Category Archives: Data

Statistics and Performance

I always thought that Mark Twain was purported to be the author of one of my favorite quotes:

“There are three kinds of lies: lies, damned lies and statistics.”

I have come to find out that in his own autobiography Twain attributed this quote to a nineteenth century British statesman and former Prime Minister Benjamin Disraeli. This fact perplexed me slightly so I continued my research a little further using those modern bastions of all knowledge, Google and Wikipedia. After an exhaustive five minute search I found that the general consensus is that no one knows for certain who the author of one of my favorite quotes is. This fact will make it reasonably difficult to give attribution in the future should the opportunity to use it come up again.

Be that as it may, it may be time for me to take the slightest exception with one of my favorite quotes. When you are looking at the performance of a business, the numbers don’t lie. Now the way the numbers are arranged can sometimes be confusing or even misleading, so the business leader needs to be aware and careful.

I don’t say this too loud or too often, but I think I may understand numbers reasonably well. Physics, Mathematics, Finance, I have studied them all. And believe it or not, to one extent or another they are all numbers based disciplines. In addition to this degreed book learning, I have had what could almost be called a moderately useful stint of practical numerical application in the business world.

I sometimes use this unbridled numerical capability and familiarity to complete the most difficult of Sudoku number puzzles in the USA Today newspaper, or various in flight airline magazines. Just to stay in practice and make sure that I still “have it”.

Since it appears that this is going to be a quote based discussion, I might as well continue in that vein. Hippocrates, the ancient Greek physician (hence the source of the physicians “Hippocratic Oath”) said:

“There are in fact two things, science and opinion; the former begets knowledge, the latter ignorance.”

I think the corollary here is that if it cannot be expressed in numbers in business it is not fact, it is opinion. I have written and spoken in the past about the need for leaders in the business world to become increasingly more familiar with “numbers” of business as they matriculate up the leadership ladder. There may have been past instances of corporate wizardry where a leader intuitively knew what needed to be done (maybe Steve Jobs, or Bill Gates fall into this category), but their moves were invariably backed up by the analysis (numbers) justifying their moves. For the rest of us, as Robert McNamara said:

“Get the data.”

While I am muddling along focusing on equating science, facts and numbers, I probably should pay at least some heed to the power of opinion. While the truth may be out there, it will be people’s opinion of it that drives its valuation. As John Maynard Keynes, a man who is credited with some of the very foundations of economic theory (think of the source of Keynesian Theory) said:

“A study of the history of opinion is a necessary preliminary to the emancipation of the mind.”

Okay, enough quotation roulette. I hope you get my point, whatever it was.

Now back to the topic; in the business world, the proper statistics, when properly presented and interpreted are invariably a good indicator of business performance. That is correct. Statistics, which are the indicators associated with past performance, are usually good indicators of future performance. I understand that Mark Twain, Benjamin Disraeli and whoever actually created one of my favorite quotes regarding statistics are all probably collectively grumbling, wherever they are, but this is the case.

This brings us to probably the most common and clichéd quote in this dialog:

“Past Performance is Not Necessarily Indicative of Future Results”

We have all probably seen it or read it on just about any investment prospectus ever written. Why is it there? To make sure that we all know that just because an investment that has done well in the past does not mean that it will continue to perform, or do as well in the future. Investment firms don’t want anyone to cry “foul” if they have not interpreted the statistics properly or if a statistical performance anomaly occurs in the market. So with this in mind I now ask the following question:

When we have the choice of making an investment, or are reviewing the continuation of an existing investment, which investment alternatives do we choose: those that have done well in the past, or those that have done poorly in the past?

All things being equal, and pursuing an intelligent risk diversification portfolio, understanding long term investment return and interest rates, blah, blah, blah…..we almost always pick the one that has done well in the past expecting (hoping) that all things being equal it will continue to exhibit the same performance traits going forward. We very rarely select the one that has been performing relatively poorly expecting (hoping) that it is going to turn around. Why do you suppose that is?

Welcome to the world of statistics. You have taken the data points associated with performance in the past, extrapolated the line or curve forward and made a choice and prediction about the future. Statistically speaking that is probably the correct choice. But this isn’t a discussion about investments. It is a discussion about business. And the same exact concepts apply.

Herein lies a rub. Statistics can only be misleading if you don’t understand the underlying numbers. Hence my predilection and continued haranguing regarding the necessity of leaders being numerically literate. Remember there is another quote that may also be incorrectly attributed to Mark Twain:

“Figures don’t lie, but liars do figure.”

The author of this quote also appears to be shrouded in the past as well, but like all the other good quotes of the period, it was attributed to Twain.

Let’s look at a simple statistical example to make my point. Let’s say that in the next measurement period (it doesn’t matter how long the period is) that a business sells one more product unit than it did the previous measurement period. This is good right?

