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  March 15, 2013
Applying Scientific Method...

 

My friend Steve and I were engaged in a heated argument.

Steve is of the opinion that a business should attempt to create the broadest base of customers in which to draw from.

His reasoning is that by spreading the business over a wide spectrum of clients, the effect of any one individual customer (or small group of customers) has only a minimal effect on the overall business. In this way the business is never beholden to any large client who can use their "largeness" to negotiate better prices and/or terms.

His thought is that there is always another customer to come and take the spot of the customer who might leave so it’s not important to cater to customers individually but rather to customers as a whole.

While this might work in some commodity type businesses, it is my belief that good customers are rather difficult and expensive to acquire and that every effort should be made to find, keep and grow every client.

It’s my theory that it’s important to look at the overall lifetime value of a customer to business and that individual transactions need to be taken as a composite.

The idea is to maximize the potential of each client by meeting their individual needs because it is a much easier task to increase business at a current customer than always be looking to find new customers.    

Steve referred to Southwest Airlines.

Customers at Southwest Airlines are not management’s number one priority... employees are. They believe that if you have outstanding employees, then the employees can help to create and retain customers.

It is their contention that there is no way to satisfy the individual needs of all their customers... so instead, they created a set of rules and never deviate from the rules. Customers who don’t wish to abide by Southwest’s rules choose to fly with another airline.

With this example, Steve clearly believed that he had won this debate...

Not so fast...

I countered Steve by referring to Nordstrom’s.

People don’t shop at Nordstrom’s because they want low prices or because they want the latest new styles. People shop at Nordstrom’s because they want personalized service and they are willing to pay dearly for it.

Customer retention is the key to Nordstrom’s management’s philosophy. They understand the lifetime value of a customer and are willing to go to extraordinary lengths to make sure a customer is satisfied with every purchase (including allowing a customer to return an item... sometime months... and in extreme cases... years... after the initial purchase was made). They want a customer for life.

Our debate continued throughout dinner with no clear victor in the end. We left with each of us believing that we had the right answer.

As I was driving home that evening, I began to think about the events of the evening.

The two of us each had our own theory of what contributed most to business success... back by several anecdotal examples... but had either of us really proven our point beyond doubt?

Had either of us used a scientific method to collect actual data or were we just talking from our gut?

Scientific Method

Although the ancient Greeks were great thinkers, they typically employed inductive reasoning to support their ideas rather than scientific method.

Their methodology was to make an observation and then create a theory to support their observation based on logic.

The classic example of inductive logic is: Aristotle is a man (observation)... all men are mortal (observation)... therefore Aristotle is mortal (proven theory).

The idea of modern scientific method didn’t really begin to evolve until 1000 AD and the great Arab Empire.

It was the Arab physicist, Ibn al-Haytham, who first began to use scientific skepticism (experimental repeatability) and empiricism (the use of experimental evidence to prove or disprove a theory) as an integral part of his work in optics and light.

During the European Renaissance of the 16th and 17th centuries, several well-known scientists, philosophers, and thinkers (such as Francis Bacon, Descartes, Kepler, Galileo and Newton), refined al-Haytham’s basic ideas into today’s modern scientific method.

The scientific method is presented as prescribed fixed sequence of 5 steps:

Formulation of a question:  Why does something happen? What causes that to happen? What happens if a variable is changed? These are all examples of fundamental questions to begin an investigation.

Hypothesis:  A hypothesis is a conjecture or opinion to answer the fundamental question.

Prediction: This step involves determining the criteria for a tested outcome. It defines the variables and the possible outcomes to support or contradict the hypothesis. It also helps to establish alternative possibilities to support the same hypothesis.

Empirical Testing: The testing step is the gathering of raw experimental data. The collected data is based on real world observations made by independent sources. This data will either support or reject the hypothesis. The more data points collected, the better the results.

Analysis: The final stage is to determine if the results of the testing actually support the hypothesis or not. The results also must be repeatable by different independent testers. That is... my results... should be exactly the same results of others.

It is interesting to note that it only takes one false result to completely invalidate the entire hypothesis.

Also, just because testing supports a hypothesis today, it still doesn’t mean that the hypothesis is conclusive and will be accurate in the future.

From several millenniums, ancient astronomers constructed elaborate models to very accurately predict the movement of the planets and stars based on the notion that the heavens revolved around the earth. These models used scientific methods, were repeatable, and were completely... wrong!

Which brings me back to my dinner conversation with Steve.

Neither Steve nor myself used any real facts, based on scientific method, to support our hypothesis.  We both simply stated an untested opinion.

And throughout time, people have espoused a variety of "opinions" (also known as hypotheses) that they have proposed as "fact" without any real scientific testing.

Many of these ideas are impossible to prove or disprove even with some semblance of scientific methodology (think theology or most social sciences where a "bell-shaped curve" exists).

Although debates over dinner regarding the attributes of business success are perhaps thought provoking and entertaining... don’t forget that wars, resulting in the great loss of life and property, have been waged in the name of unproven theories (think "weapons of mass destruction").

It’s important that we consider only tested facts before making our own decisions.

We need to think twice about delegating our decision making to the so-called experts in the media.

Making good informed decisions based on fact is hard work... but in the end... the better results are worth the effort. 

Thank you for your support of OptiFuse, where we hope that after reviewing all the facts, you decided to choose OptiFuse for your circuit protection needs...


 

Jim Kalb
President

Email - jimk@optifuse.com
Website - www.optifuse.com

Blog - www.optifuse.blogspot.com
Twitter - @OptiFuse


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