PRODUCTS
SERVICES
CLIENTS
PROJECTS
ARTICLES
EVENTS
CONTACT
ABOUT US
E-LEARNING

How the right intent could have saved $1.5 billion!

quaker-oats.jpg
Readers who know my work with Clarity State Decision Making will recognise this story. It is about Quaker Oats Company's then-CEO William Smithberg. In 1983, Quaker acquired Gatorade for $220 million from Stokley-Van Camp when they sold out. Smithberg clinched the deal by outbidding Kraft. The investment bankers baulked at Smithberg's bid of $77 per share. They said it should have been $74 or $75 tops. But Smithberg threw caution to the wind because he really wanted the product - it was one of the best he had tasted - and knowing that he had to outbid Kraft, put in a more aggressive number. According to bidding rules, if there was a difference of up to $1 between the two highest bidders, they had to rebid. Smithberg half suspected that Kraft might put in a bid on the top end of $75. So, by going in at $77, they would avoid rebidding, which would surely have pushed the price up. When the bids were revealed, Kraft came in at $75.50 and Quaker walked away with Gatorade. Within 10 years, Quaker grew Gatorade to $3 billion, giving Smithberg an almost cult status in the company.


In 1994, Smithberg decided he wanted another round of acquisition. He was hungry for another Gatorade success and this time found Snapple because, again, Smithberg liked the taste. Following his usual aggressive style, he went all-in and bid $1.8 billion for Snapple. Analysts again baulked but this time to the tune of more than $1billion. It should not even have been worth $800 million.


Framed by hindsight bias and a secret intent which he didn't reveal until much later, Smithberg acquired Snapple. Very quickly, Quaker found out that it was a mismatch with their current product portfolio - from manufacturing, to distribution - things that would have surfaced during due diligence but didn't because there wasn't one. After three years of trying to fit Snapple with the rest of Quaker, they finally capitulated and sold it off to Triarc for $300 million! An erosion of $1.5billion in 3 years! Humiliated by this episode, Smithberg stepped down.


What happened?


Obviously biases got the better of everyone. Smithberg was operating on hindsight and affect bias, and so was the Board. None of them in the Board raised so much as an objection, seeing how Smithberg was so right the first time around. Most got fat off Gatorade and wanted more fat from Smithberg's next acquisition.


Smithberg also got caught up with the excitement of the acquisition. By his own admission, he said, "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 acquisition." What? Nobody questioned it? So everyone was complicit in the bad decision! Obviously, Smithberg would have to take the rap for this, and he lost his job.


But the promise of another windfall wasn't the fuel for this decision. It was something behind Smithberg's thinking which he could not reveal at the time of the acquisition. Smithberg wanted something so large that the company would have to carry a huge debt on. And the reason was because he was fearful of a hostile takeover. By loading his books with this debt, he would deter anyone with designs over the company, and leave him in peace to do his own bidding.


There you are! That was the real reason for the acquisition. The rest of it was just icing on the cake! Sure they did want another blockbuster success to follow Gatorade, but if they had acquired Snapple for $500million, they wouldn't have had to over-extend themselves, making them an even more attractive target! No, the acquisition needed to be expensive, but also needed to have some upside left after the $1.8billion price tag. In American football parlance, this was Quaker's "Hail Mary" pass that came up short. If Smithberg had but reframed the situation and put his fears of hostile takeover as his true intent, he might have kept his job and, more importantly, saved $1.5 billion.


So, when you have more than one intent, always voice them out and choose the most important one. It might just save you $1.5 billion!

Tags:

  • intent
  • change
  • coaching
  • assumption
  • constraints
  • critical
  • perspectives
  • reframing
  • right decision
  • strategic thinking

Get our articles direct to your inbox! - SUBSCRIBE TODAY!

Recent Posts
Dealing with uncertainty with the hypothesis-driven process

Dealing with uncertainty with the hypothesis-driven process

You may be the agent of your own self-destruction

You may be the agent of your own self-destruction

Thinking in systems – because we live in them

Thinking in systems – because we live in them

Start with Why, a la Simon Sinek

Start with Why, a la Simon Sinek

When should strategic thinking be applied, in what conditions and context?

When should strategic thinking be applied, in what conditions and context?

Innovations work for small and medium enterprises too!

Innovations work for small and medium enterprises too!

