Presented with two or three genuinely viable options, their trade-offs, and a clear recommendation, the room chooses among them, and the recommended one wins by comparison with real alternatives.
An example
Months before an activist investor was expected to take a position, the chief financial officer of a listed specialty retailer had to recommend to the board what to do with $400 million in cash. A year earlier the directors had rejected a single buyback proposal as one-sided. This time she brought three options, each worked to the same depth: a buyback, a special dividend, and an accelerated store remodel program. For each she showed returns, risks, how an activist would likely read it, and what the company could not do if it chose it. She recommended a smaller buyback combined with the remodels, and said why. The directors spent two hours on the trade-offs, adjusted the split, and approved a version of her recommendation. When the activist arrived, the board could show it had weighed the alternatives.
Why it works
A single proposal invites a yes-or-no fight, and decision-makers asked only whether to approve feel cornered. Weighing several options at once tends to produce faster, better decisions, and it lets the recommended option look better by comparison with real alternatives. It depends on every option being genuinely viable, worked to the same depth, and one the sponsor could live with; a weak option set up to lose is seen through and discredits the rest.
The thinking behind it
Kathleen M. Eisenhardt Making Fast Strategic Decisions in High-Velocity Environments (1989) found that executives who decided quickly, and performed better, considered several alternatives at the same time. The evidence comes from eight firms in one industry. Three options worked to the same depth give a board that kind of comparison, and a recommendation that wins against real alternatives is easier to approve than a single proposal.
Chip Heath and Dan Heath Decisive: How to Make Better Choices in Life and Work (2013), by Chip and Dan Heath, warns against whether-or-not choices and advises widening options before deciding. A lone buyback proposal is a whether-or-not choice, and the board had already rejected one. Putting a dividend and a remodel program beside it changed the question to which use of cash is best.
When it fits
Decisions with more than one sound path and a skeptical audience suit it: capital allocation, structure, a market entry. You need the analytical capacity to work several options properly, honesty about their trade-offs, and a recommendation you can defend against the others.
How to use it well
Develop two or three options that you would accept if chosen, and drop any you would not.
- Work each to the same depth: costs, returns, risks, what it rules out.
- Put them side by side in one format.
- State your recommendation clearly and say why it beats the others.
- Let the room adjust or combine them.
- Have someone outside your team check that each option is fairly costed.
If you cannot find a second viable option, say so, and explain why the choice really is yes or no.
What it costs and where it backfires
Building real options takes analysis time, and the room may choose one you did not recommend. Some decision-makers find a set of choices harder to handle than a single proposal, and will ask you to pick for them. An option padded to lose is a decoy, the defend-tier Decoy Option, and people who notice will discount every option set you bring later.
When it is used on you
Test the options you did not recommend when a rival brings three and backs one. Ask the sponsor what would make them choose each, and whether anyone outside the team worked on them. If one looks built to lose, say so and ask for a genuine alternative before the vote.