The quantification fallacy

One of my more recent undertakings is starting a part-time Master’s degree in the History of War at King’s College London. It has been a fascinating experience, becoming reacquainted with reading lists and even the university library (if not the student bar), and with an online cohort that includes a very eclectic mix of backgrounds that make my City background look very mundane. However, one of the more surprising aspects of the course has been some of the read-across points to my professional career.?

One particularly struck me and that was in the module covering the Vietnam War. A more noticeable feature of that war was the ‘scientific’ approach taken by US military leaders when it came to measuring success. Quantification was key with gruesome ‘hard data’ metrics such as ‘body bags’, and kill ratios the focus.??

Needless to say, the United States did not win in Vietnam and the quantification approach is often cited as a key error. So much so that it led to what is now called ‘The McNamara Fallacy’ after Robert McNamara, the US Secretary of Defense at the time and a disciple of Frederick Taylor’s school of scientific measurement. The McNamara Fallacy states it is an error to presume that (A) quantitative models of reality are always more accurate than other models; (B) the quantitative measurements that can be made most easily must be the most relevant; and (C) factors other than those currently being used in quantitative metrics must either not exist or not have a significant influence on success.??

By now, you may be able to see where I am going with this in relation to advertising. Advertising seems to have fallen into its own version of the McNamara Fallacy. The debate - and most of the time taken - on advertising is not driven by what is the best end result for the advertiser or the required end goals but around how to measure and the various data and KPI points deemed necessary. Performance metrics are deemed superior to other measures, which at best are seen as inferior or, indeed, having no impact at all. Moreover, as was seen in the Vietnam War, it is leading to behaviours more driven by the need to meet metrics (although with less horrendous consequences).

That is not to say that quantification is a mistake. Quantification is important and any analysis must be backed by reliable and accurate data. It is more around whether quantitative analysis is always the best option. There is a strong case for arguing in many cases that it is not. More importantly, quantitative analysis often seems to be used as a substitute for strategy, which is a mistake.

Ironically, it may be that it is the unexpected macro events of the past 12 months that bring this home to advertisers. Given the rapid and sharp increase in commodity, and other input costs, advertisers have been forced to put through, in effect, several years’ price increases in one go.?By and large, advertisers have been pleasantly surprised at how much those price increases were absorbed by the consumer and, while there is clearly some impact on volumes, there is nowhere near the impact that historical sensitivity models would have suggested. In their calls and results, many companies have highlighted the strength of their brands as a - or the - key reason for this success.?

So, just as it was the evidence staring them in the face that convinced Americans the quantification approach was not winning the Vietnam War, it may be that the evidence they are seeing now convinces advertisers that quantification has its limits - and brand its strength.?

Now back to the books.

As usual, this is not investment advice.?