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  • Writer's pictureGreat Companies

Linear thinking in a non linear world

To begin with any business it requires capital and when so much of capital is invested it is the need that the business will fetch a good profit. We all have heard about the principles of management and we try our best to apply it in our business as well. Planning, organizing, staffing, coordinating, controlling and decision making are some important management principles. When the manager of the firm is a good decision maker then the company can use the available resources with optimal use and can get a good gain. The firm shall see to it that they focus on how the consumer gets benefitted rather than focusing on the products attributes.

Decades of research in cognitive psychology show that the human mind struggles to understand nonlinear relationships. Our brain wants to make simple straight lines. In many situations, that kind of thinking serves as well.

If you can store 50 books on a shelf then you could store 150 in two more. Similarly, if the price of coffee is 30rupee then you can buy 5 coffee with 100rupee.

But in business, there are many highly non-linear relationships and we need to recognize when they are in play. Even sometimes the experts also fail to take the concept into account. But when people do that they often end up making poor decisions. As Thomas Jones and W. Earl Sasser jr. Pointed out in their back in 1995, the relationship between customer satisfaction ratings and customer retention is often non-linear but in ways that vary according to the industry. In most of the situations, linear thinking will lead to errors. If the industry is competitive the manager will overestimate the benefit of increasing the satisfaction of completely dissatisfied customers.

The point is that the managers should avoid making a generalization about Non-linear relationship across contents and work to understand the cause and effect in their specific situation. Training and building support system can be done.

AI may be expensive but could be of great use. Data visualization which is low tech but very effective technology can be effective.

In recent years number of professions including ecologists, physiologist has begun to routinely factor non-linear relationship into their decision making.

Non-linearity is prevalent in all the business some way or the other.

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