The Unintended Consequences of Business Decisions

The Unintended Consequences of Business Decisions
(Marketing Memo October 2009)

"For every action there is an equal and opposite reaction," Sir Isaac Newton famously observed. In business every action you take has both the consequences you intended and the consequences you did not anticipate. Before making strategic decisions, try to anticipate the consequences of your actions--both good and bad.

The Consequences of Corn for Ethanol and Cash-for-Clunkers Programs

Programs designed to reduce the use of fossil fuel produced unintended negative consequences instead. Some US farmers started planting corn instead of other essential crops, and Mexican farmers sold their corn to ethanol producers. Among the results were shortages of corn for human and animal consumption, as well as increases in the prices of corn and ketchup and other corn byproducts. In addition, ethanol production proved to consume more fuel than it saved.

More recently, the Cash-for-Clunkers program has rendered still drivable cars inoperable as dealers must destroy the engines of the clunkers. How much fuel will it require to transport the clunkers to ugly auto graveyards? What happens to the businesses that once harvested used auto parts for resale? What will happen in foreign countries that previously imported our clunkers? Will their citizens now drive still older cars that are worse polluters?

The Unintended Consequences of Your Business Decisions

Many of your business decisions also lead to unintended consequences. If you stop supporting a legacy product to force customers to migrate to a newer product, you could push customers to a competitor's products instead. Excessive allegiance to an outmoded platform may also push loyal customers to your competitors, for example offering just CDMA cell phones when customers want bimodal CDMA/GSM phones.

As these examples demonstrate, business people should think through the chain of events a decision is likely to trigger. Questions to ask include:

What will be the effects of this course of action?
Who will be affected and to what extent will they be affected?
What is the likely effect on your customer relations, sales, and competitive position?
What are your alternatives?
What are the effects of these alternatives?
Which course of action is most beneficial and least harmful to your company?

Talk with your customers, employees, competitors, and industry experts to gain insight into how your decisions will affect different constituencies. Then, determine whether the change is worth the consequences. Will switching to a health plan where employees pay 60% of the premium make it much harder to hire new employees? Will assigning an employee to create and operate a blog take the employee away from revenue-generating activities? Too often companies make strategic decisions and then are surprised by the negative consequences of these decisions. We can help you explore the consequences of strategic decisions.

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