Basically the answer is “yes” selling more, any more is usually always good, but how good? If it is your first measurement period in business, it’s hard to say how good without more data (statistics). If you only sold one unit the last period, and then you sell two units this period, that is sales growth, but it is still difficult to evaluate without more data. If you sold a thousand units last period, then one more this period might not be statistically important.

On the other hand all of those responses could be changed depending on the cost and value of the product being sold. If you are selling nuclear power plants as opposed to canned hams, a single unit growth in sales could be seen as spectacular, whereas the sale of a single additional canned ham might not be a cause for much celebration.

Statistically speaking selling one more than nothing is infinite sales growth but it is still only one unit. Selling one more than one is one hundred percent growth, but it is still only two units. Selling one more than one thousand is only one tenth of a percent growth. All represent the same one unit growth, but can be represented significantly differently in the statistical growth example. The wary leader needs to always be aware of how statistics are being used and the story that is trying to be portrayed.

Again, when using data and statistics unless a business can specifically quantify what changes it is going to make and how those changes are going to be translated into performance, like your investment decisions discussed earlier, you would expect the business to perform very much in the future as it is doing today. It is through this process that the market valuates companies, and it is through this process that companies provide their future forecasts of performance.

Leaders always need to be aware that statistics are extensions of the data. They are the way that the data is being presented and interpreted. The data is the fact. It is the consistency of the statistic, the interpretation of the data that is the key. Understanding the underlying numbers, and the analysis and statistics associated with them is required and essential for the successful leadership of the business. To not be able to do so is to be at the mercy of those that do.

Because as Mark Twain also (and finally) said (and this one is actually directly attributed to him):

“Facts are stubborn things, but statistics are pliable.”

You Don’t Know

Over time I have learned that I don’t know everything. I am going to pause for a minute here for several reasons. The first is for effect. The second is so that I can let the hysterical laughing and rampant applause in general die down. The third is so that I can go and pick my wife up off the floor. I believe that she was so convinced that I did in fact know everything that my admission that I didn’t has created such a shock to her system that she fainted. That must be it. I am sure of it. It is one of those things that I do know. Doesn’t every wife believe in the infallibility of their husband?

At least that is the interpretation of her response that I am choosing to believe.

The next thing you know I will be asking for directions when I am lost, or reading the instructions on how to put something together before I actually start to do it.

Nah…..

Now remember I said I didn’t know everything. I didn’t say that I didn’t know anything. (My wife is now looking at me out of the corner of her eyes again. This time I am not sure how to interpret her behavior.) I would like to hope that after all the experience that I have gotten (Randy Pausch, the author of “The Last Lecture” said “Experience is what you get when you don’t get what you wanted”, and there are so many things that I have wanted and not gotten that I could conceivably be considered one of the most experienced people around) and all the book learning that I have done in college and elsewhere, has enabled me to know a few things.

One of the things that I do know is that there is more information out there about every business topic, business issue and business opportunity than can ever taken into consideration when a decision is to be made an action taken. I didn’t let this fact stop me. I openly suggest that you don’t let it even slow you down. I do think that you need to be aware of it, and prepare for that rarest of rare days when one of your assumptions, decisions or actions turn out to be the wrong one. There is also one other thing that you need to be aware of when making decisions or taking actions in business.

Everyone is fighting a battle that you don’t know about.

I saw this line on a LinkedIn splash page of all places. Like so many other seemingly non-business related comments or topics, this got me to thinking about business, sales and how to lead.

I have stated in the past that business is all about the person to person interactions between people. All too often we have our decision made and our actions decided. All that is left is to align everyone else with our obviously well thought out and logical approach to things. It should be easy. We are already on to the next topic in our minds. Only the people who should see the obvious wisdom of our leadership, don’t seem to be catching on as quickly as we would like or expect. They seem to have their own views as to what should be done.

It’s hard to have a broad view of things in business when you don’t have a broad responsibility. You have to think in terms that are larger than the topics and areas that you can affect. Not everyone does this. That is an understatement. Very few people seem to do this. You have to understand something about the battles that other people are fighting. You have to do this while understanding and fighting the battles that are your own. It takes extra effort.

You have to understand the issues that external competitors are visiting upon sales opportunities as well as the unknown / political issues that the customers themselves are bringing to bear when arguing pricing or deal desirability with the sales team. Having been there, it should be understandable why so many sales teams seem to get more frustrated with their own companies than their competitors, when they focus solely on one internal metric instead of the broader customer requirement.

Conversely, the same can be said about the sales team that only looks at the sales volume and does not take the time to understand the company’s cash flow or profitability issues when they bring a customer opportunity to the table. Orders are always good, but it is the answers to the questions such as if and when the company will get paid that will keep the company in business. It may be hard to understand or even believe, but there is actually some business out there that is not worth having. The key is to be able to identify and differentiate it from the other more desirable types of business.

