Statistics: a managerial trick

Oct 21 2011 by Ali Forghani Print This Article

Albert Einstein famously remarked: "Not everything that counts can be measured. Not everything that can be measured counts."

Today, statistics are sacred. Anyone who raises any suspicious about them will quickly find themselves under attack from the "statisticrats" - people with a fervent belief in their reliability. In our statistics-obsessed world, assessing "quality" has lost its importance because – as the old cliché puts it - we know the price of everything (because we have the statistics to prove it!) and the value of nothing.

Ever since Frederick Winslow Taylor coined the theory of scientific management in the early 20th century and tried to quantify productivity, outcomes and processes, numbers have ruled the business world. But the trouble is, numbers don't tell the whole story. In fact there's a whole level of reality that is obscured – not illuminated – by statistics.

Consider a new sales manager appointed by a mobile telco with a mission to double the number of minutes used by customers. His first strategy is to diversify the company's offerings by devising a range of pricing plans that seem to cater for everyone, whatever their usage pattern.

But while this might appear at first sight to be a customer-friendly strategy, it is really a way of deceiving them. Because such is the complexity and variety of the pricing plans – and the small print that goes with them – that customers won't really understand what they're buying and will tend to be penalized either for over-usage of minutes or under-usage.

This confusion is entirely intentional: the company wants its customers to be ill-informed because it means that they are less likely to pick the best deal for themselves. That means better sales figures and a boost in profits. And when they look at the figures, the telco's management will congratulate themselves on their successful appointment and bask in the glory of a quarterly surge in profits.

But while the statistics might demonstrate remarkable accomplishments, they provide no insight into what is going to happen to the business' profitability in long-term. Moreover, because they appear to present a positive message, they blind managers to the problems that the same strategy is storing up for the future.

Of course, the elephant in the room here is that the telco is making its fat profits by deceiving its customers. And that means that customers start to lose trust in the company and gravitate towards rivals who offer more transparency in their pricing. The telco's reputation is damaged, their market-share undermined.

So, what price do we put on credibility? How much will it cost our telco to clean up its tarnished image? In the long-term, was the pursuit of short-term, quarterly gains worth the cost of customer dissatisfaction?

That's what I call "the trick of figures". It is all too easy to be captivated by one side of the coin – the one marked "profit" – while ignoring the picture on the flip-side.

The Solution: A key Question

The key question every manager needs to learn to ask when presented with apparently irrefutable statistical evidence is "at what expense?" What have we done to achieve such a profit? Have we sacrificed anything intangible to achieve these figures? Is this approach viable in the long-term or is it a high-risk, short-term strategy whose ultimate outcome is uncertain?

We need to ask these questions because whatever the numbers might suggest, there are always non-numeric factors hidden on the other side of success coin – factors which often won't come back to haunt the organization until after it current crop of senior management has retired or moved on.

But it isn't just that these factors emerge long after those responsible for ignoring them have stopped being accountable for their decisions and actions. Many organizations also suffer from an endemic "show-off syndrome" whereby line managers try to impress senior managers with figures to illustrate their performance reports and senior managers, in turn, do the same on up the food-chain.

The casualties in this game of statistical one-upmanship are the intangibles – and it is time we freed them from the tyranny of numbers.


About The Author

Ali Forghani
Ali Forghani

Ali Forghani is a writer, journalist and translator for one of Iran's leading management magazines.