The author points out some of the limitations in EDP in site location or other research and management situations.Marketing,

Green, Howard L.

English

Research Papers in Economics

Food Distribution ResearchApproaches for The 1970’s
Current Limitations of EDP
The author points out some of
the limitations in EDP in site
location or other research and Howard L. Green, President
management situations Howard L. Green and Associates, Inc.
I feel as if I am speaking to you today under somewhat false pretenses.
I am not a systems analyst nor an EDP specialist. I am a consultant and mar-
keting research analyst with an emphasis in my work on retail expansion planning.
However, I have followed the various applications of computer technology to my
work, from a conceptual point of view, from their very beginnings.
The purpose of my talk is to balance what in mine, and other practi -
tioner s’ opinions,
ent day computer
Freder
tion Management
is the degree to which management may be oversold on pres -
capabilities as compared with their long term capabilities.
ck A. Koomanoff, in an article in Transportation and Distribu -
July, 1968, pp. 34-37) outlines the four general phases of the
long range intellectual growth of the computer. Phase One he describes as the
primitive stage in which traditional functions such as clerical work, accounting
and financial reporting are computerized. Phase Two - the “kick-off” phase -
occurs when management, realizing the possibilities of this amazing extension
of man’s intellectual capacities, begins designing and using integrated data pro-
cessing; i. e. , management information systems, simulation techniques and math-
ematical models. This phase eventually merges into Phase Three - the think
phase. In this later phase there are regional data banks, advanced information
systems, and on-line uses of simulation. The Fourth Phase is the future phase -
systems where learning and perception concepts represent the programs. rather
than the step by step procedures we now have.
The question is - which of these four phases is the intellectual growth
of the computer now at. To some, we are well into the third phase and any day
will break through into the fourth. A case in point is a recent Business Week ar-
ticle entitled “The ‘New Management’ Finally Takes Over, “ (August 23, 1969,
pp. 58-62):
The boss is finally getting to use the computer and
the raft of sophisticated mathematical tools that
28feed it. The whole package is known as the “new
management, “ though some call it a philosophy
and others say it’s a fad.
The techniques involve d - computer -based infor-
mation systems, the mathematical wizardy known
as operations research, decision analysis, and
theories of group behavior - all have been around
for years. Now, they’re coming out of the special-
ized departments and staff deep-freezes to create
systems that look at the business as a whole.
My own opinion, and that of others I have talked to who have studied
the application of computers to their specific fields, is not quite as optimistic.
It is our opinion that, intellectually, the computer is somewhere between the
primitive and “kick-off” phases. An example from my field of work would, I
think, illustrate my lack of optimism.
I have recently seen a promotional book entitled Site Evaluation Models,
published by a computer systems firm, which is described as being a phase of
management information system for supermarkets. In this book a site evaluation
model is developed which is predicated on the probability of a household consumer
frequenting a supermarket at a given site. According to this formula the prob-
ability of a person going to a particular retail store is directly dependent upon the
square footage of the store and inversely dependent on the distance required for
the consumer to reach the particular store. Also, the probability of the customer
going to this store is inversely dependent upon the square footage of the competi-
tors and directly dependent upon the distance required for the person to reach the
competitor’s store.
Despite the fact that this basic formula has been around for some time
and is widely quoted in the literature, the promotional booklet quite correctly
realized it is really not workable and into the formula introduced an alpha factor.
Alpha is supposed to take care of the differences in image between one supermar -
ket and another because of price strategy, merchandise carried, layout of store,
etc.
Despite even this modification of the original formula there is still one
gaping hole in the end product; it takes no account of the unique characteristics of
a store’s trading area. The trading areas of stores vary by type of location. For
instance, a freestanding supermarket will have a different trade area even than a
supermarket directly across the street but in a regional shopping center. A model,
to be a factual representation of the way people shop, must take such location types
into account. This model does not.
What am I suggesting by these comments? Two factors have been point-
ed out that are not taken into account by this computer model. Both factors have
29been known to site analysts for many years. Indeed, I gave a speech in 1954 mea-
suring the value of alpha for supermarket trading areas. Never once, to my
knowledge, have model builders experimenting in the area of site analysis come
to the experienced practitioners and sa id, “We would like to put what you know
into a model. Would you please sit down with us and together, we with our tech-
niques and you with your experience, determine which factors are relevant and
which are not, which can be quantified and which cannot. “
What I am suggesting, therefore, is that there is a lack of communi-
cations on the part of the model builder and the site location analysts. By work-
ing together, however, true progress can be made in advancing the computer’s
intellectual progress well into the kick-off phase.
But what will the rate of progress be beyond that? Again, I am not
