The Power of Nowcasting


by Alfred Poor

"If you don't know where you're going, you're liable to wind up someplace else." This old saw may be familiar to anyone who has ever attended a career-planning workshop. However, this bit of pithy wisdom leaves out one essential point: If you do not know where you are, you cannot know which direction to take to your destination.

Where Are You Headed?

Successful navigation requires both knowing where you want to go and where you are now. This holds true whether you are at the helm of a sailboat, your career, or a high-tech company in the display industry. Choosing a destination is the easiest part – you set goals and targets. Industry forecasts can be helpful aids in choosing these destinations, which is perhaps why they are so popular. You cannot sit through more than about 20 minutes of a conference these days without being confronted by stacks of bar charts, growth curves, and data points marked years into the future.

But forecasting is only part of the navigation process, and perhaps even the lesser part. Unless someone has perfected the time machine, any forecast is a guess. It may be particularly well-informed, or logically developed, or just plain lucky, but it's still a guess. Unless you have total control of the system (or it behaves consistently, such as the parts of our solar system), you cannot predict the future with precision. So the best we can hope for is to have a reliable approximation of our destination's location.

Where Are You Now?

This leaves the problem of knowing the location of your starting point. I find it helpful to borrow a concept from meteorology. In addition to forecasting the weather, meteorologists also are skilled at "nowcasting" the weather.

What is nowcasting? Essentially, it is the use of current information to tell you what's happening now. For weather, it is possible to get data that is practically in real time from a wide range of sources. You can see where it is raining and where it is dry. You can see temperatures in different places, and which way the winds are blowing and how strong. In short, you know what the weather is doing right now.

Businesses need the same information to know where they stand right now. In most cases, the only data available in real time is internal information, and only if your company's data processing is set up to deliver it. Too many times decisions are based on anecdotal evidence. Have you every heard a sales representative come back and explain that the reason your company lost the sale on a big display order was because a competitor undercut your price? Often, people will point to an advertised price as evidence of the current selling price. Such anecdotal evidence can be misleading and may not correlate with actual transaction prices.

In order to know where you are now on your route to your destination, you need access to broad information that gives you a vantage point that is high enough for you to gain a useful perspective on your current position.

For example, you may be intimately familiar with your company's sales figures for your consumer LCD HDTV products. You may have an idea about how similar LCD models from competitors are doing. But what about plasma models that may draw sales away from the LCD segment? And then there's the question of rear-projection HDTVs – it is easy to see that the average price for most sizes is aggressively low compared with plasma and LCD for the same size, but do you know if buyers are flocking to these bargains or staying away in droves?

The data must be granular enough to be helpful. You can always combine related data sets if you do not need to cut it that fine, but you cannot break apart numbers if there is no subset information behind them. If you want to know about 50-in.-plasma sales, it does no good to have numbers just for the plasma market in general. And if you need to know about 1080p-resolution sets within the 50-in.-plasma market, the data has to be broken down that much further.

Know the limits of the data. Just as the weather services cannot know the exact temperature at all possible locations, no service can get data from 100% of all the possible data sources. Make sure that sampling is balanced and provides a representative picture of what is happening now. In today's complex consumer display market, retailers range from large "big box" chains and buying clubs to Web-based resellers, and to small specialized custom configuration and installation operations that may not even have a store front. A useful sample will include data from a broad and balanced range of these types of operations.

The data also must be accurate. Nowcasting numbers should not be guesses; leave that to the forecasts. You should know what the sources of the information are and how the data is processed. Are the results based on counts of discrete items or is the information grossed up, extrapolated, or otherwise infused with some other sort of guess? Note that if you have a solid and broad foundation of hard data that measures the current conditions from multiple perspectives, you can infer missing data that might not be directly available.

For example, you may be primarily interested in retail sales of a specific consumer or professional display category. It is impossible to get data on 100% of the sales from all retailers. A well-balanced sample will tell you a great deal about a market and its trends. However, if you also have access to information from distributors about the volume of their sales to retailers, you get a much better picture of the overall market. And if you have shipment volume data directly from the manufacturers, then you know how big the total market must be. When you combine the analysis of all three sources of data, you get a much more detailed and accurate picture of the market than you can get from just one of the sources.

Finally, the data must be linked to the past. An isolated data point taken now is far less helpful than one that can be related to what happened leading up to now. Knowing where it is raining now is fine, but knowing where it was raining just before now helps you make a better guess about where it will rain next. It helps to know whether a big drop in monthly sales is typical for this time of year or if it runs counter to prior seasonal cycles.

Stand in the Present to See the Future

Forecasting is both an art and a science, and making good guesses about the future is an essential component for any successful business planning. But in order to make informed forecasts, you must be firmly grounded in the present, standing on solid data that you can count on as a reference point.

The key to successful navigation is to know where you are and to know where you are going.

Alfred Poor is Chair of the Delaware Valley Chapter of SID and a Senior Research Associate with Pacific Media Associates, 700 East Walnut Street, Perkasie, PA 18944; telephone 215/453-9312, e-mail: apoor@pacificmedia

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