The point that I am so clumsily trying to make here is that we all are going to encounter resistance in the normal course of the execution of our business responsibilities. How we deal with that resistance will have a great deal of impact on how we are to be perceived as leaders. We all have a tendency to only examine issues from our own specific perspective or point of view. The leader will try to understand the larger issues, even if they are not responsible for them. The leader will try to understand what the unknown battle is that the other person is fighting.

The question that then arises is how does the leader know what they don’t know?

Despite the very Zen sound of this question, it is somewhat the basis of leadership. It is not enough to know that someone is providing resistance to a desired course of action. It is more so knowing why they are providing resistance and how to resolve, reduce or avoid it altogether.

Fortunately, there are few people who are so contrary in nature as to oppose our every idea solely on the basis of who made it. Those that do behave this way are normally referred to as “spouses”, and again fortunately, most of us do not work in business with our spouses.

What that means is that in general, there will probably be either a known or unknown battle that people are fighting that will be a cause for any perceived resistance to your plans and activities. Understanding what the external pressures and unknown battles are will enable the business leader to position their requirements in such a way as to avoid the conflicts associated with these unknown battles.

It’s not enough for the leader to say what they don’t know. They have to understand why they don’t know. Continue reading You Don’t Know

Disbelief


I think it is a pretty obvious fact that our preconceptions give rise to “blind spots” in the way we look at and manage our businesses. If we believe that we are looking for one type of solution to a problem, it makes it more difficult for us to recognize new or different potential solutions to the same problem. Since we already “know” what the solution is going to be, we have a tendency to discount or disbelieve any facts that may be contrary to our chosen direction and solution.



Our disbelief in our fallibility slows us down. It allows us to cling to outdated or outmoded programs and projects long after their usefulness is gone. It causes us to ignore facts and input that need to be recognized and acted upon quickly. Since we already know what we are looking for and where to find it, we won’t look elsewhere, because the answer can’t be there.




The things we don’t believe are as important to the way we work and run our businesses as the things we do believe in.




I don’t want confuse skepticism with disbelief. A skeptic wants the data verified and looks for corroborating evidence and information before accepting a change to a situation. A disbeliever refuses to accept that the data indicates that a change or shift has occurred that requires a modification to an existing practice. I think a healthy dose of skepticism is a requirement for a good manager. An unwillingness to believe the facts or the analysis they engender when they do not align with what we want or expect can kill a business or opportunity quickly in today’s environment.




There is a fine line between caution and disbelief. When does the data indicate a change or a trend as opposed to an anomaly? If you move too quickly you can move away from current opportunities and practices before their value is fully recognized. This can subject your team and business to what amounts to a whipsawing of changes and reduce both effectiveness and profitability. If you move too slowly you run the risk of staying with a declining situation and then having to chase after the new market imperative.
 



Believing in one solution set does not mean we must disbelieve in all other solution sets. We need to learn that accepting that other solutions may exist to the identified issue. They may not be better than the solution set that has been chosen. On the other hand, then may in fact be better. The idea is not to reject them out of hand.




The business case for every solution needs to be continuously reviewed to make sure that it remains the best solution as time passes and new information is gathered. The data is always the data. It is what you do with the data that demonstrates business acuity. If the data indicates that a change is needed, skepticism and caution may be called for, but disbelief in that data can put the business in jeopardy.



Remember, it was not too long ago that the earth was believed to be the center of the universe. At one time the earth was also believed to be flat. New information and new technologies have continued to change our beliefs. It has also changed what we disbelieve.

Robert McNamara Was Right


Robert McNamara was a former president of Ford motor company, A Secretary of Defense under presidents Kennedy and Johnson, and was generally known as one of the first “whiz kids”.  He was involved in returning Ford to profitability in the 1950’s and such global events as the Vietnam War, the Cuban missile crisis and the USS Pueblo controversy.Through out those events he maintained a directive that stood him and the country in good stead. He always said to get the information first, and then check it again.

 

We have all looked at a report, spreadsheet, balance sheet or P&L and after glancing at it said that everything looked in order. With the shear number of documents and emails that we have to look at in one day, we find ourselves falling more and more into this habit. We get to feeling that if things look right, then they must be right, right?

 

To be truthful, in many instances the simple answer is usually the correct one. Your instincts and a scanning of the documents will do. Things will be as they seem.

 

However there will always be the exception to the rule. You can not allow a bad habit to lead to a bad result. You will need to get into the good habit of double checking and triangulating your information. You need to understand where the information you are working on has come from. There are very few events that call for such an immediate response that you cannot re-look at the data before acting.

 

A good manager will look at the information and if it looks right, they will take action. A business leader will look at the information and if it looks right, will look at it again to make sure that it is right, before taking an action. That’s how you make sure you are acting on a studied decision instead of reacting to an external stimulus. Sometimes it might appear right, but sometimes appearances can be deceiving. Checking the data again seemed to work well for Robert McNamara.