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The problem is what the question implies, which is that in this workplace the interviewer has until now found it impossible to to convince his manager. This doesn't look good for the interviewer or his manager.

Note that he does not say that he was unable to answer the question. That is a conclusion you jumped to.

It could do, or it could imply that they want to hear how you would "sell" a given improvement to upper management (and whether you understand the benefits to the business). Whether or not its a warning sign depends on whether or not they currently do tests.

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