Friday, May 05, 2020

Dangerous Assumptions

People in the business world carry around many assumptions. They assume business will continue much as it has always done, that they can carry out long-term plans with little or no change, and that most of what happens is ultimately predictable — if only you have the right information. The reality is quite different. None of these assumptions are justified. All lead to trouble and heartache.

It's worth looking at such comforting assumptions, starting with the belief that business goes on in generally stable, predictable ways. There are still more fundamental tenets of business thinking behind this assumption: that an organization is a mechanical set of processes that can be fully understood by its designers; and that those processes are by nature stable, unless something happens to upset them.

Don’t Rely on Economics

Much business thinking is derived from classical economics, with its belief in a natural equilibrium of forces. Left alone, those forces find a perfect point of balance that can be shown in mathematical terms. Supply and demand eventually reach equilibrium. There's a perfect price where you make the maximum possible profit, based on an assumed balance between the costs involved and people's willingness to buy more when the price is lowered.

Amongst academic economists, such ideas of stability have come under sustained attack. The current consensus seems to be that the teachings of classical economics are more comforting than accurate. As P.J. O'Rourke wrote in Eat the Rich:
One thing that economists do know is that the study of economics is divided into two fields, "microeconomics" and "macroeconomics." Micro is the study of individual behavior, and macro is the study of how economies behave as a whole. That is, microeconomics concerns things that economists are specifically wrong about, while macroeconomics concerns things economists are wrong about generally.
All organizations are consistently unstable. Stability and predictability are ideals, not events that anyone has ever experienced. Yet these beliefs are so tenacious people still try to act as if the reality they experience is the aberration, not the imaginary stable state. One result is the continual emphasis on "success stories" of all kinds as the basis for management thinking. The reality is that the majority — the overwhelming majority — of organizational projects end in failure; as do the majority of organizations themselves. Few have lives as long as the people who founded them.

Optimism Sells

It's understandable that management gurus should focus firmly on success in creating their pitches for business. They are selling something and success is popular. Besides, who wants to be told their chances of achieving what they desire aren't terribly good? It's hard to imagine too many sales for a book with a title like: "Organizational Disasters and The Leaders Who Caused Them." Most leadership training is more marketing than instruction. Like all marketing, its attitude is relentlessly up-beat. The Universe is not.

We like to believe success is the norm and failure the avoidable exception. It's not true. Reality more usually works the other way around. It’s enjoyable to hear about people who made it big, but assuming what worked for them will work for you is like deciding that you'll win a million-to-one bet because you read somewhere of a person who did. It's the classic gambler's mistake of confusing risk with uncertainly. Toss a coin and the risk it will come down "tails" when you bet "heads" is perfectly clear. It's a 50:50 bet. How uncertain is the next toss of the coin? Totally. You know the odds, but you have no idea how the coin will fall. Even if it fell "heads" the last hundred times (and assuming it's still not a weighted coin), you still have no way of predicting how it will fall next throw.

Just because something worked for another company, there’s no reason to assume it will work for yours. The past can indicate — maybe — the odds on a future outcome, but the future remains completely unpredictable in detail —and detail is what counts in business. A strategy might be extremely successful "on average," but still unsuccessful in any specific case. If that specific case is yours, tough luck. That "average outcome" — as mythical as the “average person” — is still as successful as ever. Besides, most successes are due to chance and good fortune, not whatever strategy was in people’s minds at the time.

Facing Reality

Organizations do not function like machines. Nor do their "designers" understand clearly how each part operates under actual working conditions. It’s virtually impossible to predict what any change in policy or operations will produce. The number of variables is too great. The potential range of interactions between these variables approximates to infinity. Many changes produce totally unexpected results. Most initiatives fail, completely or partially, and those that succeed usually do so in unpredictable ways.

To believe you can plan ahead and implement the plan exactly as drafted is to assume the universe is stable, or changes only gradually. It isn't so. Even the processes of evolution itself don't operate at a steady pace. The fossil record shows a pattern of sudden bursts of new species, long periods of more gradual change, and sudden spikes of extinctions. While changes on the basis of global species' extinctions seem to be infrequent, smaller changes are equally unpredictable and far more common. Massive, world-altering changes may be rare, but, like volcanic eruptions, you can never say when the next one will happen.

Changes in the business environment are neither fast nor slow: they’re erratic, now one, now the other. Assuming the world will end tomorrow is taking a chance on odds running into crazy numbers: so is assuming it won't. If we prefer to operate on the optimistic choice, it's just because it makes life more tolerable that way. In business, assuming relative stability is less stressful, not more realistic.

Questions Are Worth More Than Answers

Instead of trusting in the marketing talk and optimistic scenarios of consultants and gurus, wouldn’t it better to use your own intelligence and experience to think through the problem? It’s time to quit looking for that instant panacea, or the sure-fire answer Company X used that will work just as well for anyone else. They don’t exist. All that matters is what will work in your specific and unique circumstances.

Studying what others have done, or what theories predict, is useful to provoke questions, not provide answers. Thoughtful, wise leaders value good questions highly. Sadly, most people are so rushed and distracted all they want is answers — and the faster and simpler the better — even if those answers offer only comforting fairy tales. To take Mr. O'Rourke's comments into today’s organizational world, local leadership concerns decisions managers are mostly wrong about on a limited scale, while executive leadership concerns being mostly wrong about the direction of the business as a whole.

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