We see and read fallacies in logic every day. I am
sure that there is a chance that even in this august newspaper there
has been the odd fallacy in logic which escaped the eagle eyes of the
editors. In this very column, I am sure that at times I have made an
error in logic even though I pride myself in being logical.
Fallacies
in logic in a journal or newspaper or a conversation between people
creates frustration and perhaps heated discussion. Fallacies in logic
in business create a bad business.
A simple fallacy that occurs
when market research is poorly interpreted is to argue from selected
observation. Data from a handful of people is interpreted as being
representative of a whole population. This happens frequently when the
boss has a pet theory about the market, commissions some market
research and concentrates their argument on the few pieces of data
which support their argument.
The impact of business decisions
being made from selected observations is to put the marketing campaign
or the entire company at a risk equivalent to deciding by "gut feel".
Some leaders have a great gut feel for their business and the
businesses thrive on it. Most of us, however, actually need information
to make logical decisions.
In one organisation I have seen good
market research which was carried out annually for ten years
demonstrating clearly that the single channel strategy of the
organisation was causing a decline in volumes of an average of 7.5% per
annum as other channels blossomed. It also contained some data which
showed that the new channels had a lower sell out price.
The
argument was that the lower sell out price would reduce profit whilst
the lower volume from the single channel strategy was ignored. Only the
information which justified the status quo was ever used out of the
data.
Another fallacy common in business is internal
contradiction. This clearly occurs with the topic of company values.
That is, we have company values but leaders do not have to portray
them. It also occurs with strategy and tactics.
For example, the
statement, "Our strategy is to grow the market through an aggressive
marketing and sales campaign and to dominate the new market we create"
on page five of a corporate plan, followed on page ten with no increase
in advertising costs, marketing costs or sales costs and no other plan
to increase productivity of sales either. Growing the market
aggressively without some increase in sales costs or sales productivity
is not believable.
Another favourite of mine is argument by
slogan. The most common one I hear is "best practice". The CEO
announces "We are adopting best practice in the area of corporate
governance; therefore we need to increase the remuneration of the
directors". What in the world did that mean? There is no way to
understand specifically what best practice means and whether it has any
relevance to the director's remuneration.
Best practice is very
hard to actually achieve. It is difficult between different
organisations in different environments to define processes in a
similar enough way to make it worthwhile to go the next step and define
KPIs measured the same way to begin to compare results to see who has
best practice.
Even if the foregoing is achieved, it is
incredibly difficult to take one practice from one business culture and
place it in another. Instead, it is a lot easier to argue by slogan.
Another
favourite is the monthly reports which hit the CEO's desk and declare
that sales were down this month because a segment of our market did not
buy as much. Statements like these abound in monthly and annual reports
begging the question, "Why did they not buy as much?"
Sadly, the
begged question is rarely answered. Worse still, too frequently, it is
not challenged by the CEO for the poor piece of analysis with rotten
logic that it is.
Of course, the time honoured fallacy of logic
in business is the appeal to widespread belief or the "Bandwagon
argument". For example, "Everybody else thought the internet was going
to be the only way to sell, so we had to spend millions on it too."
Another
bandwagon argument example I see which troubles me more is that every
organisation HAS to have a vision statement, a mission statement and a
set of values to have a decent strategy. This is not true. I could run
an equally fallacious argument the other way. From my observations,
those organisations which spend a lot of time on vision and mission
usually have no actual strategy.
Doing business or running a
public service entity is tough work for CEOs. That is why they get paid
well. What they don't need are self inflicted problems through
tolerance of bad business logic.
