Qualitative Analysis

What is qualitative analysis?

In business and management, qualitative analysis uses subjective judgment to analyze a company’s value or prospects based on non-quantifiable information, such as management expertise, industry cycles, the strength of research and development and working relationships.

Qualitative analysis contrasts with quantitative analysis, which focuses on numbers found in reports such as balance sheets. The two techniques, however, will often be used together to examine a company’s operations and assess its potential as an investment opportunity.

Key points to remember

  • Qualitative analysis uses subjective judgment based on “soft” or non-quantifiable data.
  • Qualitative analysis deals with intangible and inaccurate information that can be difficult to collect and measure.
  • Machines struggle to perform qualitative analysis because intangibles cannot be defined by numerical values.
  • Understanding people and corporate cultures is at the heart of qualitative analysis.
  • Looking at a business through the eyes of a customer and understanding its competitive advantage facilitates qualitative analysis.

Understanding Qualitative Analysis

The distinction between qualitative and quantitative approaches is similar to the difference between human and artificial intelligence. Quantitative analysis uses exact data such as profit margins, leverage ratios, earnings multiples, etc. These can be plugged into a computer model to give an exact result, such as the fair value of a stock or an earnings growth forecast. Of course, for now, a human must write the program that calculates these numbers, and that involves a good degree of subjective judgement. Once programmed, however, computers can perform quantitative analysis in fractions of a second, whereas even the most gifted and trained humans can take minutes or hours.

Qualitative analysis, on the other hand, deals with intangible and inexact concerns that belong to the social and experiential realm rather than the mathematical realm. This approach depends on the kind of intelligence that machines (currently) lack, as things like positive brand associations, trustworthiness of management, customer satisfaction, competitive advantage and cultural shifts are challenging, impossible, if not impossible, to capture with digital inputs.

Many social scientists use qualitative analysis in their research, and it is especially important among anthropologists and sociologists.

Understanding people through qualitative analysis

Qualitative analysis can be almost like “listening to your instincts”, and indeed many qualitative analysts would say that gut feelings have their place in the process. That doesn’t mean it’s not a rigorous approach, though. Indeed, it can consume much more time and energy than a quantitative analysis.

People are at the heart of qualitative analysis. An investor can start by getting to know the management of a company, including their educational and professional background. One of the most important factors is their experience in the industry. More abstractly, do they have a track record of hard work and careful decision-making, or are they more apt to know or relate to the right people? Their reputation is also essential: do their colleagues and peers respect them? Their relationships with business partners are also worth exploring as they can have a direct impact on operations.

Corporate culture and qualitative analysis

How employees perceive the company and its management is important. Are they satisfied and motivated, or do they resent their bosses? Employee turnover rate can indicate employee loyalty or lack thereof. What does the corporate culture say about the company? Overly hierarchical offices foster intrigue and competition and sap productive energy; a sleepy, unmotivated environment can mean that employees are primarily concerned with clocking in. The ideal is a dynamic and creative culture that attracts the best talent.

Qualitative data

Collecting data for qualitative analysis can sometimes be difficult. Fortune 500 CEOs aren’t known for sitting down with retail investors to chat or show them around corporate headquarters. In part, Warren Buffett can use qualitative analysis so effectively because people are willing to give him access to their time and information. The rest of us have to sift through news reports and corporate filings to get a sense of managers’ records, strategies and philosophies.

The Management Discussion and Analysis (MD&A) section of a company’s 10-K filing and quarterly earnings conference calls provide a window into communication strategies and styles. Clear and transparent communication and consistent strategies are helpful. Buzzwords, escapism and short-termism, not so much.

Qualitative data can also be collected in several other ways, including interviews, focus groups, ethnography (participant observation), archival work, and document analysis. Qualitative data is often read carefully and coded thematically to identify themes, patterns and trends.

Qualitative analysis in the business context

Customers are the single group more crucial to the success of a business than management and employees since they are the source of its revenue. Ironically, if a company puts the interests of customers ahead of shareholders, it may be a better long-term investment. If possible, it’s a good idea to try to be a customer. Suppose you are considering investing in an airline that has cut costs, exceeded earnings estimates for three consecutive quarters, and plans to buy back stock. However, when you try to use the airline, you find the website riddled with bugs, grumpy customer service reps, petty surcharges, and resentful fellow passengers. The negative experience tells you that the company does not have a priority for its customers and that you should be careful when investing in the airline.

A company’s business model and competitive advantage are essential elements of qualitative analysis. What gives the company a sustainable edge over its rivals? Did he invent a new technology that competitors will find difficult to reproduce, or that is protected by intellectual property? Does he have a unique approach to solving a problem for his clients? Is his brand globally recognized, in a good way? Does his product have a cultural resonance or an element of nostalgia? Will there still be a market for it in twenty years? If you can plausibly imagine another company stepping in and doing a little better at what this one does, then the barrier to entry may be too low. Why will an unestablished company be the one to create or disrupt its market of choice, and why will it not then be replaced in turn?

Example of qualitative analysis in business

The idea behind quantitative analysis is to measure things; the idea behind qualitative analysis is to understand them. The latter requires a holistic view and a global narrative based on facts. Context is key. For example, a CEO who dropped out of college would be a red flag in some cases, but Mark Zuckerberg and Steve Jobs are exceptions. Silicon Valley is, for better or worse, a different beast. A look at the finances of McDonald’s Corp (MCD) a few years ago would have told you nothing about an impending backlash against cheap and unhealthy food. On the other hand, a purely qualitative approach is vulnerable to distortion by blind spots and personal biases. Quantitative measures can act as a check on these trends.

Qualitative vs. Quantitative Analysis

Qualitative analysis relies on a detailed description and in-depth understanding of the research topic, obtained from in-depth interviews, observations and/or in-depth readings of the text. This type of research usually focuses on case studies and can be used to understand local phenomena.

Rather, quantitative analysis relies on statistical analyzes of numerical data obtained from surveys, experiments, or administrative records. From there, inferences can be made and correlations between variables analyzed to understand more generalized phenomena.

Qualitative analysis Quantitative analysis
Data type Words, text, descriptions, direct observations Numbers, numbers, statistics
How data is collected Observations, interviews and textual analysis Measure and count things
How data is analyzed text analysis; group data into meaningful themes or categories statistical analyzes
Analysis level Small groups, case studies, local phenomena; more subjective Large-scale, generalizable, fixed
Type of findings “Thick description”, understanding the why or how of phenomena How much, how much or how often; correlations or causation between variables

What are the steps of qualitative analysis?

Although the exact steps may vary, most researchers and analysts undertaking qualitative analysis will follow these steps:

  1. Define your goals and objective
  2. Collect or obtain qualitative data
  3. Analyze data to generate initial thematic codes
  4. Identify patterns or themes in codes
  5. Review and revise codes based on initial analysis
  6. Write down your findings

What are qualitative analysis methods?

Qualitative research encompasses a wide range of techniques and methodologies. Among the most common are:

  1. Interviews
  2. Ethnography (participant observation)
  3. Narration or discourse analysis
  4. Discussion groups
  5. Analysis of documents/archives

What are some examples of qualitative data?

Qualitative data can take many forms. Common types include transcripts generated from individual interviews, free-text survey responses, narratives, quotes, text documents, images, or observations recorded in a notebook or research journal.

Where is qualitative analysis used?

Qualitative analysis can be applied to a wide range of research topics or practical contexts. It is best used if you want to understand human behavior from the perspective of the informant or participant to better understand what is happening in the social context around you.

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