Almost everyone desires security, the natural reaction is to forecast and plan. Still, even with the best laid plans “shit will still happen”! We live in a chaotic World and might as well get used to it. The question is how to deal with uncertainty – is it better forecasts, budgets and plans, or is it better strategies, tactics, procedures and algorithms to deal with “shit” when it does happen.
I choose better strategies and tactics to deal with the consequences of “shit”. I do not have a crystal ball so I know that I cannot forecast with any accuracy – so why waste my time fine tuning forecasts and plans?
January 2009 – “Think Globally”
Dr. Goldratt’s short lecture can be found here: "
Think Globally" It is about the assumptions companies made in January 2009 – forecast assumptions about future demand after reading and experiencing the start of the recession in December 2008 and after suffering a 50% drop in orders in that month.
I recommend you watch this short video as Goldratt takes you through his cause and effect analysis about the situation then. He showed that while orders had already declined by 50%, by May normal or almost normal demand levels would be back. If you listen carefully all the necessary information was available from the Internet and from common knowledge about how people and businessmen tend to react – so that the cause and effect analysis could be developed. The short lecture is a description of an electronic component manufacturer and their response to the recession in January 2009. I contend that we can do the same kind of analysis for any other market and any other situation – all we need is to learn how to develop rigorous cause and effect ‘trees’.
As it turned out at least 1 company followed the recommendations from the video, and therefore gained significant market share from their competitors in an otherwise tough market. Competitors responded as expected after the forecast of a deep recession and after experiencing a steep decline in demand.
Before we panic because newspapers and TV business forecast a deep recession or some other economic calamity, let us think the situation through, thoroughly check the available data and use rigorous cause and effect logic before we decide whether we really should panic. Maybe we should question news with a big “
REALLY???”
If more business leaders would stop and consider their entire supply chain, then some of the panicky forecasts that sell newspaper and TV advertising may no longer become self-fulfilling prophecies. Our newspapers and the evening news relies on correlation and classification to describe what is going on the business and economic World – using historical ‘parallels’ often based on too little data and information to draw valid conclusions (conclusions may actually become valid because of the forecasts made; news-people create the self-fulfilling prophecies!). Statistics don’t lie, but the people that use them often do.
Try to think in a cause and effect way to decide – don’t trust the news … unless you are sure the analysis is truly valid because your source has developed a rigorous case and effect analysis. Do this and you will have information you can use profitably.
Discussion of Goldratt’s Lecture
The lecture’s content is of course interesting in itself, but look at the structure Goldratt has in his lecture – how he builds up to the conclusion that to lay-off people in January 2009 would be a major mistake (for the type of businesses discussed). Goldratt was a person that trained himself to ask the question: “Really?” when someone makes a (sweeping) statement like, “a recession (or maybe a depression) is coming”. He always sought to answer the question WHY does someone think so. Warren Buffet appears to be another such person that never relies on what others say, but much more on his powers of deduction – his ability to build the cause-effect relationships from what is known, what can be discovered and from life experience to come to what might be a quite different conclusion. If Buffett cannot understand it (like the dot.com boom) he will not invest.
Take a second look at the video and see if you can build the logical tree Goldratt developed for us.
I recommend that you look at some other literature that takes such a quite different approach to thinking. Malcolm Gladwells books question some commonly held beliefs about many different things … one I remember is intelligence … Asians are more intelligent than Whites; they are better at math than Whites. Certainly Asians as a group achieve higher test scores. However Gladwell concludes the Asian environment is much more conducive to learning than our Western learning culture. The way Asian languages encode numbers is much more logical and fast than our complicated way of counting. The Asians advantage comes from their environment and culture and not from any genetic advantage. (You may not agree with Gladwell, so build the cause and effect logic found in his books and attempt to find his faulty conclusion.)
If you look around the Internet, libraries etc. you will find a number of people (Steven Levitt and Freakonomics for instance) that offer different conclusions from those commonly held. Some are of these people are cranks; but some do have good valid conclusions. For us readers the important thing is to analyse what has been written … not just does the information correlate with what we ‘know’ but are the cause and effect links valid?
'Shit Happens"
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