There are days I curse Disraeli.
Benjamin Disraeli, one of Great Britain’s most distinguished prime ministers, uttered the over-quoted “lies, damned lies and statistics” more than a century ago. It’s been used as an excuse to ignore statistical evidence ever since.
I guess it’s time for dueling quotations, so here’s another: “A witty saying proves nothing” (Voltaire).
The ability to see the world in statistical terms is part of every good manager’s mental toolkit. To understand why, start with the strange case of Judge Roy Pearson. Pearson, a Washington, DC administrative law judge, sued Custom Cleaners two years ago for losing a pair of his pants. For more than $65 million in damages.
To be fair, Custom Cleaners did post signs saying, “Same Day Service” and “Satisfaction Guaranteed.”
Judge Pearson doesn’t, it appears, understand statistical concepts — like, for example, service levels. You’ll recall that these are two part measures, describing a service standard and how often a service provider meets that standard.
If Judge Pearson thought in statistical terms, he would recognize that every time a dry cleaner handles a garment it represents a statistical sample. The probability of it being properly handled is a number between 0 and 1. Were a dry cleaner to run its operations as IT does, it would define the percentage of garments per day it must handle properly — maybe 99.9%. It would next define how many days a year it must meet or exceed that standard — maybe all but two (99.5%).
The dry cleaner would then post that service level as its commitment to its customers. Assuming enough IT professionals frequented the shop to keep it in business (or that customers like Judge Pearson understood statistical concepts), everything would be great.
In business, no matter what you do, the only accurate description of your results is, in some way or another, statistical. If you manufacture, each item varies a bit from every other item. The important question is how often they vary beyond acceptable limits.
If you manage customer service, you’ll never make every customer happy, or even satisfy them. You can’t. Your influence over customer states of mind is less than your influence over manufacturing tolerances, so once again outcomes are statistical events.
The challenge when you don’t think statistically is the risk that you’ll invest in goals that are no more achievable than perpetual motion machines, and complain when others don’t achieve them.
Think you’re the exception? If you’re a baseball fan, have you never griped when a high-dollar batter failed to make a clutch hit? Statistically speaking, even the best hitters will fail in the clutch two out of three at bats.
But thinking statistically is a mixed blessing: It can turn into complacency in no time flat. After all, if perfection is unattainable, what are a few errors here and there after all? Nothing to worry about — they’re inevitable.
The statistical nature of things doesn’t have to make you a helpless spectator, trapped in the randomness of things. What it does is provide a more useful framework for making decisions than thinking perfection is possible.
The statistical nature of things is why business decisions must be framed in terms of the law of diminishing returns rather than the desire for invariant outcomes. It’s the law that tells you each additional increment of improvement will be more expensive than the last one. It’s a statistical thing: You can only predict events in terms of probabilities, not certainties. The closer you are to perfection, the more variable are the errors that remain.
So if you currently backorder 20% of all customer purchases and want to improve that to 15% (a 25% improvement), it will cost you less than if you want to improve from 15% to 10% (a 33% improvement).
Looked at through the other end of the telescope, if improving from 20% to 15% costs a million dollars in additional inventory, the next million dollars of inventory will only improve backorders from 15% to 11.25%. And if you keep on spending until you only backorder 1% of the time, the next million dollars of investment in inventory will only reduce your backorder rate to 0.75% — a barely perceptible nudge.
Does all this mean a business can’t post “Satisfaction Guaranteed” and “Same Day Service” signs without prevaricating? If the law fails to take statistics into account it could happen. We’ll all have to replace simple declarative sentences with elaborate contractual phrasing filled with weasel words, and the world will be the worse for it.