A costly question was not even asked

The food company manager heard about two lonely older men who had developed a production method for excellent orange flavor in a makeshift laboratory. At first glance, this may sound banal, but the orange aroma is complicated to produce and, in a baking mix, makes the difference between an average and an excellent product.

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The manager met with the inventors of the excellent orange flavor and agreed to sell small quantities to the company at a very high price. Sales of the orange cake baking mix increased, and it was decided to buy the small company. The decision was formulated as follows: "buy the company". After lengthy negotiations and the payment of an astronomical sum, the deal was closed.

Assumption based decision

The food manufacturer sent some employees to the dilapidated laboratory to produce the dearly bought orange flavor. But it turned out that none of the remaining laboratory employees knew precisely how the production process worked. The exact process was the secret of the two "old men". By the time the food company discovered, the orange flavor recipe had already been sold to the competition at an even higher price than the company had paid for the lab. The sellers had left for Mexico and could not be reached.

This example is symbolic of a whole series of company mergers, often described as trying to exploit synergies. In the above example, synergies should also lead to more profit for the acquiring company. In retrospect, the decision can be criticized in several ways. What happened?

First of all, it looks as if the company management had done everything right: problem identified (own orange aroma not sufficient), solution sought (external supplier found), solution tested (test with samples and market verification), the decision made (buy a company).

One believed it is more favorable to buy the whole enterprise instead of regarding this as suppliers. This is already the first point of criticism. The decision was based on an assumption. Assumptions are not unusual, and the basis for decisions. However, this acceptance was never questioned.

Challenge your assumptions

Before you decide, please make a list of all the assumptions on which they are based and ask yourself how certain you are that they are real. There is nothing wrong with beliefs in themselves. Ideally, assumptions are simply facts that have not yet occurred. We must make assumptions whenever we plan. But problems arise when we do not question our assumptions, confuse assumptions with facts, or when our beliefs are just wishful thinking.

In our example, it was assumed that the knowledge for production would also be taken over by taking over the company. Questioning this decision would have led to thinking about what would happen if this assumption were incorrect. A conclusion might then have looked different, for example, "buy a recipe" (as the competition ultimately did).

PreMortem Analysis

Alternatively, one could have asked what could have gone wrong after this decision. In such a way, one would have come across circumstances that the made decision would have to be considered. Indeed, the question would have arisen what would happen if the product could not be reproduced precisely. And this is what the consideration of adverse effects is all about. That would have drawn attention to the manufacturing process - which should have been considered much earlier.

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