For many amongst us, the recent release of college admissions notifications can yield some unexpected data that require important follow up decisions and, perhaps, some rumination about what should have been done. One such data point produced much shock amongst the representatives of the Avalon team that matriculated at MIT, namely that MIT accepted over 40%….40%!… more applicants this past year than Harvard did.
Fortunately, we at Avalon are all highly trained professionals and know not to accept facts without validating the legitimacy of data, sources of data, and method of analysis. In this case, the source was reputable (i.e., actual admission rate data from MIT and Harvard), the data points were accurate but the measurement was done on a relative basis that made it easy to draw the wrong conclusion.
Turns out, Harvard let in 5.8% of its applicants this year and MIT let in 8.2%. If you take the 2.4% difference between these two admission rates and divide it by the Harvard acceptance rate of 5.8%, you get a 41% difference! Accurate, but once you understand this data and put it in the right context, you realize that both Harvard and MIT are extremely difficult schools to gain acceptance to and the data was presented in a way that made it sound like MIT was a safety school for those sharp Harvard applicants.
This example illustrates an important element of strategic analysis, namely that it is critical in conducting objective, rigorous analysis to validate data and understand exactly the context and assumptions behind the data. This is especially important in the middle market, where fewer companies are public and good data on markets, financials, and competitors can be hard to come by. The old cliché “trust but verify” is highly applicable here, and the better discipline you employ with understanding the data, the better foundation upon which you can develop your strategy.