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JULY 2015
By Osmo Salonen, Systems Thinking Europe Oy (STE)[email protected]
Business beliefs - Unknown Knowns
“There are known knowns. There are known unknowns. But there are
also unknown unknowns” stated Donald Rumsfeld famously. One
category is missing in this list: there are unknown “knowns” that are
not true. We call them beliefs. Companies don’t go down for what they
don’t know, companies go down for what they know that isn’t so.
And we have a strong evidence that this is the category of knowledge
that is often more important than either of the unknowns.
There are a lot of commodity product companies who “know” that by
lowering the product price the sales will increase despite the abundant
evidence that lower price means almost inevitably lower sales.
The European Union experts knew for sure that by promoting solar and
wind energy there will be less CO2 emissions. But the use of coal has
increased dramatically.
The once global leader of mobile phone business, Nokia corporation,
“knew” that by hiring thousands of scientist for the problem area
(software) the company will be a leader again. Nokia had hired earlier
electronics and signal processing scientists and was lured to believe
that they had had a positive impact on the company’s success. (For
further details see the former CEO Jorma Ollila’s book Mahdoton
menestys. Kasvun paikkana Nokia. (2013)) Nokia mobile phones does
not exist any more.
Systems Thinking Europe OyTietäjäntie 1302130 EspooFinland+358 9 4124 1121
The belief that has caused the largest damage must be the expected
utility theory, foundation block in classical economic theory. It took
200 years to see that the theory was just a belief. Prospect theory was
developed emphasizing that choices and decisions are about change
not absolute values.
Why do these beliefs exists and prevail for long times, the utility theory
more than 200 years?
The reasons for these beliefs can be categories into four classes: Our
education, characteristics of systems we are in, how human mind
works and our human, selfish nature:
We try to analyze and force the world around us into linear, continuous
and complete mental models. Our brains do not comprehend systemic
features like accumulation, delayed impacts, worse before better or
trigger levels etc. To understand counter intuitive systems it takes a lot
of time, tools and expertize to figure them out.
This is the first post in a series that approaches the challenge of
business beliefs and ways to identify them.