Employees aiming to diversify their skillsets will only see an improvement in their performance if they work to become experts in the new field they branch out into, and only if they limit how many new fields they focus on,according to a recent study by Durham University Business School.
If employees try their hand at a new skill but don’t become an expert, then they are likely to see their personal performance drop across the board, the researchers found.
These findings come from research by Guanming He, Professor of Accounting at Durham University Business School, alongside colleagues, Yun Sun from Bayes Business School and April Zhichao Li from Exeter Business School.
The researchers sought to investigate whether financial analysts performed better when they concentrated on just one industry or sector, or whether pursuing wider focuses had a positive impact on their performance.
To do so, the researchers analysed the quality of thousands of forecasts from financial analysts, using data on their forecast accuracy, informativeness and timeliness, and linking these forecast properties to the number of industries they worked across and their experience.
The findings reveal that financial analysts who are true experts in their specific field or industry are much more accurate and effective in their forecasts than those who are not. Conversely, the more fields or sectors that financial analysts diversify to, the less accurate and effective their forecasts become.
This suggests that analysts should focus heavily on a small number of industries and work to become true experts in those industries, so that they can provide the most accurate forecasts for their clients, instead of seeking to offer a wider but shallower base of knowledge.
“When clients are looking to work with a financial analyst, it’s imperative for them that the analyst is able to offer the most accurate forecasts,” says Professor He. “An analyst who focuses on a small number of industries is more likely to have expertise in that field. It’s safe to say that, when it comes to analysts, becoming a master of a few trades is better than a jack of all.”
For analysts looking to enhance their career prospects, the researchers advise that analysts should make a great effort to foster industry knowledge and expertise, which are conducive to improving their forecast quality and thus advancing their career development.
This study offers important guidance for investors too. If seeking analyst reports to guide investment decision-making, investors would find it more beneficial, the researchers say, to refer to the forecasts issued by industry-focused analysts.
These higher-quality forecasts are beneficial not only to the investors but also to directors involved in the strategy formation process and the monitoring of firms.
The researchers suggest these findings can be applied to other industries too, where diversifying workloads and spreading knowledge across a number of different fields are likely to decrease personal performance across the board.
Featured Photo by Austin Distel on Unsplash.