Feb 23, 2022 | Analytics, Governance
The old adage that you can find data to support any proposition, almost no matter how wild, has never been as prevalent as it is today.
We have the sight of politicians on the one hand telling us the science is wrong as it reflects the looming catastrophe of climate change, while at the same time lauding science in the way the world has responded to the covid pandemic with new vaccines in record time.
The contradiction is extreme, however, there is always data to ‘prove’ whatever point is required.
Following are some of the common ways data is manipulated to mislead, misinform, and bamboozle the unwary.
- Confusing correlation with causation. This is very common, and I have written about it on several occasions. Just because the graphs of ice cream sales and shark attacks mirror each other, does not mean one caused the other.
- The Cobra effect. This refers to the unintentional negative consequences that arise from an incentive designed to deliver a benefit. The name comes from an effort by the British Raj to reduce the number of cobras, and associated deaths that occurred in Delhi, by offering a bounty on each dead cobra. Entrepreneurial Indians started to breed them for the bounty. The identical situation applied when the French wanted to reduce the rat population of the French Indochina. They stuck a bounty on rats’ tails, which resulted in enterprising Vietnamese catching the rats for their tails and then releasing them to breed further.
- Cherry Picking. Finding results, no matter how obscure, that support your position, and excluding any data that might point out the error. This is the favourite political ploy, having a great run currently.
- Sampling bias. Relying on data that is drawn from an unrepresentative sample from which to draw conclusions. It is often challenging to select a sample that delivers reliable conclusions, and often much too easy to select one which delivers a predetermined outcome. Again, a favoured political strategy.
- Misunderstanding probability. Often called the gamblers fallacy, this leads you to conclude that after a run of five heads in a two-up game, the next throw must be tails. Each throw is a discreet 50/50 probability, no matter what the previous throws have been. Poker machine venues rely on the players increasing belief that the ‘next one’ will be the ‘jackpot’ after a run a ‘bad ones’ for their profits.
- The Hawthorne effect. The name comes from a series of experiments in the 1920’s in the Hawthorne Works factory in the US producing electrical relays. Lighting levels were altered minimally to observe the impact on worker productivity, and concluded that they improved when lighting was increased, but later dropped. The effect of the lighting was later disproved, when psychologists recognised that people’s behaviour changes when they are, or believe they are, being observed. This can be a nasty trap for the inexperienced researcher conducting qualitative research.
- Gerrymandering. Normally this refers to the alteration of geographic boundaries, usually in the context of electoral boundaries. It can equally be used to describe the boundaries set around which source data can be included in any sample. ‘Fitting’ the data to deliver the desired outcome. The term originated from the manipulation of electoral boundaries in Boston in 1812 when the then Governor Elbridge Gerry signed a bill that created a highly partisan district in Boston that resembled the mythical salamander. The national party held government in QLD for 32 years until 1989 as a result of a massive gerrymander in their favour, perhaps better remembered as a ‘Bjelkemander’
- Publication bias. Interesting or somehow sensational research is more likely to be published and shared than more mundane studies. In this day of social media, this becomes compounded by the ‘echo chamber’ of social platforms.
- Simpson’s paradox. This describes the situation where a trend evident in several data sets is eliminated or reversed when the data is combined. An example might be the current debate about university admissions favouring males over females. If you take subsets of the data for different faculties, this may be true, but combine the faculties, and the numbers will be virtually even, perhaps even favouring females. This was demonstrated in a study of admissions to UC Berkely in 1973 and is a regular feature of misleading political commentary.
- McNamara Fallacy. This comes about when reliance is placed on data only in extraordinarily complex situations, ignoring the ‘big picture’, and assuming rationality will prevail. The name comes from reference to Robert McNamara, US Secretary of Defence under Presidents Kennedy and Johnson who used data to unintentionally lead the US into the disaster that was Vietnam, later acknowledging his mistake.
Using data to is an essential ingredient in making your case, as they convey rationality and truth. When listening to a case being made to you, be very careful as numbers have the uncanny ability to lie. To protect yourself, ask at least some of these eleven questions.
Header illustration credit: Smithsonian. The drawing is of the electoral district created by Massachusetts Governor Elbridge Gerry in 1812 to ‘steal’ an election.
Feb 21, 2022 | Governance, Management
Not all accountants are created equal, and not all do the same job.
All businesses have two types of information required, for which they need three types of accounting functionality.
There is the regulatory and compliance accounting, which can be a simple as the quarterly GST return for a small enterprise, to hugely complex set of statutory accounts for a public company, particularly when it operates in several jurisdictions.
