How does critical thinking help you in business? That is literally a billion-dollar question. Critical thinking is what venture capitalists bring to the table when they evaluate candidates. And they are looking for unicorns—companies that (pre-IPO) are worth a billion dollars or more. Critical thinking is essential to good business decisions and whether you are looking to be the next unicorn or simply make your company a standout in your industry critical thinking is the key.
I am going to start this post by providing a Taxonomy of Truth. I think that it helps to set a foundation for good critical thinking in that it defines the facts, lies and everything in between. And, to make good decisions it is important to understand the quality of the information that you are using as input.
Information that we use as input to a decision can have considerable variation in character, i.e. correctness and completeness. Understanding how we “grade” the information that we collect and process is important to the importance that we give that information and how we update our view of the information as updates occur. In that context, I have developed the following taxonomy:
- Facts—an incontrovertible set of attributes (associated with an object or event) that accurately describe something that has happened, is or exists. Facts are objective and not subject to interpretation. They are what they are.
- Knowledge—knowledge is what we comprehend about the “facts”—it is our perception of the them. Knowledge becomes “knowledge” when a consensus is reached that the knowledge accurately (with the provisos stated below) represents the facts. Knowledge is subject to:
- Having a framework within which we can process and present the facts;
- Our ability to correctly, (i.e. without distorting them) observe and perceive the facts;
- Our ability to analyze the facts;
- Biases that might affect our ability to do any of the above objectively.
Our understanding of facts is always seen through the prism (i.e. the processing that we do to observe and synthesize the facts) that results in knowledge. We have knowledge of the facts and to the extent that the constraints described in the previous 4 bullet points don’t contaminate our perception of the facts, the closer what we perceive or know are the facts.
We often refer to knowledge that is generally agreed and obvious as facts.
- Truth—is objective. It is an attribute associated with an assertion about or because of a fact. It has several flavors. It can be represented:
- In its purest form, it is supported by the facts and takes on a value of true. Conversely, untruths are beliefs that are contradicted by the facts and the attribute takes on a value of false;
- By the outcome of an analysis of the facts. An analysis of the facts is used to make an assertion that is not necessarily (as it is in the previous bullet point) about the fact being observed, but about some other related fact, e.g. observations about temperature (and other measurements) being used to deduce that human induced global warming is a phenomenon and is not part of a long term weather cycle that is independent of human acts;
- By beliefs that might not be provable, but may nevertheless be truths. Many of the truths that fall into the previous category also fall into this one.
- Beliefs—are subjective and may not be supported by facts. Beliefs that are supported by facts are indistinguishable from knowledge. Beliefs that are not supported by facts are not necessarily untrue, but that cannot be proved to be true.
- One’s belief in a god, cannot be proved true, but neither can it be proved false….
- One’s belief that global warming is or is not caused by human’s use of hydrocarbons is well agreed, but cannot be proved, it cannot be a truth, it is a belief or at best knowledge, in that there seems to be a consensus among the experts that the rise is global temperatures will continue and is cause by human’s use of hydrocarbons.
- A lie—a communication when conceived and disseminated that is known to be untrue.
I have come to believe that facts are like objects that are to be observed, analyzed and (possibly) acted on. While the analogy is not perfect (events are not technically “objects”), it does serve the purpose of making facts something that objectively (without question) have a character that is unambiguous in their substance. The ambiguity is introduced in when we observe and analyze the facts (object) and they generate knowledge or a belief that things are a certain way. And, to the extent that we corrupt the knowledge (it really doesn’t mirror the facts) because of bad observation, the “fact” can be questionable, i.e. ambiguous in its instantiation. That fact (as observed imperfectly by one or more of the participants), instantiated as a piece of knowledge, then becomes something that two people (who see the same thing differently) can disagree about. This (going back to the legal realm) is demonstrated with the flaws of eyewitness accounts of an event. Two people who see the same thing can recollect (from the way the processed what they saw) that same event in two very different ways. The facts of what happened are clearly what they were. The accounts of the eyewitnesses are clearly colored by their ability to observe and (maybe) their biases.
So, how does all this impact business decisions? Several ways:
- We all look at a set of facts (as defined above) and do a better or worse job of processing them into knowledge or beliefs that we can use to make decisions. If the flaws in how we perceive the facts are material in terms of affecting a decision, we can make the wrong decision and suffer the consequences. I don’t know how many entrepreneurs fall victim to making decision with seriously incomplete information. A good example being those who forget to ask important questions when vetting an idea or product, e.g. will the target customer find the product valuable enough to pay for it.
- Many people mistake knowledge (as defined above) for beliefs (also, as defined above) and may be making decisions based on beliefs that are not in any way support by the facts. Believing that people will change is a mistake that many have made. You might know the market size, but you only believe that customers will be willing to change long and well-worn processes even if they are clearly inefficient. And, I have seen a lot of really intelligent and very money-motivated executives decide not to use a product that will clearly improve their bottom line because they are uncomfortable with the changes it involves. So, clearly, the belief that people will change is often a bad one and at the very least needs to be adjusted to allow for change management activities targeted at getting people to change their habits.
- Further, all too often people don’t continue to monitor the environment to see whether the facts that they observe have materially changed and therefore suggest changes in direction based on changes in what has been observed. This is a serious issue. To be fair, it takes a lot of time and resources to continue to monitor the environment to understand whether the facts supporting one’s decision-making have changed, but that doesn’t mitigate the serious impacts associated with not paying attention to the environment and a changing set of facts. The U.S. auto industry completely missed the shift in consumer preferences toward higher quality product in the 1970s and 1980s. This gave Japanese manufactures an opportunity to make inroads that are still being felt by U.S. manufacturers today.
- Finally, we don’t understand that much of what we hold to be facts are really some distorted representation of them. And, we must continually work to try:
- To improve our understanding of the facts as represented as knowledge that was defined above; and
- Understand that much of what we currently define as facts are really beliefs.
This leaves a lot of room for us to think differently and work with colleagues that we might disagree with in a more accommodating (at least to the extent that we don’t assume that they are wrong and we are right) manner.
I would like those of you who have read this post (and since you are reading this sentence, I will assume that you have) to agree with me that a solid framework for what you observe that accounts for ambiguities and suggests that those ambiguities (instead of being an excuse to disagree) might be an opportunity to find common ground and move forward instead of getting stuck in the gridlock of disagreement. That gives you agility (to deal with changing situations) and speed based on clear and efficient communication. And, those my friends are some very important characteristics that define success.