Crowdsourcing... big data… agile...mindfulness...
Does your company use one of these popular words
to describe how it does business?
New research shows companies should be aware
that if they follow the latest fashions in management practices,
then the way that analysts perceive the company will change.
Creating high expectations by appearing progressive,
can even make analysts overvalue the company,
according to researchers.
Companies like bandwagons.
Especially when it comes to management practices.
When some companies engage in a practice,
others just like to follow with the same practice.
We have seen this pattern over and over again.
In the eighties it was 'total quality management'.
In the nineties it may have been 'lean'.
And today it clearly is 'agile', 'big data' and 'mindfulness'.
Security analysts try to understand how the performance of a company
will develop, going forward.
For that, they are very attentive to every bit of information
that comes along their way.
In our study we look at management practices,
mentioned together with company names in The Wall Street Journal,
one of the trusted sources of the business community.
Our results clearly show
that analysts are very sensitive to a company's association with management practices.
Especially when it is about hip and happening practices,
analysts tend to overestimate future earnings of firms,
even if firms never engage in these practices.
What then if companies engage in multiple management practices?
Well, we found the story is not so simple.
Analysts tend to underevaluate companies that associate themselves
with too many fashionable practices.
It may create confusion, it may create disbelief
in a firm's ability to pull this off.
Companies have to watch their words.
Communication matters.
They want to be associated with what is trending,
but they don't want to overdo it.
So when companies create expectations
through the communication and the signals they are sending out,
what they really need to pay attention to is
wether they can walk the talk.
