/ Granularity

November 11, 2015

Elements of DNA

We would like to introduce the notion of granularity when performing strategy due diligence.

In every market, industry or trade there is a level where things happen; the simple everyday things that make business work. For example, when you sell art pictures in a retail store, some basic things happen. People come in, in certain numbers, some of them buy, and some don’t. Some of them buy a picture today and will come back in the future, some don’t. Some live nearby, some come from afar, etc.

These are the basic, granular mechanics that give a particular structure to a business or industry. From this granular fabric stems the fact that not everything is possible in the future – some things might or can happen, but others cannot. For instance, customers come with certain frequency, but not everyday. They buy a few pictures per year, on average, but do not buy dozens of them. They may travel some distance to visit the store, but they would not travel hundreds of miles.

In some cases, the granular fabric of a business is quite complex. Take for instance the embedded electronics industry. There are many types of clients, with different technologies and different services. There are several overlapping business models: selling technical assistance, design services, licensing and managing some or all of the supply chan. Add to that a layer of test tools and another layer of consulting and you get a complex picture.

But humans made it…and humans can understand it. We would argue that, without understating this granular level, an analysis or due diligence cannot have any predictive force beyond the obvious trends, if that. This is not to say that one cannot get it right every once in a while. But these predictions, which generally come in the form of market forecasts, business plans or general trends, cannot have the rigor of a social science unless they are grounded in a granular understanding of the industry.

And this is our second point: strategy consulting can and should have the rigor of a social science. This means that it is possible to answer complex business questions in a clear way, even by yes or no, very much as the social sciences strive to do.

As an example, take a look at a recent article in the NY Times “Death Rates Rising for Middle-Aged White Americans ». The article narrows down the trend to « whites 45 to 54 years old with no more than a high school education », and further down to alcohol and drug abuse in that group as a major explanatory factors. Beyond the power of the findings, what is striking is the rigor, the precision, and the impact of the analysis. Responsibility comes with analyses like these, responsibility that can only come from absolute confidence in your way of thinking.

Although we strategy consultants seldom create such powerful meaning, we wish we could share the rigor and the sense of responsibility of social scientists. Strategy consulting can and should have the rigor of a social science. And this is where it should start – in the granular understanding of an industry.

A note for prospective users (and payers) for strategy consulting: do not settle for anything less than that. It’s your call.

Sokrates advisors