The Science of Business

A lot of entrepreneurs focus on their gut feel and intuition to get
ahead in the game. This may not be the only or best approach and there
is a lot that can be drawn from science, theory and research.

Cognitive research is showing that what we experience as spiritual
competencies such as intuition, the power of purpose and instinctive
responses, are often just the quick processing of lots of subconscious
information and for the recognition of underlying patterns in systems
below the surface of normal cognition. This implies that you act in a
certain way – because you have seen it before, read it somewhere or
reflected on a similar situation.

It is then tempting to act intuitively at all times – without taking
the time to train your mind into better patterns of thought and
development. It is also tempting to run the business without numbers,
controls and just to rely on doing it the same way as it has always been
done. It may work for some but as businesses grow it is important to
continue processing at the required level of complexity to get all the
pieces moving. The brain is an amazing tool that can be used for this
complex type of analysis and many argue that this is what makes us so
uniquely human.

While the ability to draw deeply from your own thoughts may take
years to perfect – there are also analytical tools that are used to
break down problems and allow for better holistic reasoning. If we
understand the underlying parameters and their implications – we can
come to better decisions that take into consideration the limitations
that are presented. Tools such as root cause analysis, modelling and
forecasting gives us an indication of what will happen in future and
gives us a clearer idea of the constraints. We can then come up with
clearer strategies that are formed by taking into consideration the
parameters that we This type of “innovation within boundaries” is
something that no amount of modelling or analysis can reveal. It is just
easier to reason and get to the best solution for the business when the
data is presented clearly.

With the advent of big-data and a society that is both data oriented
with lots of computing power for analysis – new patterns and structures
are being revealed and what was previously seen as intuitive or implied
relationships are now being confirmed by large scale research and data
sets that are being combined to reveal non-intuitive patterns.

Most interesting in the area of managerial economics and management
sciences are the developments that happened as the results of
disciplines such as project management, cost accounting, quality
management, six sigma, value engineering and process and quality control
taking root. These analytical disciplines have taken manufacturing from
a haphazard activity to a precise and perfectible exercise. The
application of the same principles to services yielded similar results.
Large companies have used these approaches to achieve efficiencies where
none were apparent or available intuitively. There are many examples
where a better risk formula; a better production layout or different
approaches to the value chain have disrupted industries and created
value.

Most managers will frown when confronted with ideas such as linear
programming, stochastic modelling, policy optimisation and business
model simulation but in real terms the complex interactions in large
scale businesses require these analytical dimensions to create new
insights into actionable results. Where processes can be optimised and
where the next breakthroughs will come from determines the innovation
horizon of the modern business.

It is also important to realise that terminology such as internal
rate of return (IRR), weighted average cost of capital (WACC), net
present value (NPV) and other terms represent well formed theories and
tools that good managers use to decide where to next. Every industry has
specific terminology and it is always important to understand what is
behind those measures and norms and when to push the limit, and when to
work with standards.

So while many managers are people oriented and shy away from analysis
– with terms such as “analysis paralysis” being bandied about – we must
remember that management has always been a science. Modern management
started with the observation of concept such as the efficiency of
division of labour, modernised production systems and the effects of
environment and structure on productivity and inspiration of
workers.

There are still big questions that have not been answered in
management science including a comprehensive analysis on the impact of
specific interventions on the performance (financial and otherwise) of
the firm. We are getting better but still no holistic theory of the firm
has been developed. In part the challenge is that academic research lags
corporate research due to the better funding (driven by the profit
motive) that is present in the corporate sector.

Innovation and design thinking is another frontier that is
highlighting the need for analytics and data driven design. More
consumer preference information is available and the analysis of this
rich source of data is leading to new products, better understanding of
preferences and ultimately better products and services to
consumers.

We can never forget that customers, employees and shareholders are
still human. No amount of analytical thinking will change that. It does
mean that we need mastery of spiritual and emotional competencies to
effectively manage and build teams and organisations that are
purposeful. We can use analytics to better understand aggregate
behaviour but we must also be careful not to ignore the different, the
strange and the unexplained or unanalysed. We must also not err on the
side of ignoring the facts and relying on charisma, intuition and good
people skills to drive results.

Conclusion

The aim of this article was to show that management is still a
science and while it is often easy to get lost in the detail of day to
day management that is important to look up sometimes and ask what is
going on here. The science and scientific method in business is required
to make sense of the complex arrangements that exist and that can