Chapter 1

Statistics for Decision Making and Competitive Advantage

In the increasingly competitive global arena of business in the twenty-first century, a select few
business graduates distinguish themselves by enhanced decision making backed by statistics. No
longer is the production of statistics confined to quantitative analysis and market research divisions
in firms. Statistics are useful when they are applied to improve decision making and so are used
daily by managers in each of the functional areas of business. Excel and other statistical software
live in our laptops, providing immediate access to statistical tools that can be used to improve
decision making.

1.1 Statistical Competences Translate into Competitive Advantages

The majority of business graduates can create descriptive statistics and use Excel. Fewer have
mastered the ability to frame a decision problem so that information needs can be identified and
satisfied with statistical analysis. Fewer can build powerful and valid models to identify
performance drivers, compare decision alternative scenarios, and forecast future performance.
Fewer can translate statistical results into general business English that is easily understood by
everyone in a decision making team. And fewer still have the ability to illustrate memos with
compelling and informative graphics. Each of these competences provides a competitive advantage
to those few who have mastery. This book will help you to attain these competences and the
competitive advantages they promise.
Most examples in this book are taken from real businesses and concern real decision problems.
A number of examples focus on decision making in global markets. By reading about how
executives and managers successfully use statistics to increase information and improve decision
making in a variety of case applications, you will be able to frame a variety of decision problems in
your firm, whether small or multinational. The end of chapter assignments will give you practice
framing diverse problems, practicing statistical analyses, and translating results into easily
understood reports or presentations.
Many examples in this book feature bottom line conclusions. From the statistical results, you
read what managers would conclude with those results. These conclusions and implications are
written in general business English, rather than statistical jargon, so that anyone in a decision team
will understand. Assignments ask you to feature bottom line conclusions and general business
English.
Translation of statistical results into general business English is necessary to ensure their
effective use. If decision makers, our audience for statistical results, dont understand the
conclusions and implications from statistical analysis, the information created by the analysis will
not be used. An appendix is devoted to writing memos that your audience will read and understand
and to effective PowerPoint slide designs for effective presentation of results. Memos and
PowerPoints are the predominant forms of communication in businesses. Decision making is
compressed and information must be distilled, well written, and illustrated. Decision makers read
memos. Use memos to make the most of your analyses, conclusions, and recommendations.
C. Fraser, Business Statistics for Competitive Advantage with Excel 2010: Basics, Model Building, and Cases,
DOI 10.1007/978-1-4419-9857-6_1, Springer Science+Business Media, LLC 2012

1 Statistics for Decision Making and Competitive Advantage

In the majority of examples, analysis includes graphics. Seeing data provides an information
dimension beyond numbers in tables. You need to see the data and their shape and dispersion in
order to understand a market or population well. To become a master modeler, you need to be able
to see how change in one variable is driving a change in another. Graphics are essential to solid
model building and analysis. Graphics are also essential to effective translation of results. Effective
memos and PowerPoint slides feature key graphics that help your audience digest and remember
results. We feature PivotTables and PivotCharts in Chap. 7. These are routinely used in business to
efficiently organize and display data. When you are at home in the language of PivotTables and
PivotCharts, you will have a competitive advantage; practice using them to organize financial
analyses and market data. Form the habit of looking at data and results whenever you are
considering decision alternatives.

1.2 The Path toward Statistical Competence and Competitive Advantage

This book assumes basic statistical knowledge and reviews basics quickly. Basics form the
foundation for essential model building. Chapters 2 and 3 present a concentrated introduction to
data and their descriptive statistics, samples, and inference. Learn how to efficiently describe data
and how to infer population characteristics from samples.
Model building with simple regression begins in Chap. 4 and occupies the focus of the
remaining chapters. To be competitive, business graduates must have competence in model
building and forecasting. A model building mentality focused on performance drivers and their
synergies is a competitive advantage. Practice thinking of decision variables as drivers of
performance and also that performance is driven by decision variables. Performance will improve if
this linkage becomes second nature.
The approach to model building is steeped in logic and begins with logic and experience.
Models must make sense in order to be useful. When you understand how decision variables drive
performance under alternate scenarios, you can make better decisions, enhancing performance.
Model building is an art that begins with logic.
Model building chapters 11, 12, and 13 include nonlinear regression and logit regression. Nearly
all aspects of business performance behave in nonlinear ways. We see diminishing or increasing
changes in performance in response to changes in drivers. It is useful to begin model building with
the simplifying assumption of constant response, but it is essential to be able to grow beyond simple
linear models to realistic models that reflect nonconstant response. Logit regression, appropriate for
the analysis of bounded performance measures such as market share and probability of trial, has
many useful applications in business and is an essential tool for managers. Resources and markets
are limited, and responses to decision variables are also necessarily limited, as a consequence.
Visualize the changing pattern of response when you consider decision alternatives and the ways
they drive performance.

1.3 Use Excel for Competitive Advantage

This book features widely available Excel software, including many commonly used shortcuts.
Excel is powerful, comprehensive, and user friendly. Appendices with screenshots follow each

1.4 Statistical Competence Is Powerful and Yours

chapter to make software interactions simple. Re-create the chapter examples by following the
steps in the Excel sections. This will give you confidence using the software. Then forge ahead and
generalize your analyses by working through end of chapter assignments. The more often you use
the statistical tools and software, the easier the analysis becomes.

1.4 Statistical Competence Is Powerful and Yours

Statistics and their potential to alter decisions and improve performance are important to you. With
more and better information from statistical analysis, you will be equipped to make superior
decisions and outperform the competition. You will find that the competitive advantages from
statistical competence are powerful and yours.