Business performance is worse than expected business performance. For instance, sales, profits, and margins could be below targets set by management. This is a very typical type of problem analysis. Think of all the new products that fail to meet their targeted goals. Trend analysis would also be included in this type of problem. Management is constantly monitoring key performance variables. Previous performance usually provides a benchmark forming expecta- tions. Sales, for example, are generally expected to increase a certain percentage each year. When sales fall below this expectation, or particularly when they fall below the previous year’s sales, management usually recognizes that they have a potential problem on their hands. The Research Snapshot on the next page illustrates this point.
2. Actual business performance is less than possible business performance. Realization of this gap first requires that management have some idea of what is possible. This may form a research problem in and of itself. Opportunity-seeking often falls into this type of problem-definition process. Many American and European Union companies have redefined what possible sales levels are based upon the expansion of free markets around the world. China’s Civil Aviation Administration has relaxed requirements opening the Chinese air travel market to private airlines.2 Suddenly, the possible market size for air travel has increased significantly, creating opportunities for growth.
3. Expected business performance is greater than possible business performance. Sometimes, management has unrealistic views of possible performance levels—either too high or too low. One key problem with new product introductions involves identifying realistic possibilities for sales. While you may have heard the old adage that 90 percent of all new products fail, how many of the failures had a realistic sales ceiling? In other words, did the company know the possible size of the market? In this case, the problem is not with the product but with the plan. Some product “failures” may actually have been successful if management had a more accurate idea of the total market potential. Management can close this gap through decision making. Researchers help managers make decisions by providing relevant input.