# Statistics Applied in Today's Businees Thesis

#### Excerpt from Thesis :

Take for instance Red Hat, a leading provider of open source software applications. Its annual report for 2009 reveals an increase in its training and services revenues from \$45 million in 2005 to \$47 million in 2006, to \$59 million in 2007, to \$73 million in 2008 to \$111 million in 2009. From this assessment, the leaders of the organization could come to the conclusion that it would be wise to further invest in the business division of training and services offered to customers.

The second most important means in which statistical information is useful to financial analysis reveals the assessment of a company's financial ratios in light of the ratios of its competitors, or the average ratios of the industry. Statistics helps organizational leaders compute financial ratios such as earnings per share, gross margin, current ratio or others. Following the previous example, Red Hat's current ratio is of 1.90 in a context in which the industry average is of 2.11 (Reuters, 2009). These figures tell the manager that his company is less able to pay its short-term obligations than are other players within the industry. Future decisions could refer to an increase in the volume of liquid assets.

2.4. Statistics Applied to Business Diversification

The concept of diversification is generally pegged to portfolios. Statistics play the most crucial part for investors who cannot randomly select which titles to invest in, but need to clearly assess the risks pegged to them, as well as the chances they stand for generating a satisfactory return on investment. Statistics support investors in measuring the risk of an investment. In most cases, investors will desire to minimize the risk of their investment while in the same time maximizing its profitability -- this is achieved through the process called portfolio diversification, by which the investor selects new titles and invests in them. However, for the practice to be successful, the investor must be able to identify the shares which meet his required characteristics. This is where statistics steps in and allows him to calculate the risk of each individual stock, as well as the overall risk of the entire portfolio. The risk of the portfolio can be reduced through diversification, in the meaning of investing in more stocks of diverse natures.

Having understood the applicability of statistics within individual investment projects, the findings are extrapolated to the organizational level. Most company boards decide to diversify their operations in order to reduce risks and maximize profits. It is as such not strange when one company purchases shares from another company. Until recently, Ford owned 30% of the Mazda shares, but was forced however to sell its interest due to an impending necessity of liquidities. Statistics then help board members decide in which company should they invest, and ultimately, allows them to maximize their revenues. All in all, statistics support an efficient process of diversification (Doukas and Kan, 2006).

2.5. Statistics Applied to Expansion of Business Operations

This application is somehow derived from the previous one, that of diversification, yet it has the distinct feature of sustaining the company when it wants to territorially expand its operations. Due to the growing forces of market liberalization and globalization, economic agents are now able to cross boundaries into foreign regions and benefit from their comparative advantage. Some countries offer corporations the benefit of their cost effective labor force, others reveal technological superiority, whilst others reveal an abundance of natural resources. Corporations are also presented with the opportunity of selling their products and services onto new global markets, action which would significantly enhance their financial results.

Yet, business owners often find it extremely challenging to select the country which would best serve the company's needs. This is where statistics comes through. Take the example of Home Depot considering an expansion of their business operations within Egypt. Before making the final decision, they should assess numerous statistics. For instance, they would become aware of the fact that the annual income per capita is of \$5,400 -- this information would help budget personnel expenditure. They would also become aware that the risk of contracting infectious diseases is intermediate. In terms of actual elements that would directly impact the business, statistics could tell the managerial team at Home Depot that Egypt has a well developed infrastructure -- with 85 airports, 6 heliports, 5,063 kilometers of runways and 92,370 kilometers of roadways -- but also a highly developed telecommunication system with more than 177,000 internet hosts, 93 television broadcast stations, 12,011,000 main lines and 41,272,000 mobile telephones (Central Intelligence Agency, 2009). The managers at Home Depot would understand that Egypt is well developed and prepared to welcome their business, but they should also assess statistics relative to the demand for their home improvement products and services.

2.6. Statistics Applied to Product Quality

Internal processes and operations historically referred to manufacturing and production. Yet, the concept is gaining a wider understanding as the role of services increases. Regardless however of the nature of activities and offer of the firm, fact remains that statistics is applicable to mostly all internal operations. Probably the most relevant examples are offered by the engineering function, in its ability to improve product quality (Bendell, Disney and McCollin, 1999).

In this order of ideas, statistics helps designers create trustworthy prototypes. An increased applicability of this function is obvious within the automobile industry. Statistics can for instance be used to assess the past ability of the company's vehicles in satisfying customers' needs; the findings will be included in the design of the new vehicle. Say for instance that Ford wants to come up with a new concept for a car that would combine numerous benefits and reduce several limitations in order to promote this vehicle as the new American car. The company is currently facing severe challenges and the new car could help it regain its position as leader of the American automotive industry.

Through statistic processes of data gathering and assessment, the designers would be informed that the customers prefer the fuel efficient engine incorporated within the Ford Fiesta, but enjoy the space and security offered by the Ford Focus. The designers would interpret the findings and come up with a design of a size and capacity next to Focus', but with a level of consumption next to Fiesta's. Similar studies could be made relative to mechanical components in order to reveal which of them is better in absorbing the shock of an impact and as such better at protecting the lives of the passengers. All in all, statistics can successfully be used to enhance the quality of an existent product or to create a new design.

3. Conclusions

As the intensity of the competition within the business community threatens the well-being of economic agents, business owners rely more and more on statistical information to support their decision making processes. The means in which statistics is currently being applied within the business community are virtually endless. Yet, this report has focused on revealing six specific applications in education, marketing, financial analysis, business diversification, business expansion and product quality. The success of each and every one of these endeavors depends directly on how well organizational leaders are able to use statistics to gather, process and interpret the information within the micro and macro environments.

It must be noted that the growth of statistics within the contemporaneous business community was also supported by the technological revolution. Computers and specific software assist organizational staff members in gathering, assessing and communicating data. Even without IT&C, statistics would have played a sustained pivotal part within business life, but its ease of usage would have been reduced.

References:

Bartholomew, D.J., 1995, What Is Statistics? Journal of the Royal Statistical Society. Series A (Statistics in Society), Vol. 158, No. 1

Bendell, A., Disney, J., McCollin, C., 1999, The Future Role of Statistics in Quality Engineering and Management, Journal of the Royal Statistical Society, Series D (The Statistician), Vol. 48, No. 3

Doukar, J.A., Kan, O.B., 2006, Does Globalization Diversification Destroy Firm Value? Journal of International Business Studies

Larson, R., Farber, E., 2004, Elementary Statistics: Picturing the World, 2nd Edition,

Love, T.E., Hildebrand, D.K., 2002, Statistics Education and the Making Statistics More Effective in Schools of Business Conferences, The American Statistician, Vol. 56, No. 2

Rossi, P.E., Allenby, G.M., 2000, Statistics and Marketing, Journal of the American Statistical Association, Vol. 95

Wild, C.J., 1994, Embracing the "Wider View" of Statistics, The American Statistician, Vol. 48, No. 2

2009, The World Factbook -- Egypt, Central Intelligence Agency, https://www.cia.gov/library/publications/the-world-factbook/geos/eg.html last accessed on November 6, 2009

2009, Red Hat Inc., Reuters, http://www.reuters.com/finance/stocks/ratios?symbol=RHT.N last accessed…

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