Are you Basing Your Strategy on Mythical Numbers?

  • Published on March 10, 2021

Vikas MittalJ.

Hugh Liedtke Professor of Marketing

You probably are. Mythical numbers gain a life of their own because they are so large.

Max Singer pioneered the concept of mythical numbers in 1971 by asking a simple question: How much property is stolen by drug addicts in New York City on a yearly basis? At the time, officials believed addicts stole between $2 billion and $5 billion worth of property and committed about half the city’s crimes. With a few simple calculations, Singer showed “that whereas it is widely assumed that addicts steal from $2 billion-$5 billion a year in New York City, the actual number is 10 times smaller.” Specifically, for addicts to steal $2 billion-$5 billion of property, they would have had to steal 20% of all durable and nondurable goods in New York. Police records showed property theft estimates of about 2%, not 20% of property.

Singer stated that very large numbers can acquire mythical stature, especially when related to ideas supporting preconceived notions. Who would argue against spending $20 million to fight drug addiction when they stole $2-5 billion in property?

Over time, mythical numbers are accepted as a given—an unfalsifiable predicate, an unassailable fact. Then they are used to justify actions and initiatives without thinking about their plausibility.

In strategy planning, mythical numbers emanate from consulting studies intended to establish broad and eye-popping trends or provide a provocative snapshot of an entire industry, a country’s economy, or the global economy. Senior executives invoke mythical numbers to make their point.

Some examples, funny and sad, from our forthcoming book FOCUS:  

 Chief Information Officer: Based on a published statement that, “[digitalization] can assist in providing electricity to the 1.1 billion people who still lack access to it,” the chief information officer of a small oilfield services company sought to increase the company’s digital footprint to gain market share.

Chief Marketing Officer: “Companies on average spend 12% of their revenue on marketing,” was the logic that the CMO of a mid-market company with $500 million in sales sought to use to increase her budget from $5 million to $60 million.

Chief Human Resources Officer: Citing a consulting study showing that “more than 80% of CEOs of successful companies believe employee engagement is an organizational imperative” the Chief HR officer asked the CEO to invest several millions in employee engagement initiatives.

Spotting Mythical Numbers

You can use counterfactual reasoning to spot mythical numbers. The CEO, may ask the Chief Human Resource Officer:

  1. What else do 80% of CEOs of successful companies believe should be an organizational imperative?
  2. What other imperatives besides employee engagement did the CEOs rate? Among the rated imperatives, how many rated higher or lower than 80%?
  3. These simple questions will also quell the intuitive leap that employee engagement is imperative for success, defined amorphously at present.
  4. Finally, are there successful organizations where employees are notas engaged? Amazon, one of the world’s most successful companies, has been criticized and cited for low employee engagement.

 Now What?

Next time you catch yourself or a colleague invoking mythical numbers, gently ask: can we do a small counterfactual? For the mythical number to hold, how would the outcome have to play out?

Ask the CMO, “By increasing the marketing budget to $60 million, what is the expected change in revenue or sales?” Or ask the CIO, what is the correlation between digital footprint and market share for oilfield services? Is that relationship stronger or weaker than, say, providing high quality products? Being able to quantify answers to these strategic questions can help mitigate the use of mythical numbers.

Our book FOCUS provides a step-by-step approach to spot and avoid mythical numbers in strategy planning.

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