Whether-Or-Not Decisions: The Narrow Framing Trap

2.

In 1983, William Smithburg, the CEO of Quaker, made a bold decision to acquire the parent company of Gatorade for $220 million. According to a summary of reports from the time, “Smithburg made the Gatorade purchase impulsively, basing the acquisition on his taste buds; he tried the product and liked it.” And his taste buds proved savvy: Thanks to Quaker’s aggressive marketing, Gatorade grew ferociously. The $220 million purchase grew in estimated value to $3 billion.

About a decade later, in 1994, Smithburg proposed buying another beverage brand, Snapple, for a stunning $1.8 billion. It was a price that some analysts squawked might be a billion dollars too high, but, because of Gatorade’s massive success, the Quaker board of directors didn’t protest.

To Smithburg, the Snapple acquisition must have seemed like a replay of Gatorade. Here was another chance to make a bold bet; as researcher Paul Nutt wrote, Smithburg had received “accolades” for the Gatorade deal and “wanted another flashy acquisition.” Snapple was another niche brand with the potential to cross over to the mass market.

The high cost of the acquisition, Smithburg knew, would leave Quaker deep in debt, but to him this was actually a bonus. He was worried about a hostile takeover of Quaker, and he believed the debt would deter potential raiders. So with the board’s support, Smithburg moved quickly, and the deal was completed in 1994.

It was a fiasco.

The Snapple acquisition has become known as one of the worst decisions in business history. Quaker discovered that Snapple was almost nothing like Gatorade. The brand’s teas and juices demanded very different approaches to manufacturing and distribution. And Quaker managed to make a mess of Snapple’s brand image, abandoning the quirky, authentic voice that had helped Snapple succeed. (These trouble spots could have been surfaced before the acquisition, if Quaker’s execs had bothered to investigate.)

When Snapple’s sales didn’t take off the way Gatorade’s had, Quaker executives had an emergency on their hands. The debt burden threatened to bring down the company. Three years later, Snapple was hurriedly sold off to Triarc Corporation for $300 million, one sixth the original price. Humiliated, Smithburg stepped down as CEO.

He later reflected, “There was so much excitement about bringing in a new brand, a brand with legs. We should have had a couple of people arguing the ‘no’ side of the evaluation.”

That’s a pretty staggering confession. Under Smithburg’s leadership, Quaker was contemplating the largest acquisition in its history, with deal terms that had been mocked widely by industry analysts, and yet, unbelievably, there was no one within Quaker arguing against the acquisition!

Quaker wasn’t even making a “whether or not” choice; it was making a “yes or yes” choice.

QUAKER’S DECISION WAS PRETTY egregious, but the company is hardly alone in making an ill-advised acquisition. A KPMG study of 700 mergers and acquisitions (mentioned previously in the introduction) found that 83% of them did not boost shareholder value. This suggests a good rule of thumb for business leaders: If you’ve spent weeks or months analyzing a potential target, and what you’ve learned has convinced you to make an offer, don’t. Five times out of six you’ll be right!

Of course, we shouldn’t expect acquisitions, with their attendant forces of ego and emotion and competition, to be typical of organizational decision making. The average manager, making a normal decision outside the world of deal making, should easily dodge the teenage trap. Right?

For the answer we turn to Paul Nutt, who may know more than anyone alive about how managers make decisions. In 2010, Nutt retired from the business-school faculty of Ohio State University, having spent his 30-year career collecting decisions the way some people collect stamps. He analyzed decisions made by businesses: McDonald’s considering a new design for its stores. And nonprofits: a 250-bed rural hospital deciding whether to add a detox unit. And government agencies: Florida’s Medicaid program contemplating how to revamp its fraud-management system.

In each situation, Nutt gathered data in a prescribed way. First he interviewed the primary decision maker, often a CEO or COO. Then he cross-checked their reports with two other “informants,” usually senior managers who had watched the decision process unfold. Finally he evaluated whether the decisions had succeeded. Not trusting the judgment of the primary decision makers, who’d be biased in their own favor, he asked the informants to assess the quality of the decision. Did the decision produce an option that was successfully adopted? Was the success sustained over time?

A 1993 study by Nutt, which analyzed 168 decisions in this laborious way, came to a stunning conclusion: Of the teams he studied, only 29% considered more than one alternative.† By way of comparison, 30% of the teens in the Fischhoff study considered more than one alternative.

According to Paul Nutt’s research, then, most organizations seem to be using the same decision process as a hormone-crazed teenager.

Organizations, like teenagers, are blind to their choices. And the consequences are serious: Nutt found that “whether or not” decisions failed 52% of the time over the long term, versus only 32% of the decisions with two or more alternatives.

Why do “whether or not” decisions fail more often? Nutt argues that when a manager pursues a single option, she spends most of her time asking: “How can I make this work? How can I get my colleagues behind me?” Meanwhile, other vital questions get neglected: “Is there a better way? What else could we do?”

Finding answers to those questions—“Is there a better way? What else could we do?”—is the goal of this part of the WRAP framework, “Widen Your Options.” Can we learn to escape a narrow frame and discover better options for ourselves?

The first step toward that goal is to learn to distrust “whether or not” decisions. In fact, we hope when you see or hear that phrase, a little alarm bell will go off in your head, reminding you to consider whether you’re stuck in a narrow frame.

If you’re willing to invest some effort in a broader search, you’ll usually find that your options are more plentiful than you initially think.