STATISTICAL THINKING FOR SUCCESSFUL MANAGERS


By
Dr. Sharad Saxena
Sr. Lecturer (Quantitative Management)
Institute of Management
Nirma University of Science & Technology
Sarkhej-Gandhinagar Highway, Post: Chandlodia
Ahmedabad - 382 481 Gujarat
Phone : 91-2717-241900/01/02/03/04 Ext.641, Fax : 91-2717-241916
Mobile : 91-98983 72722, eFax : 14322047262
E-mail :
sharad_stat@yahoo.com
 


A century ago H. G. Wells commented, "Statistical thinking will one day be as necessary for efficient citizenship as the ability to read and write." Last two decades have witnessed the major advances in information technology along with the influence of global competition, and hence there has occurred a re-emergence of interest in the quality of products manufactured and services delivered. An integral part of this excellence is the application of certain statistical methods and the use of a statistical thinking approach on the part of managers throughout a company. Statistical thinking and methods is the key to unleashing the power of information available in the form of data. Global competition has grown even more pervasive through the Internet, requiring businesses to improve speedily and continuously. Statistical thinking thus can be applied to both business operations and methods of management. Clearly, the need to utilize the statistical thinking for tangible business improvements is greater now than ever before. 

New demands to enrich business processes have created the need for new management approaches, and a wide range of approaches on how to change have been proposed. Reengineering, Total Quality Management (TQM), Learning Organizations, Self-managed Work Teams, Benchmarking and Six-sigma are some of these approaches that widely use statistical methods.

For instance, an integral part of the TQM approach is the application of certain statistical methods and tools. Statistical thinking, in the context of TQM, can be defined as a thought process that focus on ways to manage and thereby reduce variation. It includes the recognition that data are inherently variable and that the identification, measurement, control, and reduction of variation provide opportunities for quality improvement. Statistical methods can provide the medium for taking advantage of these opportunities.

Each of these approaches is valuable, and the best facets of each can be integrated with the management approach an organization is currently using. The result of this is a new management approach that helps the organization better serve the needs of its customers and complete effectively in the marketplace. Roger Hoerl and Ronald Snee have discussed in their book "Statistical Thinking: Improving Business Performance," three common themes run through these management approaches:

  • Viewing work as a process,
  • Using data to guide decisions, and
  • Responding wisely to variation.

These three items are part of the body of knowledge known as statistical thinking. This body of knowledge and its associated skills are essential for the successful management and improvement of any business. Statistical thinking is a philosophy of learning and action based on the following fundamental principles (Statistics Division of the American Society for Quality Control, 1996):

  • All work occurs in a system of interconnected processes,
  • Variation exists in all processes, and
  • Understanding and reducing variation are keys to success.

These core principles are similar to the common themes of recent management improvement efforts and they work together to create the power of statistical thinking. With knowledge of the process, a manager would be in a position to take action to improve that process.

In today's global marketplace success - often survival - hinges on an organization's ability to improve everything it does. Many businesses today find themselves "drowning" in data, yet many managers lack the ability to employ the data for competitive advantage. Every moment decisions are being made in businesses that reveal if companies are profitable and growing or if they are stagnating and dying. Most of these decisions are made with the help of information gathered on the marketplace, the economic and financial environment, the work force, the competition, and other relevant factors. Statistics is the tool through which such information that usually comes in the form of data is analyzed and interpreted. Thus, statistics plays a vital role in the unending saga of decision-making within the vibrant world of business.   

Businesses also employ statistical analysis of data to help in improving their processes. Precisely, statistical methods help to demonstrate the need for improvements, identify ways to make improvements, assess whether or not improvement activities have been successful, and estimate the benefits of improvement strategies.

Thus, the ultimate goal of statistical analysis in business is to improve the performance of business processes. For instance, we might use descriptive and inferential statistics to compare the risk and return characteristics of different investment choices in order to improve the way we manage an investment portfolio, or we might use statistical process control to improve a manufacturing or service process. Similarly, we might use regression analysis to predict demand for a product in order to improve the way we manage inventories, or we might use design of experiments to study the effects of several different advertising campaigns in order to improve how a product is marketed. In each case, we are improving the performance of a business process by taking informed action on the basis of statistical analysis. This theme provides the philosophical reason for conducting statistical studies in business.

What should a manager know about statistics? Today successful managers in both the public and private sectors must have a working knowledge of statistics not as a general tool of data analysis but as a specific method for addressing issues and questions in their daily business environment.  His knowledge should include a broad overview of the basic concepts of statistics, with some details. He should be aware that the world is random and uncertain in many aspects. He should be able to effectively perform two important activities:

  • Understand and use the results of statistical analysis as background information in his work, and
  • Play the appropriate leadership role during the course of a statistical study if he is responsible for the actual data collection and/or analysis.

To fulfill these roles, a little experience with actual statistical analysis is essential to obtain the perspective that leads to effective interpretation. This type of experience will also help him to lead others to sensible outcomes and to understand what they are going through.

In practice today, many managers have the unfortunate, although understandable, tendency to categorize statistics according to certain predetermined applications. However, statistics should not be thought of in terms of a set of specific applications but rather as a general aid to the managerial decision making process. A manager should first consider the concept of managerial problem solving and then bear in mind how statistics can be employed as part of this process. Many advances in today's technological tools and equipment can be attributed, in varying degrees, to the use of the statistical method in attacking business problems. This same methodology can, and should, be used in approaching many managerial problems. The statistical method to a large extent minimizes the "gut feel" approach to solving problems and instead concentrates on using information to help make decisions.

To carry a statistical analysis of a business problem, a manager usually come across four basic activities of statistics. At the juncture of starting a statistical study, either there are not yet any data or else it has not yet been decided what data to look closely at. The 'design phase' will put an end to these issues so that useful data will upshot.  Once data are available, an initial inspection is called for, provided by the 'exploratory phase'. A numerical summary of an unknown quantity, based on data, is the result of the 'estimation process'. The last of these basic activities is 'hypothesis testing' that uses the data to decide what the world is really like in some respect.

A manager should keep in mind that statistical results should be explainable in a straightforward way, even though their theory may be much more complicated. Andrew F. Siegel gave some general words of advice:

  • Trust your judgment; common sense counts,
  • Maintain a healthy skepticism, and
  • Don't be snowed by a seemingly ingenious statistical analysis; it may well rely on unrealistic and inappropriate assumptions.

Statistical thinking can be used in all parts of an organization and in all job functions. A manager makes "better" decisions when he utilizes all available information in an effective and meaningful way. The primary role of statistics is to provide decision makers with methods for obtaining and analyzing information to help make these "better" decisions. It is therefore said that statistics is the art and science of collecting and understanding data. Statistical techniques should be viewed as an important part of the business decision process, allowing informed strategic decisions to be made that combine intuition and expertise with a thorough understanding of the facts available. Use of statistics is becoming increasingly important in maintaining a competitive edge for success today!
 


Dr. Sharad Saxena
Sr. Lecturer (Quantitative Management)
Institute of Management
Nirma University of Science & Technology
Sarkhej-Gandhinagar Highway, Post: Chandlodia
Ahmedabad - 382 481 Gujarat
Phone : 91-2717-241900/01/02/03/04 Ext.641, Fax : 91-2717-241916
Mobile : 91-98983 72722, eFax : 14322047262
E-mail :
sharad_stat@yahoo.com
 

Source : E-mail August 17, 2004

 

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