Then there is the management accounting, the numbers used to manage the business on a daily, monthly, and annual basis. These are entirely different tasks, although use common data sources, the ledgers that record activity, and various devices and processes to collect the data for recording.
After making that distinction between compliance and management accounting, assembly of the range of skills necessary to deliver the outcomes is often overlooked.
Data assembly.
You need people to assemble and reconcile the data. These can be less qualified and experienced people, and the processes of collection and initial recording are increasingly being automated. Nevertheless, the processes that track and capture the numbers are vitally important to be proactively created, maintained, and improved. The rigor of the collection and ‘cleaning’ of data will determine the confidence that later processes can have in their numbers.
Accounting compliance.
Failure to follow the rules can result in legally enforceable penalties. Therefore, compliance is of critical importance for external stakeholders, but is largely irrelevant to the management of the business, for which an entirely different suite of skills is needed.
Analysis and presentation.
This is where accounting meets marketing. Either of the two by themselves will tell only a small part of the story. List the numbers and people will ignore them, or be asleep, no matter how important the words. Just use story and metaphor without the foundation of numbers, and you will be dismissed as a typical marketing person, fluffy and unreliable. It is a case of one plus one equals three. If you do not get this combination right, there will be suboptimal outcomes as the wrong decisions will be taken, opportunities missed, and resources misallocated. This third skill requires both the numeracy of the accountant, and future telling ability of the seer. An unusual and often derided individual.
In my case, my friends who are accountants run for the hills when I remind them, that I am in fact, one of them. Meanwhile, many marketers, particularly those under forty, think I am some sort of marketing troglodyte because I do not believe everything in marketing begins and ends with a digital solution.
As Peter Drucker pointed out all those years ago, “the purpose of a business is to create a customer“. The reason you do that is obvious: to generate revenue, from which you make a profit assuming the business is well managed.
Understanding and leveraging the means by which all the marketing jargon is converted into cash, is the core of a successful marketing function in any business. There are thousands of things every business can do without, and still function, the one thing no business on earth can function without is cash.
Therefore, marketing is about cash generation, short, medium, and long term, future tense. Accounting is about counting how much cash there is, where it came from, and where it went, past tense.
One without the other is suboptimal. When you find both in one person, do not let them go.
Feb 16, 2022 | Management, Small business
Do you ever struggle to do something you know how to do, and should be easy, at least that is the way it seems, but never get past the first hurdle.
I do. Disturbingly often.
For some years I have toyed with writing a book, becoming one of those liberated by the web to publish and perhaps generate a return from what I know, the experience I have gathered in a long commercial life.
There are several started lying around, rough drafts, notes, chapter outlines, all the stuff I know I have to do to complete something that may be of value.
I have written 2 or three blog posts every week for many years. I collect lots of ideas, stories, and metaphors from clients, reading, and just rubbing my belly thinking about stuff.
How hard could it be to pull all that together in a book?
Very hard it seems, even when pushed by some of those who know me well.
If I was my own consultant, there would be some tough love and bum-kicking going on.
Like any project, there are a small number of key questions to be asked, and answered which provides a framework for the task, then some logical steps to be taken.
Key questions:
- Who is it for? The core marketing question, who is it that you want to reach and influence to do what? In the absence of a clear answer, the result will be, at best, muddled. Luckily, I know exactly who I should be writing for.
- Why should they care? If you expect people to spend money to buy the thing, then invest the time to read it, there had better be a good reason that they should, and that needs to be convincingly communicated. Again, 25 years of contracting and consulting have given me a pretty good idea of the sort of knowledge and experience I can deliver that will increase the commercial sustainability of the SME manufacturers who are my ‘sweet spot’.
Logical steps:
- Nail the title, and subtitle. The title is in effect the headline for the book ad. It needs to convey in a few words the objective and drama of the book, provide a ‘hook’ for the intended reader. For the writer, it is the equivalent of the strategic purpose, the question to be asked continuously through the whole book ‘is this taking is closer to the objective?”
- Write the back cover. This should be the distilled sales pitch to those you want to reach. Often you will see this as an introduction, which to my mind is wasting the reader’s attention when it is the most curious, right at the beginning. Explain the value to be gained from reading the book, and how will they use this new knowledge? Ideally, this can be written by a third party, someone with real street cred, so it sounds less like self-promotion. I do not really know many people in the category. The one who would have been ideal, my original and great mentor Harvard professor James Hagler, has been sadly gone for some years.
- Write the Chapter list. This is the skeleton of the book, the bones from which everything hangs. A few sentences that specifically articulate what knowledge will be imparted in each chapter acts as an anchor around which the words and stores can be built. This requires creative thought, as most people will read the chapter list before buying the book, so the more interesting, differentiated, and engaging the better.
