Diversifying skillsets only enhances employee performance if individuals become experts in the new fields they branch into, and only if they limit how many new fields they focus on, according to recent research by the School.
The study, led by Guanming He, Professor of Accounting, with colleagues Yun Sun from Bayes Business School and April Zhichao Li from Exeter Business School, found that employees trying their hand at new skills without achieving expertise may experience a decline in overall performance.
Focusing on financial analysts, the researchers analysed the quality of thousands of forecasts, evaluating their accuracy, informativeness, and timeliness. They discovered that analysts specialising in a single industry provided more accurate and effective forecasts compared to those working across multiple sectors.
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.
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