Excerpt from Chapter 10 Everything is Relative! - Why the Right Frame is Critical
Are You Framed?
In the following example, Brian is dealing with a frame imposed by historical business patterns.
Brian is the new CEO of a company that provides power to several states. His organization is part of a very large utility company. A large contract ($50 million) is currently under renegotiation. This contract is for the maintenance of the power reactor system installed at the plants under his management.
The current maintenance vendor ("Current Vendor") was the original developer and provider of the installed system. Brian's company has never changed vendors. As was expected in this situation, the Current Vendor's price is rather high. Brian sees the situation as "We are being held ransom on the price." The Current Vendor is known to never change prices under the customer pressure.
The competing vendor is a reputable company but with no history of working with Brian's firm. The risk of switching vendors is high-if something unexpected were to happen, the downtime could cost Brian's company $300,000 a day.
It has been decided to take the decision to the operating board, a meeting of all the officers of the company. The Vice Chairman of the parent company usually runs the meeting. After some discussion, the Vice Chairman asks for each person's opinion, Brian being the last person. The opinion so far is unanimous to award the contract to the Current Vendor at their proposed price.
It is now Brian's turn. He says, "I strongly believe that the Current Vendor will 'cave in' on the price if we pressure them. You should personally call them and tell them that we are awarding the contract to the other vendor." The Vice Chairman calls the Current Vendor's CEO with all the officers watching him. At the end of the five-minute conversation, the Current Vendor's CEO proposes a package reduced by $10 million.
All the officers of the company had prior history with the current vendor and believed that the current vendor had never changed its pricing in negotiations, especially not while under pressure. They were operating under an assumption: "Current vendor does not negotiate."
What did Brian know that other officers did not know? He had learned that the CEO of the current vendor would be retiring soon. Brian concluded that the CEO probably did not want to lose a major customer and a major contract before his retirement. It happened that the Vice Chairman paid attention to the same piece of information as Brian did and had the same perspective as Brian.
In the current environment, the stated assumption about the current vendor was wrong. But the rest of the executives were framed by the presence of this perceived constraint in the problem definition. If Brian and his Vice Chairman did not reframe, the company would have overpaid $10 million for the contract.