Innovative Express
"Improving effectiveness by making the complex simple and making the simple work!"
August 2007
In this issue:
I hope this newsletter finds you well.
I am excited to announce that I have been invited to facilitate a two-day workshop in Kuala Lumpur, Malaysia in September. The title is Corporate Strategy Management: How to Formulate Strategies in a Competitive Environment. It will cover several key topics and case studies, including competitive intelligence, creating an early warning system, competing on price and differentiating yourself, meeting and exceeding customers' needs, and developing brand leadership.
This month's newsletter may surprise some and bore the others. (I hope that's not completely true!) It's about a major sports event that happened earlier this month, but as you will see that I have taken a different view of it. So I encourage you to read on as it has very little to do with sports per se and an important lesson to teach about analysis and problem solving. The newsletter "Judging by the Numbers" is about really looking at the numbers and not being fooled by the easiest and the most misleading statistic. I have found this to be repeatedly true in my consulting work and want to share the secret with you.
Inspired to agree, disagree, or otherwise comment? Have an interesting or humorous story to share? I hope that you will let me know your thoughts.
Abhay Padgaonkar
President, Innovative Solutions Consulting, LLC
Quick Update
An expanded version of last month's newsletter about the pros and cons of PowerPoint appeared as an article in two prestigious online magazines.
It appeared in the Presentations magazine under the title "PowerPoint: Boon or Bane?" It also appeared in Marketing Profs as "PowerPoint, Warts and All: Relearning to Communicate."
Ironically enough (and more importantly?) the articles were favorably picked up by several independent bloggers too. How else did we decide that someone had "arrived" before the blogs became fashionable? Just kidding!
Averages Lie!
Whether you are a baseball fan or not, a home run is one of the most exciting plays in the world of sports. Here is a brief background for those of you who may not be sports oriented or possibly Cricket fans outside the US.
A homerun (like a Sixer in Cricket) is when the batter hits the ball over the fence in the fair territory. In the process, the batter himself scores along with all the other players who may be on the three bases. So a homerun can change the complexion of a game with one swing. Also, it is one of the mightiest of plays with the fence typically at 330-400 feet away. Slamming the baseball coming in at 85-95+ miles per hour in the opposite direction is sure to make everyone in the stadium to stand up on their feet—unless, of course, it's the player from the other team who hits the home run.
The undisputed homerun king until recently had been Hank Aaron with a career record of 755 home runs. The record had stood since 1974, the year in which Aaron hit number 715 on 8 April 1974, moving him past the 714 career homers of Babe Ruth. Barry Bonds broke that record earlier this month when he hit his 756th homerun.
The record has not been without controversy. Similar to the Tour de France, there have been rampant speculations that Barry Bonds began using steroids after the 1998 baseball season and came to rely on a wide variety of performance-enhancing drugs over the next several years. In the news conference after the record, Bonds was asked if the record was tainted. As you can imagine, Bonds has consistently and repeatedly denied using performance-enhancing drugs.
Although numbers alone can never tell the whole story (and we may never know the whole truth), the task before us today is two-fold:
- To determine whether Aaron was more or less consistent than Bonds. This may shed some light on extracurricular activities, if any, that Bonds may have engaged in.
- To determine if Bonds was a stronger slugger than Aaron.
Ready?
The source for the stats for both has been major league baseball's official website: www.mlb.com. I will not replicate all the data tables here except to say that I chose to include results for Bonds through the 2006 season. (The 2007 season is still incomplete and Bonds has hit 27 homeruns so far.)
Bonds averaged 35 homeruns and Aaron averaged 33 homeruns per season. If the picture is worth a thousand words, below is a graph of both their homeruns by season.
