Business Strategy Based On False Assumptions

Business strategy based on false assumptions

When formulating theories and business plans, we are usually fond of qualifying them by stating the assumptions we have made. The commonly used assumption is the latin phrase “cēterīs pāribus”, basically stating that our plans are based on “all other things being equal.” Should there be a change in these variables or assumptions, our projections would be different. The critical thing to remember is that since our final output is premised on the assumptions we use, these assumptions must be based on facts. They are not pulled out of thin air and are not hearsay or rumors. In one presentation, we had a new employee laying out the data which he had relied on and it turned out that these came from a senior officer who recited to him the figures based on his memory of past dealings. Of course these figures were outdated and any business plan built on those data were surely flawed. Story:

The One-Eyed Doe

(Illus by Harrison Weir, John Tenniel, Ernest Griset)

A Doe had had the misfortune to lose one of her eyes, and could not see any one approaching her on that side. So to avoid any danger she always used to feed on a high cliff near the sea, with her sound eye looking towards the land. By this means she could see whenever the hunters approached her on land, and often escaped by this means. But the hunters found out that she was blind of one eye, and hiring a boat rowed under the cliff where she used to feed and shot her from the sea. "Ah," cried she with her dying voice, "You cannot escape your fate." Moral: Trouble comes from the direction we least expect it. Kidding me: Don't let people exploit your weaknesses. Hide them. Perhaps that is one reason why the visually handicapped tend to wear dark glasses. Nobody will notice their handicap on a bright sunny day. For the same reason, it will be strange for the hearing impaired to wear earmuffs as it is simply too noticeable.

Quotable Quotes: “I assume that markets are always wrong.” ... George Soros “Do not assume more variables than necessary.” ... William of Ockham “There is no way of knowing anymore whether the information on which we base our own information for distribution is true or false.” ... Joseph Heller “The trouble with research is that it tells you what people were thinking about yesterday, not tomorrow. It's like driving a care using a rearview mirror.” ... Bernard Loomis “Strategies that succeed are organic. They evolve.”

... Robert H. Waterman, Jr. “It is change, continuing change, inevitable change, that is the dominant factor in society today.” ... Isaac Asimov [browse collection of quotes and quotations] Lessons in life: Those who follow the Iraq war controversy would have read about the speech by President George Bush to the Congress in his State of the Union Address asking for support to back his plan to send more troops to Iraq. In a rare statement made shortly after this speech, the Japanese Defense Minister Fumio Kyuma echoed a criticism that was the subject of much debate for years, that the U.S. invasion of Iraq was a mistake based on a false assumption. The statement on the Japan Times Online site on 25 Jan 2007 read, “President George W. Bush's decision to invade Iraq 'based on an assumption that weapons of mass destruction existed was a mistake,' Kyuma told a news conference.” Similar reports had also appeared on many newspapers and media sites. What really went wrong for the Doe was that it made a wrong assumption that the enemy must come from the land. Perhaps, in those days, nobody heard of air raid or sea strike. In almost every aspect of our lives, we have to rely on certain assumptions. At home, we assume that our spouses will remain faithful, and our maids are taking the best care of our children. At work, we assume that our colleagues will not do nasty things behind our back, and our bosses will always look after our interests. When we craft our strategic plans for the company, we rely on assumptions and statistics on consumer habits, market trends, level of competition, political stability, etc. Naturally, should the assumptions turn out to be inaccurate,

our lives and jobs can be totally wrecked. It is important therefore to test and verify the key assumptions. Also, a good business plan should incorporate contingencies to cater to changes in these assumptions over time. This should extend to your management style. Do not over-rely on any supposedly loyal staff. Who knows, they may one day leave you despite the rosy pay package you give, or embezzle your company funds. Related Articles: Focus on your proven strategy Importance of planning Trust Gut Instincts and Intuition