contributor, korn ferry institute
This Week in Leadership
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Simon Constable is a former TV anchor for The Wall Street Journal and a fellow at the Johns Hopskins Institute for Applied Economics, Global Health and the Study of Business.
A few years ago, a major Connecticut-based manufacturer was desperately trying to fix the profitability of one of its business units. Executives’ initial thoughts were that the business needed some good old-fashioned cost cutting, a bit of slash and burn if you like. But to be sure, they asked for some expert help in the form of Yael Grushka-Cockayne, professor of quantitative analysis at University of Virginia’s Darden School of Business. She got to work by analyzing the key variables—and came to a different conclusion. It wasn’t cost cutting. “The focus needed to be on sales growth,” she says.
But how do you convince a management stuck on one idea? Enter the tornado chart. This remarkably simple diagram—easy to produce—would be the game changer here, with bar lines proving the impact of boosting profits with more production. The wider the bar at the top, the bigger the impact—and, yes, it resembles the shape of a tornado.
The tornado diagram isn’t a new technique. I learned about it in business school two decades ago and then didn’t see one again until recently. While analytical work gets ever more dominated by algorithms and artificial intelligence, the tornado diagram goes in the opposite direction. This time-tested method takes us back to basics and is so easy to follow. “When you show a tornado diagram to a client, their reactions are ‘holy cow, now I get it,’” says Joe Walsh, managing director at business strategy firm Incode Consulting. “They love ’em.” And they also want to start using them in their own companies, he says.
Such analyses can apply to a wide range of businesses—and answer a wide range of issues. Some companies need to anticipate data consumption, for example, or a telecom executive might want to know what to bid in auction against competitors. “I’ve used tornado diagrams to assess bankruptcy risk,” says Bob Bruner, dean emeritus at Darden School of Business. He’d focus on items such as profits, cash flow, valuation and external financing requirements.
But, however it’s used, the great irony here is the cost. Indeed, comparing the costs of sketching out these things to the bill behind the latest craze of so-called “thinking robots” is a joke. Global spending on artificial intelligence and similar cognitive systems alone is expected to grow to $46 billion a year. And training staffs on the charts is not hard; many treasury and accounting staff will have already studied such methods at business school and should be able to put such an analysis together for the C-suite with relative ease.
Of course, AI has enormous uses that a chart that’s decades old doesn’t. And creating and using a tornado diagram to make key decisions isn’t without its pitfalls. Like anything requiring numbers, it’s a question of garbage in, garbage out, says Joan Adams, founder of New York-based Pierian Consulting. But the speed of tornado-chart analysis does give CEOs the chance to make much faster strategic decisions, all in an age when shrinking C-suite tenure and impatience from activists are pressing them to act. It has the advantage, too, of being so easy to follow; the audience doesn’t need to be mathematical because the width of the bars tells the story of the importance of each variable.
All of which makes you wonder if other, simpler-calculating methods will work their way back into favor. Not that retro change is ever very easy, but as the adage goes, “If you do what you’ve always done, you’ll get what you’ve always gotten.”