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2011-04-28 16:57:08
By Michael Blastland GO FIGURE - Seeing stats in a different way
How should you react to the ups and downs of business life? Often, you
shouldn't, says Michael Blastland in this regular column.
You're a dynamic business leader. Let's say you make widgets - though you might
equally make big-budget Hollywood movies.
Your widgets, or your movies, vary. Some widgets are perfect, some a tad too
long. Some movies make mega-bucks at the box office, some bomb.
So what do you do? Well, you're dynamic, so you react, of course. Something
must be done.
If your studio boss once delivered golden geese but has since lost her Midas
touch and turned out a row of turkeys, maybe it's time she left. If a run of
widgets comes out too long, have your widget machine adjusted to make them
shorter. And because your customers expect, do it fast.
Continue reading the main story
Start Quote
It's a myth of leadership that when there's change, it requires action
End Quote
In the first case, that's roughly what happened to Sherry Lansing at Paramount
Pictures. For nearly a decade, she was a genius. Three disappointing years
later, she was out.
But her story, as told by Leonard Mlodinow in his book The Drunkard's Walk,
then took another turn. Several films commissioned by her but released after
she left turned out to be blockbusters.
Why didn't they leave her be? Because, says Mlodinow, the industry didn't
understand the part that randomness plays in success.
What happened to Lansing happens almost everywhere - the ups and downs of bad
luck, or good luck, mask - for a while - underlying quality.
But few people are confident enough to stand by their judgements about
underlying quality or character and so remain glued instead to short-term
indicators - indicators bedevilled by chance.
Sherry Lansing Sherry Lansing had a long good run, then a bad run
Mlodinow's best-selling book tells the story of the fight against our instinct
to read meaning into chance. For its ups and downs are a routine part of life.
Thus the same lesson can apply all the way from Tinseltown to widgets.
Writing about people in industry, Tony Greenfield, a statistician, says they
ignore the fact that there are ordinary ups and downs and instead look for some
deep meaning in short-term change.
He's a former head of process computing and statistics at the British Iron and
Steel Research Association, and a professor of medical computing and statistics
at Queen's University, Belfast.
"In general, I believe that they look at the world through deterministic eyes.
If anything goes wrong they look for a special cause and tackle the problem by
troubleshooting.
"The simplest example is in process control. You have a set point for the
output and then you adjust the control for every deviation without
distinguishing between common cause [intrinsic] variation and special cause
variation. The consequence is that the total variation becomes greater than it
would if the process were allowed to run uncontrolled."
In other words, you make the variability of your widgets worse by trying to fix
it. But is it really that difficult? Things go up and down. How hard can a
concept be?
We all bow to the model of the dynamic business executive. It's a myth of
leadership that when there's change, it requires action. But maybe leadership
is also about asking if change is real change, and knowing when to sit still.
Since I've never run a business, you might reasonably ask if I've the faintest
idea what I'm talking about. The answer might depend on how much business has
to learn from elementary statistics.
Contrary to statistics' reputation, one lesson it rams home time and again is
the uncertainty of numbers created by variability.
That's not to say all ups and downs are random. But it does suggest that
reading too much into the data can be as damaging as ignoring it.
Factory Adjusting the widget size might just lead to worse problems
Of course, ups and downs can have real and important causes. But even these
don't necessarily tell you about the underlying quality of a business.
A wise friend who does run a successful engineering business on the south
coast, had this to say about the real ups and downs of recession:
"2010 was a terrible year with most of our customers cutting back or totally
stopping spending, but I am so pleased we managed to get through it without any
redundancies. It was tough for everyone but they all stuck together.
"It's funny how quickly things change round, just last September I was worrying
I'd made the wrong call and we should have made redundancies at the start of
the year, and now we have the biggest order backlog the company has ever seen."
It's another victory for managing by doing nothing, he suggests.
"Unfortunately, management generally ignores variability. A great example is
the amount of time managers have to spend 'explaining' variance to budget. Woe
betide any manager who just ways 'well, sometimes things go up, and sometimes
they go down'. We have to pretend to be in control."
It's for this reason that the fashion for corporate dashboards displaying
up-to-the-minute information about company performance makes me wonder - will
bosses everywhere be staring at the numbers, twitching with every down, feeling
the pulse race with every up, on the phone demanding action with every flicker
on the dial?
The risk of playing down change is that you miss the next big thing. But since
there's an equal risk of over-reaction, does anyone know of a business
bestseller with the mantra: "Calm down?"