Time to rethink your manpower policies

Time to rethink your manpower policies

Why everyone needs to think MVP

Why everyone needs to think MVP

What you say is as important as why you say it

What you say is as important as why you say it

You need to fail in order to succeed

You need to fail in order to succeed

{"items":["602691ff588c640017a2624b","602691ff588c640017a26249","602691ff588c640017a26250","602691ff588c640017a26252","602691ff588c640017a2624d","602691ff588c640017a26251","602691ff588c640017a2624c","602691ff588c640017a2624f","602691ff588c640017a2624e","602691ff588c640017a2624a"],"styles":{"galleryType":"Columns","groupSize":1,"showArrows":true,"cubeImages":true,"cubeType":"max","cubeRatio":1.7777777777777777,"isVertical":true,"gallerySize":30,"collageAmount":0,"collageDensity":0,"groupTypes":"1","oneRow":false,"imageMargin":22,"galleryMargin":0,"scatter":0,"rotatingScatter":"","chooseBestGroup":true,"smartCrop":false,"hasThumbnails":false,"enableScroll":true,"isGrid":true,"isSlider":false,"isColumns":false,"isSlideshow":false,"cropOnlyFill":false,"fixedColumns":0,"enableInfiniteScroll":true,"isRTL":false,"minItemSize":50,"rotatingGroupTypes":"","rotatingCropRatios":"","columnWidths":"","gallerySliderImageRatio":1.7777777777777777,"numberOfImagesPerRow":3,"numberOfImagesPerCol":1,"groupsPerStrip":0,"borderRadius":0,"boxShadow":0,"gridStyle":0,"mobilePanorama":false,"placeGroupsLtr":true,"viewMode":"preview","thumbnailSpacings":4,"galleryThumbnailsAlignment":"bottom","isMasonry":false,"isAutoSlideshow":false,"slideshowLoop":false,"autoSlideshowInterval":4,"bottomInfoHeight":0,"titlePlacement":["SHOW_ON_THE_RIGHT","SHOW_BELOW"],"galleryTextAlign":"center","scrollSnap":false,"itemClick":"nothing","fullscreen":true,"videoPlay":"hover","scrollAnimation":"NO_EFFECT","slideAnimation":"SCROLL","scrollDirection":0,"scrollDuration":400,"overlayAnimation":"FADE_IN","arrowsPosition":0,"arrowsSize":23,"watermarkOpacity":40,"watermarkSize":40,"useWatermark":true,"watermarkDock":{"top":"auto","left":"auto","right":0,"bottom":0,"transform":"translate3d(0,0,0)"},"loadMoreAmount":"all","defaultShowInfoExpand":1,"allowLinkExpand":true,"expandInfoPosition":0,"allowFullscreenExpand":true,"fullscreenLoop":false,"galleryAlignExpand":"left","addToCartBorderWidth":1,"addToCartButtonText":"","slideshowInfoSize":200,"playButtonForAutoSlideShow":false,"allowSlideshowCounter":false,"hoveringBehaviour":"NEVER_SHOW","thumbnailSize":120,"magicLayoutSeed":1,"imageHoverAnimation":"NO_EFFECT","imagePlacementAnimation":"NO_EFFECT","calculateTextBoxWidthMode":"PERCENT","textBoxHeight":60,"textBoxWidth":200,"textBoxWidthPercent":75,"textImageSpace":10,"textBoxBorderRadius":0,"textBoxBorderWidth":0,"loadMoreButtonText":"","loadMoreButtonBorderWidth":1,"loadMoreButtonBorderRadius":0,"imageInfoType":"ATTACHED_BACKGROUND","itemBorderWidth":0,"itemBorderRadius":0,"itemEnableShadow":false,"itemShadowBlur":20,"itemShadowDirection":135,"itemShadowSize":10,"imageLoadingMode":"BLUR","expandAnimation":"NO_EFFECT","imageQuality":90,"usmToggle":false,"usm_a":0,"usm_r":0,"usm_t":0,"videoSound":false,"videoSpeed":"1","videoLoop":true,"jsonStyleParams":"","gallerySizeType":"px","gallerySizePx":1000,"allowTitle":true,"allowContextMenu":true,"textsHorizontalPadding":-30,"itemBorderColor":{"themeName":"color_12","value":"rgba(242,242,242,0)"},"showVideoPlayButton":true,"galleryLayout":2,"calculateTextBoxHeightMode":"MANUAL","targetItemSize":1000,"selectedLayout":"2|bottom|1|max|true|0|true","layoutsVersion":2,"selectedLayoutV2":2,"isSlideshowFont":true,"externalInfoHeight":60,"externalInfoWidth":0.75},"container":{"width":220,"galleryWidth":242,"galleryHeight":0,"scrollBase":0,"height":null}}
Search By Tags
  • 10-10-10
  • 4 tests
  • adversaries
  • alice in wonderland
  • align
  • alternatives
  • Amazon
  • archetypes
  • assumption
  • attitude
  • awareness
  • balanced thinking
  • batna
  • BHAG
  • bias
  • bill gross
  • bitcoin
  • blind-sided
  • bloomberg innovation index
  • bracketing
  • brainstorm
  • brand
  • bright spots
  • budget
  • bullying
  • business model
  • can-do
  • causation
  • challenges
  • change
  • cheshire cat
  • clarity state
  • co-creation
  • coaching
  • collide
  • compliance
  • constraints
  • construction
  • contingency
  • convention
  • core
  • correlation
  • cost
  • create demand
  • creativity
  • critical
  • critical moves
  • crowdsourcing
  • culture
  • customer
  • cycles
  • decision
  • design
  • disruption
  • ecosystem
  • emotions
  • ethnography
  • everything
  • exceptional
  • expected value
  • experience
  • failure
  • fear
  • Fire
  • future
  • future-safe
  • FutureScape
  • game theory
  • genius of the and
  • go-to-market
  • governance
  • government
  • groves
  • grow model
  • growth
Follow Us
  • Facebook Classic
  • Twitter Classic
  • Google Classic

Get our articles direct to your inbox! - SUBSCRIBE TODAY!

Registered Address

 

3791 Jalan Bukit Merah,

E-Centre@Redhill, #05-07, Singapore 159471

 

 

Call

 

Singapore: 

9385-8831

 

 

Email

enquiries@aitrainingconsulting.com

© 2014 by

A I Training & Consulting.

All rights reserved