Judgmental Forecasting of Operational Capabilities: Exploring a New Indicator to Predict Financial Performance

This paper explores a new judgmental forecasting indicator, the Employee Sensed Operational Capabilities (ESOC). The purpose of the ESOC is to establish a practical prediction tool that can provide early signals about changes in financial performance by gauging frontline employees’ sensing of changes in the firm’s operational capabilities. We present the first stage of the development of ESOC by applying a formative measurement approach to test the index in relation to financial performance and against an organizational commitment scale. We use distributed lag models to test whether the ESOC can predict
financial performance. Monthly data were collected from frontline employees in three different companies during an 18-month period, and the initial results indicate that the ESOChas predictive power.