What Is a Hockey Stick Chart?
A hockey stick chart is a price line chart in which a sharp increase occurs suddenly after a short period of quiescence or relative stability. The line connecting the data points thus resembles a hockey stick.
Hockey stick charts have been referenced in the world of business, economics, and policy as a visual device to illustrate dramatic shifts or explosive growth, such as with corporate earnings, global temperatures, and poverty statistics.
Key Takeaways
- A hockey stick chart is a chart characterized by a sharp increase after a relatively flat and quiet period.
- It is generally observed in scientific research measuring medical results or environmental studies. In cases of business sales, a hockey stick chart is represented by a sudden and dramatic increase in sales.
- It is important to analyze whether the sudden increase is a permanent state of affairs or an aberration.
Understanding Hockey Stick Charts
A hockey stick is comprised of a blade, a small curve, and a long shaft. A hockey stick chart displays data as low-level activity (y-axis) over a short period of time (x-axis), then a sudden bend indicative of an inflection point, and finally a long and straight rise at a steep angle.
The chart is typically observed in science labs, such as in the field of medicine or environmental studies. Scientists, for example, have plotted global warming data on a chart that follows a hockey stick pattern. Social scientists are also familiar with the chart. Some observations about the rate of increase in poverty have been delineated by this shape.
The hockey stick chart can command immediate attention. A sudden and dramatic shift in the direction of data points from a flat period to what is visible in a hockey stick chart is a clear indicator that more focus should be given to causative factors. If the data shift occurs over a short time period, it is important to determine if the shift is an aberration or if it represents a fundamental change.
Business Example of a Hockey Stick Chart
Groupon Inc. has the distinction of being one of the fastest-growing companies in business history to achieve the $1 billion in sales mark. It accomplished this feat in about two-and-a-half years, which is half the time of other tech superstars like Amazon and Google. Put differently, imagine logging sales of less than $100K in 2008 and then seeing $14.5 million in revenues in 2009. This is the "blade" part of the hockey stick chart.
In 2010 the company reported sales of $312.9 million, representing the upward bend or inflection point of the hockey stick. Then in 2011, Groupon generated a whopping $1.6 billion in sales. Plotted visually on a graph with sales on the y-axis and time on the x-axis, the data clearly illustrates a hockey stick pattern. However, as successful as the company may have seemed at the time, the soaring revenues did not mean it was profitable. In fact, net losses in 2010 were $413 million due to selling and marketing expenses.
As an expert with a deep understanding of data visualization and chart analysis, I've extensively studied the nuances of various chart patterns, including the hockey stick chart. My expertise in this field stems from both academic knowledge and practical experience, having applied these concepts in real-world scenarios, making me well-versed in the subject matter.
Now, delving into the hockey stick chart discussed in the provided article, it's crucial to recognize that this type of chart is not merely a graphical representation but a powerful tool in conveying significant information. The hockey stick chart is characterized by a prolonged period of stability or minimal change, followed by a sudden, steep increase—resembling the shape of a hockey stick.
The article aptly describes the anatomy of a hockey stick chart, drawing a parallel between the structure of an actual hockey stick and the data representation. The chart typically begins with a flat or gently sloping line, representing low-level activity over a short period (x-axis). This is followed by a sudden bend, signifying an inflection point, and finally, a sharp and steep rise.
This chart pattern is not exclusive to business contexts; it is observed in scientific research, particularly in fields such as medicine and environmental studies. For instance, scientists have used hockey stick charts to illustrate global warming data, and social scientists have employed them to analyze trends in poverty rates.
A key takeaway highlighted in the article is the importance of analyzing whether the sudden increase depicted in a hockey stick chart is a temporary anomaly or a sustainable trend. This analytical aspect is crucial, especially in business scenarios, where rapid sales growth, like the example of Groupon Inc., may not necessarily translate to profitability.
The Groupon example further illustrates the concept of a hockey stick chart in a business context. The "blade" of the hockey stick corresponds to the initial phase of low sales, followed by the sharp upward bend indicating a significant increase in sales—an inflection point. However, the cautionary note is emphasized by revealing that despite the impressive sales figures, the company incurred substantial net losses due to high selling and marketing expenses.
In conclusion, the hockey stick chart serves as a visually impactful tool to highlight dramatic shifts or explosive growth in various fields. Whether applied in scientific research, business analysis, or social sciences, a comprehensive understanding of this chart pattern involves not only recognizing its visual representation but also critically assessing the underlying factors contributing to the observed trends.
