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Part 1
General Orientation to Research in Business and Management
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Chapter 1
Research, Statistics and Business Decisions
‘If there is a 50-50 chance that something can go wrong then 9 times out of 10 it will’
(Source unknown – a classic Murphy’s Law)
‘39% of unemployed persons wear glasses; 80% of employed persons wear glasses; therefore working stuffs up your eyesight’
(Source unknown)
‘Gambling is a tax on those who know nothing about statistics’
(Source unknown)
Content list
Learning outcomes
The relevance of research and statistics to management and business
What is research?
What are statistics?
Descriptive and inferential statistics
Presenting descriptive statistics
Inferential statistics
Who should conduct research into business organizations and activities?
In-house
External consultant
Basic and applied research
What you have learned from this chapter
Review questions
By the end of this chapter you will understand:
| 1 | Why knowledge of statistics and research is useful in the world of business. |
| 2 | How knowledge of research and statistics would help reduce uncertainty in business decisions. |
| 3 | The relative merits of in-house and external consultants. |
| 4 | The different roles of descriptive and inferential statistics. |
| 5 | The distinction between basic and applied research. |
Introduction
This chapter will provide a general introduction about how statistics and research methods can help to reduce uncertainty and lead to more effective planning and decision making for businesses and their managers.
The relevance of research and statistics to management and business
As our world grows in complexity, it becomes increasingly difficult to make informed and intelligent decisions. Often decisions essential to our well-being must be made with less than perfect knowledge and in the presence of considerable uncertainty. We are continually pressured by economic problems such as inflation, cumbersome taxation systems, fluctuations in exchange and interest rates, excessive demands for scarce and costly power and water resources, and swings in the business cycle. Management structures, employment conditions, and advertising issues continually present changing business environments. Our entire social and economic fabric is threatened by environmental issues such as climate change, pollution, power and water resource problems, by burdensome public and private debt, unemployment, the need for two-income families, unpredictable government interference, and global effects that swamp non-involved countries.
No responsible corporate executive would consider making important business decisions and recommending policy changes without first consulting others and trying to obtain and interpret the facts or data. Sometimes these facts can inform; at other times, they may mislead or deceive. Business people who are illiterate in statistics face a two-edged sword – they are deprived of a powerful tool that may provide a competitive edge, and they are unable to distinguish intelligently between useful and useless statistical information.
Statistics and research methods can help to reduce uncertainty and lead to more effective planning and decision making in the business and management fields.
Let us look at a few specific examples and see how intelligent business decision makers research for relevant data and apply statistics to plan, control, and reduce the uncertainty involved in business decisions.
- An investment advisor calculates the rate of return on a specific kind of investment for the most recent year. He compares this with rates obtained on the same investment in other years. He also compares this rate with the current rates on other investments in order to provide reliable advice.
- The personnel manager uses data on the proportion of handicapped persons in various job categories to determine compliance with affirmative action legislation and what recommendations need to be made to the CEO on this issue.
- The national marketing manager of a large supermarket chain locates and reviews statistics on income distribution in each region of the country to set prices for a new product. Based on obtained data, decisions may be made to set prices differently for different areas.
- An ammunition manufacturer must be sure that there are very few dud rounds. The only perfect indication would be to fire every round but this is not very practical. What percentage should be fired in order to have a very good indication of what the remainder are like? How safe is this indication? An indication will not be perfect – only probable – so what level of probability is acceptable.
- Given the increasing demand for water supplies in the country over the last 10 years what is the best estimate the National Water Board can make of the likely demand over the next 20 years so that new supplies can be planned.
- The Community National Credit Union Bank has learned from hard experience that there are four factors that largely determine whether a borrower will repay their personal loan on time or default. These factors are (1) the number of years at the present address, (2) the number of years in the present job, (3) whether the applicant owns their own home, and (4) whether the applicant has a cheque or savings account with the bank. It has computer files of information on applicants and on how each granted loan turned out. John Smith applies for a loan. He has lived at his present address four years, owns his own home, has been in his current job only three months, and is not a Community National Bank depositor. Using statistics, the bank can calculate the probability of John repaying his loan on time if it is granted.
All of the above examples have one thing in common. Facilitating decision making under uncertainty is the main purpose of the use of research and statistics. Through the application of precise statistical procedures, it is possible to predict the future with some degree of accuracy. Any business firm faced with competitive pressures can benefit considerably from the ability to anticipate business conditions before they occur. If a firm knows what its sales are going to be at some time in the near future, management can devise more accurate and effective plans regarding current operations and take important decisions regarding inventory levels, raw material orders, employment requirements, and virtually every other aspect of business operations.
What is research?
We have a stereotype of research being something conducted by people in white coats in science labs. But research can be carried out in many contexts. Research is a process of systematic enquiry or investigation into a specific problem or issue that leads to new or improved knowledge. There are many approaches and methods that this systematic investigation can follow from the stereotypic scientific quantitative, objective, replicable experimentation based on hypothesis testing to more subjective and qualitative face-to-face depth interviewing and participant observation modes. But whatever the general approach or method of investigation in the business field, the aim is to enable managers and consultants to deliver informed decisions that generate successful outcomes. A range of different research approaches and methods are briefly introduced in Chapter Two, although succeeding chapters give emphatic focus to the quantitative approach to business research
What are statistics?
Most people associate the term statistics with masses of numbers or, perhaps, with the tables and graphs that display them and with the averages or similar measures that summarize them. This mental image is reinforced daily by the abundance of numerical and graphical information in newspapers, magazines, and on television screens: on the prices of bonds and stocks, on the performance of businesses and sports teams, on the movements of exchange rates and commodity futures, on the rates of unemployment, on the incidence of poverty and disease, on accidents, crime, water sup...
