Business Ain’t Science: Lessons from Observation

I come from a science-esque background, loving lots of data, data analysis, theory, graphs and abstracts. Because Harvard lacks a business/retail/management major, I found myself applying much of the scientific method to solving the business problem for my internship.

The scientific method, after all, has gotten us Einstein’s equations, so why shouldn’t we be able to use that same method to embark on the most basic human enterprise of business? Unfortunately, scientists and business people generally do not see eye-to-eye. A scientist appreciates the intricacies and design of a Segway. The business person ponders how Segways translates into dollars.

Understanding the difference between science and business is essential in making the leap from a scientist’s mindset to that of a business person.

1) Profit as a metric of success

Whereas we feel no qualms spending hundreds of millions of dollars for small-scale, detailed experiments, there’s no way you can spend that much money to prove a fact that does not yield profits.

The fundamental goal of a business is profit maximization. The fundamental goal of science is knowledge maximization. This has implications for what types of projects will be funded and how accurate and in-depth the findings of your projects will have to be.

Whereas a scientist would happily study data until the cows come home, a business person will stop once he or she feels that all the jewels in the data have been uncovered. While under certain circumstances it is reasonable to examine pitfalls and potential costs/losses, they do so for the sake of preventing future profit loss rather than to satisfy their inherent business curiosity.

2) They pay you enough to trust you

In scientific research papers, the bulk of the space is taken up by methods and data summary. Unless the point of a project is research, chances are, what your managers are more interested in is the findings, what it means for them, and how to move forward.

I remember asking my mentor how much we had to demonstrate the duplicability of our methods and data. The answer was: “We trust that you did the data analysis correctly.” Then again, because of the vested interest an employee has in the business, the incentives of a business analyst is closely aligned with the goals of the business. If the analysis is good, then business is good, the analyst still gets paid!

On the other hand, because science is funded based on significant and important results and funding is distribute to a network of scientists from different teams competing for the same amount of money, each team has the incentive to fudge data to get the results, and thus get future funding.

3) Implementation: Theory to Action in 30 Seconds

While physicists can ponder Einstein’s equations until the cows come home, businesses want immediate solutions and action plans as the result of research. Research is never really for research’s own sake. It serves the greater purpose of informing decisions.

Similarly, while there are loop-holes in Einstein’s universe that would allow for time travel, no one really expected Einstein to take up the task of literally building a time machine after he came up with his theories.

On the other hand, if you pour money and time into researching and then developing a theory, then your bosses expect to DO something with the data. That might mean turning it into an excel grid that helps buyers establish price points. It might also mean establishing a new business practice in the entire company (bureaucracy and general organization languor aside).

4) Follow the buck

Accuracy generally requires a greater investment of time/money/effort. While in science, we’re going to hunt down that thousandth digit for the cost of a few million bucks, no one is going to implement a costly system if the resulting improvement in accuracy does not generate itself into dollars.

While the scientist in you might die a little to generalize broadly and be on the mark generally without fully substantiated, beyond-a-shadow-of-a-doubt data, you’ll have to accept graciously that at the end of the day, everything has to hit the account books, and those are the numbers everyone in a business is responsible for.

5) Think on the margin

Like Mankiw’s introductory economics textbook says, businesses function on marginal decisions. They care about how a price point increase of $13.99 to $14.99 translates into increases in profit. Business is sort of like, squeezing a lemon. You want to squeeze as much of the juice out of that lemon in a reasonable investment of time/effort (which all translates into money anyway).

On the other hand, you might have Mr. Newton trying to create the ultimate lemon squeezer, to squeeze every single last drop of lemon juice from that lemon. Unfortunately, the lemon squeezer costs a few hundred bucks and requires 10 years to run. But by then, the lemon is already dried and not so great for making lemonade.

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