Where Can Business Effectively Use Statistical Tools

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Many will be surprised to realize that statistics – that branch of mathematics concerned with the systematic collection, analysis, interpretation, and presentation of “real world” information – pervades the workings of the most modern business organization. It is not an exaggeration to say that statistics has been behind many great advances in management and marketing science.

On the production floor, for instance, the foundations for great breakthroughs in scientific management and productivity were laid when Frederick Taylor published his astounding findings on applying the scientific method to work-study. Observing steelworkers and colliers, Taylor identified the crux of the problem as workers who each went their own way unsupervised and exhibited vastly different productivity rates.

Workers on a fixed wage knew they could perhaps work faster and better, but they were understandably reluctant to do so under a fixed-wage regime where more output would not augment their take-home pay.

By observation and experimental manipulation of independent variables, Taylor concluded that production could be managed with four principles:

  1. Rule-of-thumb work methods with optimal ones based on a scientific study;
  2. Workers should be recruited, screened, and trained for the abilities and skills suited to the job;
  3. Cooperation with workers and labor unions is needed to ensure optimal methods are complied with; and,
  4. all production processes can benefit from being broken down so that workers carry out the (manual or clerical) tasks while supervisors take on the planning and scheduling function.

Today, the deceptively simple statistics Taylor gathered – so many tons of steel lifted per day, correct posture when shoveling coal, frequency, and length of rest periods – may seem commonsensical, but they brought about three-fold gains in factory output, laid the foundations for the Ford Motor mass assembly line that revolutionized American society, and are at the heart of such ongoing management tools as total quality management, quality management, and Six Sigma.

Statistically, sound sampling procedures also underlie time- and cost-savings initiatives in Finance, Planning, and Marketing.

Audits are tedious because even a moderately large firm (and financial institutions more than most) carry out hundreds of transactions every day.

Attempting to backtrack through all those would take an army of auditors. Fortunately, computer-aided systems can track trends by business unit, customer category, or transaction type and spot those which are one or more standard deviations from the mean. As well, statistics provides guidelines for culling a small sample that can be scrutinized in detail but which gives management confidence that it is looking at a representative picture. Hence, statistics help reduce the time and cost of regulatory compliance.

Statistically, sound sampling also underlies the benefit of market surveys and product tests that help businesses move ahead with enhanced confidence and in a timely fashion.

In America, there is no lack of national studies undertaken by the Census Bureau, other government agencies, and private polling organizations. These explore almost every facet of demographic profiles, consumer behavior, health, and social attitudes. But since the cost to survey all 300 million Americans every time a question of interest crops up would be staggering and would take months, all but the decennial census are based on national sample surveys with respondent bases in the tens or hundreds of thousands (U.S. Census Bureau, 2009).

Nonetheless, businesses of any size waste no time employing these to reduce the risk of market planning in such areas as whether Americans are ready for costly but zero-emission hydrogen cars, making distribution decisions state by state, and even down to the county and MSA level about a line of prepared ethnic food, markets that might be receptive to a price entry by virtue of being economically depressed and yet desiring frozen pies from time to time, or population centers to avoid for fear of a “moral majority” backlash if one were to air a commercial where Sacha Cohen (“Borat”) appears overtly homosexual.

Works Cited

Internet Center for Management and Business Administration. “Frederick Taylor and Scientific Management.” 2007. Web.

U.S. Census Bureau. “Population Estimates.” 2009. Web.

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