Stockholders may wish for a crystal ball to predict a company’s performance. Researchers at the University of Minnesota have found they don’t need one.
“The answer lies in the words of the CEO,” says Rajesh Chandy, professor of marketing at the university’s Carlson School of Management. “By simply counting the number of future-oriented sentences in annual reports, we can predict future innovation by the firm.”
Chandy and co-authors Manjit Yadav of Texas A&M University and Jaideep Prabhu of London University’s Imperial College published their research in the October Journal of Marketing. (Download the article at here .) “Managing the Future: CEO Attention and Innovation Outcomes” shows that CEOs who focus on future events and external activities lead their firms to greater innovation and faster adoption of new technologies. More attention to internal operations leads to slower detection, adoption, and implementation of new technologies.
Chandy and his co-authors studied empirical data collected from the online banking industry over eight years to identify “innovation outcomes,” such as speed of detection, speed of development, and the breadth of deployment of technology. By counting the number of future-oriented words and phrases in letters to shareholders over this time span, they were able to predict the level of innovation by the firm up to five years later.
“Daily pressures from inside the corporation tend to take up the bulk of the CEO’s time, overwhelming their attention spans,” Chandy acknowledges. “But because the CEO sets the tone and culture, not thinking forward and outside of the firm has major negative consequences for innovation.”
