The Business Case Against Gut Decisions
What business leaders can learn from chess players and firefighters about when to rely on intuition
When it comes to big strategic decisions, even the best and most celebrated leaders have their share of failures. Think, for instance, of Steve Jobs launching the Apple Lisa. Or Jeff Bezos pushing the Fire Phone. Or (although the jury is still out) of Jeffrey Katzenberg and Meg Whitman launching Quibi, the streaming platform that’s off to a disappointing start.
For the former CEO of Quaker Oats, William Smithburg, that major failure of business strategy occurred in 1994. At the time, Quaker Oats, then a prosperous, independent company, outbid several other prospective buyers to acquire Snapple, a brand of tea-based drinks. The price: $1.7 billion. Smithburg was sure that this high price was justified by massive synergies. He had acquired Gatorade a decade earlier and made it into a superstar brand, and he was confident that Quaker could use its marketing power to repeat this feat with Snapple.
The acquisition turned out to be disastrous. Three years later, Quaker resold Snapple for less than one-fifth of the price it had paid. The mistake cost Smithburg his job. Among investment bankers, to call a deal “a Snapple” has become shorthand for a gross strategic…
