The Numbers Game - Industry Trend or Event

FOR MANY REASONS THAT ARE OBVIOUS AND A FEW that are less so, numbers are a businessman's best friend. They are, first of all, the measure of success: Nothing an executive does is more important than "making the numbers." They are, increasingly, a critical tool for almost every kind of analysis and planning. As our story about Best Buy shows [see page 68], sophisticated use of numbers on purchasing patterns and other forms of consumer behavior can be the foundation of a company's strategy. And numbers have a beautiful coldness about them, providing criteria for decision making that at least seems objective.

The technology revolution in business is in many ways about the triumph of numbers. Mainframes and minicomputers put the tools of quantitative analysis in the hands of executives; VisiCalc and Lotus 1-2-3 put them in the hands of every line manager with a PC. The Internet enables the collection of all kinds of new numbers; the ability to assemble and analyze enormous amounts of data about consumer behavior and every aspect of the business process is in many ways what the business side of the Net is all about.

It's easy to forget how new this all is, and how radically different it is than what came before. For most of business history, decision making was based on qualitative individual judgments that had only very crude data behind them. A retailer decided what to stock not on the basis of sophisticated models of consumer behavior, but on a buyer's gut instinct about what might be hot this year. Market research might consist of chatting with neighbors and customers. Numbers were for the accountants.

Clearly, the numbers revolution has contributed enormously to rising productivity and economic growth. But there is danger in numbers, too. They often give a false sense of certainty and objectivity and can become a cheap substitute for knowledge, experience and judgment.

Consider the booming field of market research. Numerical estimates of market size and future growth are now a staple of almost any kind of business plan. A host of firms will be happy to give a detailed projection of what the sales of, say, handheld computers will be in 2004. The number might even be carried out to the first decimal place, conveying a sense of surgical accuracy.

In fact, such forecasts are often only a cut above a wild guess, and the avowed precision is entirely spurious. But the buyer of the research does not necessarily mind, because her goal is not really to understand how many handheld computers will be sold, but rather to convince a boss or an investor that whatever the exact number, it will be big. There are "lies, damn lies and statistics," as the old saying goes. Many numbers are not what they seem.

The challenge for managers in the age of data is thus twofold: to build sophisticated data collection and analysis into every piece of the business process; and to know when to ignore the numbers and go with the gut. True vision can be understood as the courage to defy the quantitative analysis at just the right moment.

COPYRIGHT 2001 Standard Media International
COPYRIGHT 2001 Gale Group