Invalid Business Assumptions
Each person goes through the day making assumptions. We assume the sun will rise in the east; the light will turn on in the bathroom; the shower will have hot water; the car will start when we leave for work and our computer will connect to the internet. The number of assumptions we make every day as we walk through our lives must add up into the hundreds. We are blind to them because events unfolding in front of us do not challenge our assumptions but instead support them. Unknowingly to us most of our assumptions are strengthened every day.
Perhaps assumptions are mental habits or conditioning and serve a similar purpose to learning how to tie shoes. When we first learn to tie a shoe it requires considerable attention or intentionality. We think about each move and either verbally or mentally repeat the instructions. It is a very manual and slow process. As we learn to tie our shoes we create ‘moving memory’. The more we practice the less attention is required and the faster and smoother we become. After the memory is completely programmed within us there is no benefit to keep thinking about each movement. Movement without thought can be a good thing. Ask any athlete about thinking too much when playing a sport. Just let your body do what it does and it will perform well.
Assumptions are often referred to as something bad. Many times I have heard the phrase: “You know what happens when you assume something? Makes an ass out of u and me”. So what would our lives be like if we didn’t make any assumptions? What if we thought through every situation and condition before making a decision or taking a step? If making assumptions is a bad thing then it follows that not making assumptions is a good thing.
We have all had an experience where we made an assumption that led to an unexpected and negative incident. In those situations we vow to never assume anything again because it can sneak up and bite us. Is that vow realistic or even desirable?
Why do we make assumptions? To relieve ourselves of the active thinking about events that almost always occur based upon our experiences. We don’t waste our time thinking about whether the sun will rise. We don’t think about how our bodies will digest the food we have for lunch. We don’t think about many things going on around us.
So from one perspective assumptions are time savers. That is until the assumption does not work in our favor. It is similar to the noise the refrigerator makes when it is running – you don’t notice it until it stops. We don’t see our assumptions until things do not go according to plan. Then we look for what we missed and try to see how it could have gone differently. Quite often we discover an action we overlooked but did not recognize because we made an invalid assumption.
This is especially true in business. Decisions based upon invalid assumptions can lead to disastrous results but we are blind to the assumptions until the results are coming in. And then it can be too late.
Imagine the value of a list of common invalid business assumptions that lead to poor performance. By knowing the assumptions you can avoid making them. Stay blind and you are doomed to repeat them over and over again.
During the past four years my business partner and I have been compiling such a list and have found them to fall into four categories. For the sake of brevity I have only included one invalid assumption in each category along with a description of the assumption. I have three more invalid assumptions for each category listed in a lengthier document. If you wish a copy of that document contact me through this blog or directly reach me at firstname.lastname@example.org.
The first category of invalid business assumptions executives make are about the Goals they develop. These are important assumptions because the goals of a business establish the performance requirements for the entire enterprise. For instance if a corporate sales goal is to increase revenue by a certain dollar amount then the year will be considered successful only if the business performs at that level. Anything less is unsatifactory. Goals and performance requirements are the same thing.
· All Goals are Achievable.
o Just because you set a goal does not mean you can achieve it. Businesses are challenged to set “Big, Hairy, Audacious, Goals” (BHAGs) but if those goals are not achievable then setting and working on the goals is actually harmful. There is nothing wrong with setting stretch goals but they need to be attainable. If it is impossible for your business to grow a certain percentage with your existing Business Model – there are five discretely defined components to a Business Model – then you have to either change the goal or redesign your business to be able to achieve that goal. If you are not designed to achieve the goal then no matter how hard you work or push your people you will not reach the goal.
· Invalid Goal assumption 2
· Invalid Goal assumption 3
· Invalid Goal assumption 4
The second category of invalid business assumptions made by executives concern the Design of their business. There seems to be an intuitive understanding that businesses have a design because the term Business Model is used frequently by CEOs. A model is the physical manifestation of a design. When a product is prototyped the designer creates a set of blueprints (designs) that are used to build the model. The next time a CEO speaks about his/her business model ask him/her to show you the design. And since the CEO’s understanding of the business design is so vague it is easy to have invalid assumptions about it. Here is one.
· Improving Information will Improve the Design of the Business
o Many executives look to IT systems to solve their problems. With better information they will be positioned to make more intelligent and timely decisions. Executives need to remember that systems support organizations / organizations execute processes / processes create products or services / products or services are delivered to customers. Systems are the last thing executives should be looking to change! Will replacing the dashboard (information system) in your car change its performance capabilities? No. The root cause problem in your business is seldom the result of any IT system. The fault usually lies in the design of the business.
· Invalid Design assumption 2
· Invalid Design assumption 3
· Invalid Design assumption 4
The third category of invalid business assumptions deals with Strategies. This is an activity that nearly executive has engaged in and can relate to. It is the source of out-of-the-box thinking and it sets the direction of the corporation for years to come. Strategic planning is considered essential for the survival of every company because executives know that to be stagnant is to die. They have to change and the vehicle for change is thought to be strategies. And if this is indeed the vehicle (which we know it is not) then any invalid assumption in this group can be crippling. Here is the first invalid business assumption in this group:
· Strategies are Strategies
o Not all strategies are created equal. There are at least three types of strategies: design strategies, implementation strategies and execution strategies. The nature of each type of strategy is very different as well as their timing. Business executives often confuse a design strategy with the design of the business. They are two completely different ideas and need to be kept separate in order to reduce confusion. Know the difference between design and strategy.
· Invalid Strategy assumption 2
· Invalid Strategy assumption 3
· Invalid Strategy assumption 4
The fourth group of invalid business assumptions is about Performance. Performance is important for the health of the organization. If there is substandard performance from the customer’s perspective then sales will suffer and the business will fail. Customers are looking for companies that can offer the greatest Value Proposition. If there are performance issues as it relates to the return on investment then stockholders will opt to invest their monies in better performing businesses. Shareholders are looking to create personal wealth and companies that are not financially successful suffer in the market place and that has a negative impact on the company’s stock price. Actual Performance is very important in the long-term prospects of any company.
· Performance Problems are Always Execution Problems
o Business executives are aware of the impact that the quality of a design has on the performance of the product but they fail to apply that understanding to their business. 80% of the time the quality and relevance of the business design is at the root of performance problems. A poor design can never result in good performance. But since executives are unaware of business design they see execution as the culprit. Execution is particularly attractive to management since those problems are the fault of the employees while the quality of the design is management’s responsibility.
· Invalid Performance assumption 2
· Invalid Performance assumption 3
· Invalid Performance assumption 4
Knowing that you are operating under an invalid assumption may give you the chance to change your decision making. If you are making assumptions about things that you can control then you do have the option to make changes. If your assumptions are about large external events such as the economy, then you can not control the outcome but you can develop scenarios.