Mr. Consistent
How do we decide who was more consistent? Just by looking at the chart, we can see that Aaron appears much more consistent than Bonds. But how do we know this mathematically? In statistics, the Standard Deviation, denoted with the letter sigma, (yes the same as in six sigma) is the measure of volatility or how spread out the values are around the average
A high standard deviation shows that the data is widely spread (less reliable) and a low standard deviation shows that the data are clustered closely around the mean (more reliable). Higher the standard deviation, higher the spread or volatility. The lower the standard deviation, tighter the distribution around the average. For Bonds, the standard deviation (calculated using STDEVP function in Excel) is 14, whereas for Aaron it is only 11
Standard deviation by itself is difficult to interpret. So another way to express the standard deviation is called Coefficient of Variation. The coefficient of variation represents the ratio of the standard deviation to the mean. In the case of Bonds it is 14/35 *100 = 40% and Aaron it is 11/33* 100 = 33%.
So based on these measures, we can say that Aaron was Mr. Consistent. Whether Bonds's lower consistency was caused by performance-enhancing drugs or not, we can't tell for sure.
Increasing Average
Here are the charts of Bonds and Aaron's running averages.
Aaron reached an average of 34 homeruns per year in his 10th season and more or less stayed at that same level till he retired. There is a different story for Bonds, however. He seemed to reach a plateau of about 30-31 mid-career, but his home run running average continued to climb (curiously enough starting with 1998) reaching as high as 37 in his 19th season. Continuing to increase the overall average this late in one's career is rather difficult to do because you have to be way above the average up to that point to make a big enough dent. This is clearly difficult as one gets older.
This “late bloomer” observation may lend credence to the speculation that not everything was on the up and up with Bonds.
Mr. Strongman
Standard deviation can also be used to help decide whether the difference between two means (or averages) is likely to be significant.
Hypothesis: A simple average (35 for Bonds vs. 33 for Aaron) indicates that Bonds is stronger than Aaron.
Let's investigate this hypothesis further:
- The difference in the mean HRs is 2.
- The standard deviation for both players (14 HRs for Bonds and 11 HRs for Aaron) is LARGER than the difference in the average HRs between the two players.
- Therefore, the hypothesis that Bonds is stronger than Aaron is not supported.
Even though the difference between the means of the two players is 2 HRs, the difference is not significant enough to support the hypothesis. In other words, the difference between two means (35 vs. 33) is likely to be NOT significant.
So what's the business implication of all this? Benjamin Disraeli once said, "There are three kinds of lies: lies, damned lies, and statistics." One of the reasons for that is that averages lie. Whether it was a project related to employee retention, hotel commissions, or leadership teams, making decisions based on the "average" can be highly misleading. When large number of data points are available, I have used more sophisticated techniques such as CHAID to identify different clusters or segments. For example, I have found clusters that were 2-3 times higher than the average and some that were considerably lower than the average. When you rely on the average too much, you can make the mistake of assuming that one size fits all. It rarely does!
Bottom Line: Averages lie! Dig deeper to find segments that may be considerably above or below average to gain better insights.
Personally Speaking...
We joke in Arizona that it's a dry heat, but the summers here are very hot with temperatures of 115 degrees Fahrenheit (or 46 degrees Celsius) not very uncommon.
However, when my July electricity bill shot through the roof by 37% compared to the previous month, I was shocked. (Okay, no pun intended!) Then I remembered that I had changed the rate plans and figured that was probably the culprit.
But just to be sure I called the electric company. I found out that not only the rate plan change that I had requested had gone into effect, but a modest rate increase had gone into effect as well.
Naturally, I asked how much the modest rate increase was. The answer: an average of 6.8%. Well, I wasn't going to fall for the "average" increase. Further questions revealed that the on-peak rate in the new plan had gone from $0.15 per KWh to $0.21 per kWh—an increase of 40%. All the other rates had increased too but not by such a huge amount. I promptly switched back to the old rate plan I always had, and I am anxiously waiting to see what my bill is going to be this month.
Bottom Line: Remember, every time Bill Gates walks into a room, everyone becomes a millionaire—on average, of course! Darn! Things just aren't evenly distributed in life for the average to be meaningful.
Disclaimer: "This written advice is absolutely intended to be used, and if used under expert supervision is known to improve organizational and individual effectiveness substantially."
© Abhay Padgaonkar 2007. All Rights Reserved.