have developed a four-step conceptual scheme for coming up with better lead indicators, to make better in/out decisions. Every business is, of course, unique. A senior leader must thus be prepared to strive to identify their own lead indicators, tailored to their own distinctive business, within their relevant market/s. While our book provides valuable inputs in such a process, it is absolutely fundamental that further tailoring of factors take place, such as “combining” the content from our book with the conceptual scheme below:
- Step 1: Identify a preliminary set of critical success factors, based on a senior executive’s understanding of their business.
- Step 2: List what might influence (“drive”) these critical success factors. Are there other critical success factors that might have been overlooked initially? (Draw on our book).
- Step 3: Develop several scenarios for how one’s critical success factors might evolve (again, drawing on the book).
- Step 4: Select measurable surrogates for each of these factors to track the development of the scenarios.
This process is, of course, both interactive and iterative. There may be iterative loops, triggered by initiatives from the decision-maker, so as to create revised inputs. In the following, we shall attempt to illustrate how this process might work through discussing four examples. While all examples are disguised, they nevertheless represent real cases taken from one of the authors’ experiences.
There are several bases for support when it comes to this type of exit decision in our book. Particularly, the interview with Kristian Jebsen (Part 4) is useful. Also, the interviews with Jan Jenisch (Part 5) and of Morten Hannesbo (Part 5) are helpful. In addition, many of the book reviews seem relevant, especially several of those in Parts 4 and 5.
Example: Offshore Shipping
Offshore supply shipping basically consists of two major segments, anchor-handlers, to assist the redeploying of oil rigs, and platform supply ships (PSVs), to transport supplies to offshore rigs (provisions, drilling mud, pipes,…). In addition, there are several smaller, specialised, niches (diving support, ROV,…). However, in this example, we shall focus solely on PSVs.
After considering several factors for how to decide where to order new PSV ships, and when to sell, we came up with the following simple paradigm, that also was easy to track: tonnage of the PSV fleet presently “in the water”, relative to new tonnage on order. When new tonnage on order shot up, it was perhaps time to sell. When there were relatively few new ships on order on the other hand, then it might be time to order new buildings, or to buy secondhand tonnage.
At one point, new building orders could be rapidly rising. And the secondhand price for PSVs would thus also tend to be good, as might be expected, since the market would still be strong, with nothing of the new tonnage yet depressing the market. One might want to sell.
But there might be objections, say, from employees. Here are two factors to consider when it comes to exit decisions:
Timing decisions (“ins” as well as “outs”) should typically be taken by the CEO alone. If group-based decision-making is at work, then subsidiary factors, such as protecting one’s job, safeguarding one’s turf, etc., will easily lead to inaction. Also, more decision-makers involved can naturally risk slowing down the speed to decision.
It follows from the above that these types of decisions often tend to be relatively unpopular. A robust CEO is therefore needed. They must be ready to make unpopular decisions, anticipating questions, preparing replies, etc.
Example: A Medical Testing Firm
A decision to go public was raised by several minority shareholders, but this was rejected by the majority shareholder. For the majority owner, a more extreme long-term focus seemed acceptable, setting aside aspiration to take advantage of shorter-term positive movement in the firm’s share-value cycle. So how might one come up with lead indicators for a more specific indication of what may be good timing then, still as seen from the vantage point of the minority shareholders?
Here are some inputs that might be taken from our book. The book by Rosling (Part 3) offers important analytical support. And Sethi’s book (Part 4) discusses several of these issues directly. Carryou’s book is also relevant.
One important assertion should be made at this stage, namely that it is important that a firm’s top leadership be in a position to actually act when an opportunity comes up. The counterpoint might be more fundamental disagreement among leading stakeholders, such as between various shareholder groupings, top management, the board, and so on. Again, it is important that there is someone at the helm with clear decision-making authority.
Example: A Land-Owning Firm
The local political authorities have tentatively approved the building of several semi-detached dwellings on around one-third of a land parcel outside a European capital city, and the land-owning firm has provisionally sold this land parcel to a developer. A main condition from the local political authority to allow the construction to take place, however, is a requirement that the local access road should be improved. While the cost of this rests on the local community and county, there might be relatively low willingness by the authorities to go ahead, due to other, competing priorities for them. A large development project nearby seems to have led to increased pressure to start the road-improvement project, however. But when could the road construction take place, triggering the land development firm to receive its sales compensation from the developer?