overly optimistic and another example from my experience will illustrate why.
Let us set up a hypothetical case. Let’s suppose we have as a client
a supermarket chain who wants to enter a new market. Our assignment is to
make a sales forecast for new locations in this market based upon that operator’s
performance in his existing markets. Being thorough analysts we factor out and
weigh all the pertinent individual variables in both our client’s operations and in
the operations of competitors in the new market. We spell out assumptions and
facts upon which we select areas for sites, construct our model and from it make
potential sales volume forecasts.
But, suppose our client is a merchandiser who gives trading stamps,
merchandises fine perishables at full mark-ups and has a very wide assortment
of grocery products and in this market there is already another chain existant
that merchandises in exactly the same way, who has a significant market share
and has built up a reputation with consumers over a period of time. Invariably,
our model w ould tell us that our client would fare very poorly in this new market
and we might well conclude from this that they should refrain from entering it.
However, because we learned somewhers along the line that the com-
puter is only a logic machine we decide to find out why our client would not be
successful and, further, what he would have to do to be successful in this new
market. Re -evaluating the data ourselves we find that there seems to be substan-
tial potential for low-price, discount, non-stamp supermarkets.
The key problem, ladies and gentlemen, is that the inputs, the variables,
of the model that we built to forecast our client’s sales volumes were predicated
upon the way our client operated in the past. We have no historical data to tell
us about how he should operate in the future in this new market. Based on our
years of experience we had to p erceive what the market needed and suggest that
if our client can meet that need he can be successful.
Here, then, is the greatest limitation on the use of rigid models in our
kind of work. Our computer model told us how well our client’s new stores would
30perform if he were going to operate them in the same way as his old stores in
other markets, but it could not tell him anything about the potential for opera-
ting them in a different manner.
This point was very well made by Brian Berry, Director of the Cen-
ter for Urban Studies at the University of Chicago, when he reviewed an earlier
draft of this speech. He wrote me as follows:
“EDP provides a great routine servant for accounting and
payroll purposes, and for any well-defined routine scien-
tific application, but when a change in system relationships
is called for it is not simply misleading - by creating a
false sense of security it can lead to disaster. “
In our example, had we relied solely on the computer’s wisdom we
would have recommended our client not enter the new market and in so doing
passed up a potentially profitable opportunity.
This same point has also been well said by Peter Drucker in his book
The Effective Executive. Let me paraphrase Drucker. His point is that the truly
important events for business management are not trends but rather the point at
which there are changes in trends. Such changes, he suggests, have to be per-
ceived by a human being. These changes cannot be counted, they cannot be de-
fined, they cannot be classified - in short they are not facts - they are percep-
tions. In using a computer we have a logic machine. That is the computer’s
great strength but it is also its limitation. Events which suggest that changes
are in the offing often cannot be reported in the form a computer can handle. Man,
while not a particularly logical creature, in the way a computer is logical, is
perceptive - that is man can conceptualize change.
One caveat: W e are not saying that the information-gathering capac -
ity of the outside events lags behind the technical abilities of the computer. The
problem is rather that the important and relevant outside events are often quali-
tative and not capable of quantification. In Drucker’s terms they are not yet facts.
For a fact, as has been suggested a moment ago, is an event which is defined,
classified and endowed with relevance.
The danger, continues Drucker, is that executives will become con-
temptuous of information and stimulus that cannot be reduced to computer logic
and computer language. Businessmen may make themselves blind to everything
that is insight and perception and rely only upon facts.
To summarize and return to the computer’s four phases of intellectual
growth: We have learned to undertake the primitive steps of data processing in
Phase One and are well on our way into the kick-off phase and have even made
some pioneer experiments into the third phase. But in spite of what many com-
puter promoters would have businessmen believe - and as Berry and Drucker
31point out - the computer today realistically can only be relied on to quickly and
accurately perform only those routine applications which have previously been
well defined. It cannot yet think or perceive change - this is still the responsi-
bility of the businessman. To cite an analogy: the computer has just emerged
from the infant crawling stage and we can foresee its ability to stand permanent-
ly upright on two feet. Regrettably at the same time many of our minds are
jumping ahead to the time when the computer can run a swift race. But it can-
not yet even walk quickly.
Computer usage offers us great opportunities. The future is bright.
Despite our great vision of its potential uses, however, each actual advance is
going to be a slow step-by-step procedure with many failures and occasional
successes. This is the experience in scientific research and this we must ex-
pect to be the EDP experience.
32

FOOD DISTRIBUTION RESEARCH APPROACHES FOR THE 1970'S: CURRENT LIMITATIONS OF EDP

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