Decline: the agreed explanation is usually an adjacent business you did not have
AT&T bought Time Warner for $108 billion and handed it over four years later. GameStop diversified into phone stores. Fifty-one declines on record, and twenty were explained wrongly enough to be undone.
The most-reversed decision type in the record
Fifty-one declines are on record and twenty were reversed, the highest count of any decision type here. Only 58% were never undone, against 74% across the corpus.
That is unusual and it is informative. Most strategic decisions stick whether or not they work. The decisions companies make about their own decline stick less often than any other kind, which means they are the decisions most likely to be recognized as wrong while there is still time to act.
The shape of the wrong answer
AT&T acquired Time Warner in 2016 for $108 billion on the reasoning that distribution scale would supercharge content, with synergies in between. In April 2022 it took $40.4 billion in cash and spun WarnerMedia to shareholders holding 71% of Warner Bros. Discovery, and cut its annual dividend from $2.08 to $1.11.
GameStop concluded in 2013 that selling discs in malls had a finite future and diversified into adjacent retail. It took $344.2 million of asset impairments in 2017 and sold Spring Mobile for $727.9 million in 2018.
Both diagnosed a declining core and answered by acquiring an adjacent business. Neither answer touched the thing that was declining. The record's question for this decision type is the useful one to ask at the start: how much of the decline can the agreed explanation actually account for.
The fast versions of the same error
PepsiCo rushed Crystal Pepsi to market in 1992 because the idea polled as a phenomenon and speed became the strategy. It reached roughly 1% of US soft drinks against a 2% goal and production ceased in late 1993.
Google sold the Glass developer beta as a consumer identity product before a clear use case existed. The word 'Glasshole' appeared in print in January 2013, before the device had broadly shipped. The consumer Explorer Program ended in January 2015.
AIG expanded into mortgage-linked credit default swaps in 2001 specifically because its AAA rating let it write them without posting collateral up front. The collateral requirement arrived with the downgrade, alongside roughly $30 billion of CDS losses and an $85 billion Federal Reserve facility.
In each case the company had an explanation for its position that was true and incomplete, and committed capital on the incomplete part.
How to run this decision
Drawn from what separated the records that stuck from the ones that were undone. A step nobody in the record can be seen taking is not here.
- 01
Write the agreed explanation down and quantify it
If the story is that the category is shrinking, how much of last year's decline does category contraction actually account for? Put a number on it. Whatever is left over is the part nobody is working on, and it is usually the part you control.
- 02
Separate what is declining from what is merely associated with it
GameStop's disc business was declining. Its store footprint, its trade-in mechanic and its customer relationship were not the same asset, and the diversification treated them as one thing to escape rather than as separate things to redeploy.
- 03
Refuse the adjacent acquisition until the core diagnosis is closed
An acquisition is the most expensive available way to avoid a diagnosis, and it arrives with its own timetable, its own integration work and its own narrative, all of which crowd out the original question. AT&T's cost was $108 billion and four years.
- 04
Ask what makes the new thing work, and whether you have it
AIG could write the swaps without collateral because of a rating. That was the enabling condition and also the single point of failure, and it was described in the decision as an advantage rather than as a dependency.
- 05
Ship the version that tests the belief, not the version that commits to it
Google jumped from a developer beta to a consumer identity product before the use case existed. PepsiCo chose speed over formula. Both spent the launch, which is the expensive half, to learn something a cheaper version would have told them.
- 06
Name the condition under which you would conclude the explanation was wrong
Twenty of these decisions were reversed, which means the evidence did arrive. The variable that decides the cost is how long the company argued with it first.
What it looks like when this is going wrong
- The answer to a declining core is an acquisition in an adjacent category.AT&T, 2016. GameStop, 2013.
- Nobody has quantified how much of the decline the agreed explanation accounts for.The twenty reversed declines on record.
- The enabling condition for the new business is described as an advantage rather than a dependency.AIG, 2001.
- Speed to market is being chosen over getting the product right.Crystal Pepsi, 1992.
- A prototype is being sold to consumers before the use case is stated.Google Glass, 2012.