Quantitative Strategy

This is a trend I think will accelerate in the future.

Every year at annual retreats across the country, firm's executives get together to plan their strategies for improving the bottom line. For years, there were set patterns that nearly all companies followed for improving the bottom line, introducing new products and following the latest trends. But now, that kind of strategic tactic has gone the way of the dinosaur, according to new research by a business professor at Washington University in St. Louis, and with good reason, too…

…"The smartest business decisions today are being driven by quantifiable data, and are modeled to specific challenges." MacDonald says. "The one-size-fits-all approach to performance enhancement has been supplanted by detailed, scientific analysis of organizational challenges."

The article doesn't give specifics about the quantitative models mentioned in the article, but I think in general, business decisions will become more and more quantifiable in coming decades. Fewer "gut instincts" and more rational decision making processes should mean fewer mis-steps, and will result in overall economic improvement for corporate America.

  • “Our research can reduce uncertainty about this significantly. An entrepreneur can go to a venture capitalist and say, ‘I’m going to make between x and y dollars, and here’s why.'”

    Uh huh. Does the mathematical model encompass the skills and motivation levels of the people the entrepreneur is going to hire? Does it encompass his abiity to select those people properly and to motivate them effectively? Does it account for the entrepreneur’s skill (or lack thereof) in generating favorable publicity for the business? Does it include metrics for the effectiveness of the organization design he will put in place, and how this will impact quality and time-to-market factors?

    I think most real-life VCs would be very suspicious of an entrepreneur who claimed unrealistic levels of precision in revenue and profitability forecasts.

  • Repetitive, routine decisions are proven to be improved with expert systems. But David’s right. Beyond routine decisions you have the pRoblem of your system weighing and measuring all the right variables.

    You also have the pRoblem of rooting out “luck” in your samples.

    This post and the one above shows the primary reason I don’t pay attention to most business professors. They are out to lunch.

    IMHO professors need to put themselves into a more challenging environment than a university before they will generate anything much worthwhile. They should try posting and responding to comments at BusinessPundit!

  • I’m both for and against the importance of metrics in strategy; in the “for” camp, I truly think all business decisions mus be based on some numbers; but their usefulness is mostly around driving concensus and testing theories; their wisdom is not absolute and the strategies they suggest seldom “optimal”.

    The pRoblem with metrics is that they’re only as good as the algorithm, and they’re only good when relevant; to believe that you are always measuring the “right things” to make the best decisions is as arogant as believieng you always make the best decisions without metrics – so basically, you’re back where you started; strategy is a crap-shoot.

  • Well said. I totally agree with you. The point you are making here does make sense.