I, The Absolute

Archive for April 29th, 2006

Respect Facts

Posted by itheabsolute on April 29, 2006

A very important attribute usually associated with an MBA and more so with a consultant is that he is fact based. While developing an intuition on one’s own business is an important way of managing business, doing so at the cost of facts is a dangerous path.

Facts reveal a lot of things, including the biases and prejudices that people operate out of. There was a presentation being made by a consulting firm to us when we were at ISB. The firm was mandated by a board of directors of a company to give a plan to reorganize the company. The consulting firm gathered all facts only to realize that there was no way to bring back the company to be competitive. If at all the shareholders had money, they are better off investing the money in starting a new company rather than investing in the current one. The facts gave out such story. The consulting firm made a presentation to the board suggesting that the company be closed down. If the company itself were to do a similar exercise there was no way the board would have come to such conclusion because its biases and incentives would have come in the way of reaching the optimal and fact based decision. The fact based decision, in this case the closure of the company, will only mean one thing – not wasting any more of the shareholder money.

Respecting facts is an important way of adding shareholder value.


=I am not saying that the implications of a decision such as closure of a company would be as easy as making a recommendation / presentation. The repercussions could mean laying off a number of people, maybe violating industrial laws of the country, losing the company’s brand equity (if any) in the market, et al. But the issues of continuing with running the firm will bring its own set of problems.

=Gathering facts also is not easy. We can never get all the facts. We usually sample. What samples and from whom we collect them are again not necessarily fair; the process can be driven by our biases.

= I am also not saying that intuition needs to be ignored. I have made many personal and professional decisions on intuition, but over emphasising on intuition can be a wrong game. i have learnt this during my MBA program. Also, accepting whatever is given to you as facts is pretty naive. Questioning is one of the most important of skills.

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