Assumptions I

Originally Posted On January 12 2012

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Every manager I met in my career knew her business. At least she said so. Every competent manager has a business vision that drives her decisions. Modern managers are used not to rely any more on gut feelings, but have a good bias toward a fact based decision making. This is positive because we all sell our BI solutions to them.

 As I often said before, all these managers have their own personal mental business model and want it translated into actual solutions. Good BI solutions usually comply with models, till when there’s a surprise somewhere.

 Those managers, often, ground their actions on assumptions that are never verified and actually “are” true till they’re proved wrong. I make just a couple of real life examples, changing few details to make the actual characters unrecognizable.

 A luxury goods manufacturer/reseller had always thought that their magic number was the number of retailers which featured a show-room. A huge amount of time and effort was dedicated to designing pleasant expositive areas, to stimulate purchase and stand out from the competition. Salesmen were given a target in terms of newly acquired show-rooms, architects and designers were available at no cost to retailers to help set up the areas.

Retailers were actually segmented in “show-rooms enabled” and “small dealers”.
This was fine till I was tasked to make evident the advantages of having a show-room. First I had the idea to calculate the average time between the first retailer sale and the show-room set up date. It was -88 days, minus eighty-eight days. I checked it twice but it was correct. The first sale occurred far before the show-room was set up. So I went on, and checked the retailer’s weekly sales volume. No particular variation occurred before and after the show-room being available, just statistical fluctuations with no visible pattern. Then I confronted the average and the median “small dealer” with the corresponding show-roomed retailers, and the “small dealers” used to sell slightly more than the upper segment. Given the show-room costs, I lacked the heart to estimate retailer profitability.

It was a delicate and painful matter, disclosing those figures. A marketing manager was forced to resign for that, and I’m not particularly proud.

 They actually could have made these calculations well before, but reports and dashboards used to list resellers individually, but lumped small dealers together. They knew that small dealers sold more than the show-roomed, but there were also more of them, so they never bothered. Sales force actually knew better, but their commissions and incentives were more closely tied to show-room retailers than the others.

Anyway an undisputed assumption, and a pivotal one, was challenged by the numbers and proved wrong.

 In the next post, I’ll make another example and I’ll draw some conclusions.

 In the meanwhile, stay tuned!