October 16

Improving Your Business Through Analytics

Why I’m Bad at Fantasy Baseball and What It Means For Your Business

Baseball is a game of numbers and I’m a numbers guy. Analytics is my passion and I believe wholeheartedly that numbers don’t lie. Baseball teams, fantasy and real life, are managed by analytics. An entire industry has sprung up around baseball analytics; they’ve written blogs, books, and made movies about it. Sabermetrics (the term coined from the Society for American Baseball Research—SABR) rule the baseball world.

And they work. Why do teams shift their defense depending not only on the batter, but on the balls/strikes count? Why is bunting now fairly rare? Why is a specific pitcher brought in to face just one specific batter? You can find analytics on every player in virtually every game situation. Managers, coaches, and players make decisions based on analysis of opposing teams and players. They play the numbers. And the numbers usually are correct.

Fantasy baseball players know this and have all this information available. Successful fantasy players make decisions based solely on analytics. I’m a numbers guy and I should be awesome at fantasy baseball. But I’m not. And it’s not even close. I’m below average. Well below average. And the reason is because of my passion. Passion for the World Champion Kansas City Royals.

We all have cognitive biases. Wikipedia defines cognitive bias as “a systematic pattern of deviation from norm or rationality in judgment, whereby inferences about other people and situations may be drawn in an illogical fashion”. I was born and raised, and still live, in Kansas City. The World Champion Kansas City Royals are my team and have been my whole life. But my passion for them messes me up in fantasy baseball. When faced with decisions about players, the analytics become secondary to my belief that I know something not reflected in the numbers. So I pick more Royals players than I should. It’s really bad in situations where I should pick a player opposing the Royals; I can’t bring myself to do it. In July the Royals played the Toronto Blue Jays in Toronto. Josh Donaldson, the third baseman for Toronto, was one of the hottest hitters in baseball and Chris Young, the starting Royals pitcher, was one of the worst pitchers. An unbiased person would have picked Donaldson for that game. But not a true Royals fan. Chris Young had given up more homers this season than anyone in baseball, but I knew that he was due for a good game. He’d pitched well against the Blue Jays before (last season). I didn’t pick Donaldson.

Donaldson hit two home runs in that game. I finished in last place.

What does this mean for your business? To quote Mark Twain, “It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so.” You know your business well; better than anyone else. But you have natural biases that convince you certain things are true when they’re not. And that can lead to less-than-optimal decision making.

Costs go up in retail—labor, coffee, food; they all get more expensive. You need to raise your prices but you’ve overheard a couple of customers comment that your prices seem high. The natural reaction is to assume that all your customers feel that way and you will lose significant business if you increase prices. That’s a cognitive bias frequently referred to as the “focusing effect” where too much emphasis is placed on a very small sample set.

In a recent, informal survey we did of coffee shop owners most of them had not raised their prices in 3 years. The most common reason is that they were afraid of losing business. The reality is that you most likely will not lose business if you start charging more. The hidden secret is that you can afford to lose business when you increase prices. We’ve run the data on all the coffee shops on our analytics software and all of them will make more money by increasing prices even if they lose some customers. Based on the data, we recommend most retailers do small price increases annually.

Staffing is the largest expense over which coffee shop owners (and most retailers in general) have direct, ongoing control. In order to run a healthy business, you need to staff as optimally as possible. But how do you know if you are staffed accurately for each hour of the day? If you aren’t using data, you’re probably managing according to your bias and are either understaffed or overstaffed at least part of the day.

Do you see long lines on a Wednesday morning at 10:30 and either call in an additional employee or schedule an additional employee at that time in the future? Do you know whether Wednesdays at 10 have been busy regularly or is that an anomaly? Measuring the data will tell you if there’s a trend at that time and whether or not your sales/labor cost and sales/labor hours are outside of a healthy range. Then you can make intelligent adjustments to your employee schedules.

 

Cognitive bias is a part of everyday life and we will never totally remove it. Nor should we. But when it comes to making business decisions we need to put the odds in our favor by managing according to the data.

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