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Do Assumptions Belong in Business?

When we think of business executives and leaders, we tend to think in terms of people who are quite comfortable with facts and data.  They are facile with spreadsheets, financial analysis, and base decisions on logical reasoning to identify opportunities and appropriate solutions.  And, while there are many who do fit that profile – nothing could be further from the truth to think that is all that they use to succeed.

Most of us have heard of the downside of using assumptions.  We even have likely heard the trite expression about what happens when we assume.  We have been told that we should not assume, because it makes an “ass” of “u” and “me.”

The truth is – we assume all the time.  And, if we were to stop assuming, we would cease to function succesfully.  For instance:

  1. We all drive on highways and assume that other cars will obey the laws and rules of the road (and when it does not happen, we react strongly to those that do not brake as expected, yield, stop, etc.).  If we did not make assumptions, we could never drive!
  2. We expect that people will perform as expected based on their jobs or functions (Drs. diagnose and prescribe based on knowledge, experience, insight, etc.; Sales people will be knowledgeable about products/services; Supervisors will manage and govern job tasks and scheduling; and on and on).  Should that not occur, we react strongly to the jarring misalignment between expectations and reality.

We also make assumptions in our analysis of data used for projecting and forecasting future performance.  Market Research often uses assessment of prior behaviors or performance and extend that outcome to future opportunities.  The consumer products industry, in partnership with their retailers, spend millions of dollars to review previous sales, prices, assortment, promotional impacts, and then compare that information against data on the “who” the shopper is (demographics).  The underlying belief is that; if we can understand what was bought, where it was bought, when it was bought, what else was bought along with a product, who bought it, that we can more accurately forecast what performance will look like in the future.  Many executives subscribe to the belief that the best determinant of future performance is past performance.  For decisions that are stable (based on information, environmental factors, criteria, etc. that remains unchanged), it is a very accurate and safe assumption (meaning that it has a high probabilityof being right). However, for decisions that require a reliance on that which has not been tested or include unknown influencers, we have to rely on assumptions that are less data-driven or fact-based and more “gut intuition.”  We still rely on assumptions – just different ones!

What assumptions govern your appraoch to business?

What assumptions govern your approach to business?

Interestingly, customers often are more willing to use assumptions that address cost savings and accept them as realistic than they are about assumptions about sales revenue increases.  Our willingness to believe our assumptions about our ability to control (expenses) far outweighs our trust in our assumptions in our ability to control the actions of others (sales).  We give ourselves credit for our efforts and assume we can and will succeed – but are less easily persuaded that we can get others to perform (buying our products).

What are the assumptions that underlie the way your business runs?  Which ones help?  Which ones hinder?  How often do you challenge your own assumptions about the business?

David Zahn