Wednesday, March 8, 2017

The Map is Not the Territory by Allen Laudenslager

The Map is Not the Territory
by Allen Laudenslager


Anyone who has tried to find where they are on a map knows that it is not always as easy as it sounds. In a city where there are cross streets and street signs it can be fairly simple. In the wilds, off road it can be very hard to be sure you know where you are. Once you do know where you are on the map and where your destination is, it’s still not all that easy to pick a good route. If you are using a regular road map in the wild all you will see is improved roads and maybe some important features like a lake or mountain. The problem is that there may be hills that you’d really rather go around than climb or small streams or ravines that you’d rather avoid if you can.

A regular highway map will not show differences in elevation. For that you need a topographical map that has elevation lines. Topographical maps are wonderful in the backcountry but not much use in a city. The details of streets on top of the elevation lines will get extremely confusing very quickly so generally you only use the street map in the city and the topographic in the country. In addition to these are nautical maps, which are ideal for navigating on the water but useless on the land. Furthermore, a GPS system only works when you have the right maps programmed into the device. If your GPS device only has maps for North America, it won't do you any good if you bring it to Europe, or if you venture out into the ocean.

When you take a map reading class, a good one will teach you how to read all maps and how to decide which one is most useful in which circumstance. One of the important things that any navigator learns is that no single map contains all the information you need. In fact all the types of maps together may not have all the information that you might want. And many times the information you want is too small in detail to be included or the mapmaker didn’t think anyone would need to have that particular point listed. The key here is not that the map is useless, but rather that it is not reality; it is only a representation of reality.

So what do maps have to do with business? The principles, concepts, and mathematics of business are a kind of map. It shows you where you are and can help you clearly state where you want to go. The problem is that while those numbers can present a clear picture, it is first and foremost a snapshot, and second, like that map, may not present all the information you need to pick your route. In the same way, your mathematical business model is only an approximation of what is happening with your business. In fact, most of the time in business, your data is old by the time you analyze it. For example, a company's annual report is old information by the time it's published. 

If it sounds like I am claiming that the arithmetic is wrong, I’m not. 1 + 1 will always equal 2, but people tend to expect more than the mathematics can deliver, or they use the mathematics incorrectly. Let me explain. Dr. John Nash (who won the 1994 Nobel Prize in Economics) is generally credited with the mathematics (game theory) that led to financial derivatives. These were the same financial derivatives that led to The Great Recession of 2008. Was Nash’s mathematics wrong, or was it misused? In hindsight, I believe that the people who used Nash’s mathematical formulas didn’t understand its strengths or weaknesses in the same way many people don’t understand a map's strengths or weaknesses. Nash's mathematics, like a map, is only a representation of reality and doesn’t cover all the important things you need to know and account for in business transactions. The best gambler who understands the odds can still lose in Las Vegas.

So, what is the cure? There's an old military adage that goes like this: "What is the most dangerous thing on a battlefield?"... "A second lieutenant with a map!” The idea being that an inexperienced, partially trained person with a map can often create more problems than he solves because they think they fully understand. This is a take off on the old Alexander Pope (1688-1744) quotation, "A little knowledge is a dangerous thing." So the cure is simply the filter of experience. After making enough mistakes to recognize that the map is not the territory, the map is incomplete, and there will be differences between the map and reality, a good experienced officer will use their best judgment to adjust to reality.

Just as John Nash’s mathematics told the truth, but not the whole truth, your experience and judgment should add those missing elements to your mathematical business models. To be sure, numbers don't lie, but they don't tell the whole story either. So I'll draw your attention the the famous quote by Dr. William Bruce Cameron who wrote, "It would be nice if all of the data which sociologist require could be enumerated because then we could run them through IBM machines and draw charts as the economist do. However, not everything that can be counted counts, and not everything that counts can be counted." So it’s experience and judgment that recognizes the things that can be counted that don’t really matter and fills in the things that matter but can’t be (easily) counted.

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