While there are many inputs from our book that might shed light on this issue, several of the books reviewed in Part 1 may be particularly relevant. Andrew McAfee’s book appears to be particularly so. Also, the book by Sam Zell (Part 8) is also helpful.
Example: Purchase Of A Chemical Tanker
There was an opportunity to purchase a part of a secondhand chemical tanker, which was to be operated by a well-represented shipping group, considered to be a world leader with a pool of ships designated to the transportation of chemicals. There seemed to be signals that it was a good time to enter, with the price of the ship being relatively low, a somewhat low new-building order book, as well as an apparent global uptake for the transportation of chemicals.
The reviews and interviews in Part 5 could shed important light on the issues affecting the attractiveness of chemical shipping. Several of the book reviews in Part 3 are also relevant, perhaps above all that of Siilasmaa’s book.
A portfolio strategic perspective is also important here, however, that there should be enough free cash available to execute attractive investments. In-decisions/in-opportunities typically come about rather randomly. Cash is needed to be ready to act when such opportunities arise.
Conclusions
As we are always stressing, it is especially critical to be able to anticipate so-called breakpoints, to be able to take timely actions, typically ahead of “the rest of the flock”. By breakpoints, we mean business interruptions that can arise from a variety of reasons, including environment, process, people, and so on. Some breakpoints are expected, others not. For those not anticipated, being in tune with or alert to the not-so-easy-to-see data points or the weak signals can help leaders to catch them.
Cycle management is a key concept here too, namely, to anticipate low parts of a cycle and to “get in”, as well as upper parts of a cycle, and to “get out”. In most types of shipping, for instance, this is particularly important. Cycle management does of course apply to many other business areas, too. And we can turn to successful investors who have turned this almost into a science, for inspiration. Breakpoint understanding represents a central premise for successful cycle management!
Do not ignore the weak signals that indicate the existence or probability of breakpoints. In quick-paced environments, we acknowledge how critical speed is. Yet we suggest that you can be fast, and focused (see the review of Hoffman and Yeh’s book in particular – Part 5). You can accelerate forward, you can build an awareness level in such a way that even small, minute impulses can serve as moments of transformation.
Weak signals can indicate that change can occur, for example in leadership. While strong signals may stream almost automatically into actions, tiny data points, weak signals are often unseen, set aside or misinterpreted. Scientists, doctors, economists, and even security experts or detectives, are examples of professions whose work relies heavily on their ability to look for signals and breakpoints.
So, a “new” managerial discipline is emerging – the sensing of signals regarding breakpoints, not only strong, but also weak ones. Effective leaders must develop an approach to understand these themselves. For each business leader, these will be different! Business schools might also be useful here, by focusing more on (typically weak) signals; how to gain understanding and how to measure. But, in the end, it is all about the effective leader him- or herself. Observation, listening, reflection are part of this critical process and mindset.
In summary, in-out decisions can yield success if made with the highest degree of observation of patterns, capture of signals, analysis, and solid doses of clear decision-making. We must not only ask our teachers and guides to help us to acquire these skills, but we ourselves must shift our leadership mindsets to that of a “signal sensitivity” mindset.
About the Authors
Peter Lorange, Honorary President, IMD, is a successful entrepreneur and the former owner of a highly diversified family investment company. He is regarded as one of the world’s foremost business school academics, having held the position of President at IMD, Lausanne (Switzerland) for 15 years, having also been President of Norwegian School of Business, as well as a Professor at Wharton and at Sloan School (MIT). He has had several positions on various boards. His entrepreneurial journey spans key areas such as education, shipping, investments, and real estate businesses.
Karin Mugnaini is the Head of the International Alumni Association at IMD (Lausanne, Switzerland), and has been involved in international business since 1989, with engagements across the United States, Europe, Hong Kong, and currently in Switzerland. She has held numerous leadership positions in corporations as well as in startups, with a particular emphasis on new business initiatives. Ms. Mugnaini was formerly President & COO of the Lorange Network, working closely with Peter Lorange.