- Write the draft, of at least 1 or 2 chapters, They will be awful, discouraging, but out if it will come the ‘voice’ that you want to use for your audience, and the structure of the chapters. One person I know wrote their whole book as draft, it worked for him, but the added work after the draft completion to redraft the whole thing when he recognised it was rubbish was almost the end.
- Edit, edit and re-edit. Then get someone else outside to have a shot. Better if the outsider is on side from the beginning and giving the bad news progressively so you can improve as you go, rather than all at once when the draft you have is in your mind, complete. It is hard to kill off those parts into which you have poured your sweat after the words have dried too hard on the page, and in your mind.
- Marketing. Then there is the marketing and operational stuff of necessary to get it out there. Worrying about that too soon is just distracting, plenty of time at the end, and plenty of advice and options around on the best way forward. However, if you are writing the book to make money from the sales, it is entirely different to the situation where you are writing it for credibility, leading to consulting assignments, and perhaps speaking gigs. These two objectives for the book require entirely different marketing strategies.
- Do it, now. Stop thinking about it, and take action. Now.
Note to self: Read the blog, and take action as advised!
Feb 14, 2022 | Change, Leadership
When you do something over and over, you get better at it, the actions become automatic.
Remember the first time you drove to that new job? You looked up the route, probably put the address into the GPS (if you are under 30) and concentrated all the way, ensuring you were in the right lane to turn, and did not arrive at that annoying one way street the wrong way. After a short time, the drive became almost automatic, and you were sufficiently familiar with it to experiment with alternatives at divergent times to avoid bottlenecks and difficult spots.
Rather than contempt, familiarity builds competence.
Processes in a business are the same.
Do them over and over, and they tend to become automatic. This means you can spend the cognitive energy thinking about other things. It is the way we evolved, to preserve cognitive energy to be available when it was really needed, rather than being wasted on the routine.
However, the downside is that once something has become routine, carried out time after time in a relatively automatic manner, it becomes very hard to change.
Feb 9, 2022 | Innovation, Marketing
There is a reallocation of capital from advertising to R&D evolving. Elon Musk may be the typifier. Tesla spends nothing on advertising, relying on Elon and social media, plus all the commentary he generates. Meanwhile, Tesla put $1.5 billion (in 2020) into R&D, representing triple the amount spent/car of the next biggest spenders, Ford, and Toyota.
R&D is the new differentiator, replacing the confected differentiators of the age of ‘mass marketing’
This is a sea-change, the old model was to make mediocre products, and use money to drive mass distribution, and big advertising budgets on TV to drive volumes. The amount of R&D was small, advertising budgets big.
The Korean vehicle maker Hyundai announced in December 2021, that it will close the internal combustion engines R&D group, and redirect funds to Electric development. All carmakers currently reliant on internal combustion will be thinking along the same lines, although to date they seem to have hedged their bets. They must look longingly at the market cap of Tesla, hovering over $1,000 a share, with a PE ratio in the stratosphere. Tesla is worth more than the next ten biggest carmakers in the world combined, astonishing, and unsustainable in my view. Even the second and third US pure EV plays, Rivian (101 billion), and Lucid (72 billion) start-ups who sell almost nothing, are worth more than all but the top 3 carmakers we all know of, Toyota, Volkswagen and General Motors.
This capital reallocation is happening all around us; vehicles are just a convenient metaphor for the trend across economies.
Telcos have been busy spending money on mobile infrastructure over the last 20 years. Coverage has been the competitive differentiator. What happens when technology takes over, as is happening, and you can run a 5G network via an AWS type server farm? Suddenly physical infrastructure becomes redundant, and the location of competitive advantage moves dramatically.
FMCG suppliers used to be major contributors to media profitability via TV advertising. Now, as a result of supermarket chains exercising their power over the point of sale, consumers have a vastly reduced brand choice as the margin pool shifts towards retailers. On the other side of the equation, retailers are themselves facing aggressive competition for the customers attention and orders, a trend evident before 2020, but turbocharged by covid.
I ask myself where can technology drive innovation in FMCG that cannot easily be copied, so the investment by the supplier has a chance to pay dividends?
Plant based packaged meat substitute foods may be one answer. As we learn how to edit genes to produce the enzymes that generate flavour and texture, capital and technology can be applied to intensive farming, replacing low tech and land intensive meat production. The evolution of some produce types in capital intensive glasshouses and aquaculture combinations may be the thin edge of the wedge.
The marketing differentiator in the future will be the leverage technology and intellectual capital offers to the smart marketers, not a line extension or modest evolution of current products backed by mass advertising. Put more simply, ideas, and the intellectual capital that generate them are the new competitive differentiators.
