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2014-06-12 08:35:06
Sydney Finkelstein
Average same store sales have gone up every year I ve been regional sales
manager.
We keep cutting the number of days patients have to wait for an appointment
with a doctor.
We have a laser focus on one goal: maximising market share.
These surely seem like eminently sensible, strong metrics, praiseworthy
accomplishments. Or are they? In our quest for simple solutions to complex
problems or maybe just because nuance and subtlety take too much hard work
many of the seemingly logical equations that govern management thought are just
plain wrong.
Relying on averages, for anything, is a sure-fire method to cover up little
differences that might have big meaning.
Relying on averages, for anything, is a sure-fire method to cover up little
differences that might have big meaning. An average removes the most
interesting data from the discussion.
Don t you want to know who is best, and who is worst, at something? Averages
disguise this.
Don t you want to know what accounts for outlier performance, on either end?
Averages cover this up.
In baseball, sabermetricians (as they re called) split a player s batting
average into all sorts of more fine-grained statistics that can dull the senses
of the uninitiated batting average against left-handed vs. right-handed
pitchers, strike count, men on base, and month of season, among others. This is
one place where Big Data can help by dissecting average performance into its
constituent parts that enables tactical responses.
Restaurant, hotel, and location ratings from companies like Yelp, Trip Advisor,
and Google suffer from a related problem. If you tell me that a restaurant has
an average 3.5 rating on a 4-point scale, I want to know who is doing the
rating. If raters are not much like me, then why is that average score
meaningful?
Averages also bypass potentially vital distinctions and insights with huge
public policy import. For example, it is well known that the average test
scores of American high school students are abysmal relative to the great
students in places like Hong Kong and Taiwan. But it turns out that if you look
only at students in high schools in wealthy US communities, you find they are
often performing at an even higher level than their peers in other countries,
Hong Kong and Taiwan included.
With this insight, we can begin to understand that the problem of American
schools may be less about instruction, spending, and those video-game addicted
kids that can t read, and more about poverty and family support.
Misleading goals
OK, so averages can be misleading, but surely a focus on getting absolutely
better at whatever goal you ve got is smart management.
Think again.
You don t have to go any further than the recent scandal at Veterans
Administration hospitals in the US to see what can go wrong when you create a
stretch goal in an organization that hasn t been primed for efficiency. Faced
with a target that is beyond the ability of historically weak management to
meet, what happened?
With patient wait times for medical appointments consistently longer than
promised, some managers came up with the idea of creating a second ledger that
miraculously showed a perfect record of hitting performance targets. Except
none of it was true.
The same thing has happened at schools under tremendous pressure to boost
student test scores. Unable to accomplish that goal in a conventional manner
via leadership, hard work, and innovation some teachers began altering
student exams to make it look as if they were doing better, when in fact they
weren t.
I don t think we can chalk up these appallingly unethical, and likely illegal,
incidents to just some bad apples. They re much more about bad management.
Setting a goal that can t be met by the team in place, or in a culture that
hasn t been fine-tuned for success, is a waste of time. And worse.
Culture and management ability are prerequisites for any type of challenging
goal. Even when we can check those boxes we re not out of the danger zone.
The endless quest for market share is a perfect example. The problem with
market share is that the best way to get there is by lowering price and that
doesn t always lead to bottom-line success. See Amazon is you re not sure what
I m talking about.
The other problem with market share is that there comes a point when the law of
diminishing returns starts to kick in. It s one thing to go from 10% share to
15%, but quite another to top off share once the numbers get much higher. Not
only does the cost of adding that point of share increase, but the likelihood
of picking it up goes down.
Logic warning labels
Unfortunately, many executives are afflicted with the curse of linear thinking.
The truth is that more isn t always better, and not only for the reasons just
noted.
Linear thinking also pushes people to hyper-focus on just one thing. We keep
striving for more market share, or shorter wait time for patients, but we don t
consider whether there s something else we should be doing.
Instead of pushing for that one additional point of share, maybe we should be
targeting a different customer group where the upside is much greater. Rather
than just try to mindlessly cut wait times for patients, why not consider
different ways to provide medical service to war veterans that don t require
doctor office visits? Instead of pushing incremental product improvements, what
about creating entirely new products?
Seemingly logical targets higher average sales, shorter wait times, greater
market share should come with a warning label: May become toxic when applied
incorrectly.
Sometimes the mathematics of management just doesn t add up.