Author: Larry Berglund
The anchoring effect in decisions can be a self-limiting influence. Our awareness of past practices has a large affect on our future decisions. Our options moving forward are based on what we know and any deviations invite a sense of risk. What we did last month to run a competitive process or prepare for a procurement is likely going to be how we approach our next. When other colleagues adopt similar methods, it suggests we do the same. The price of carpet @ $10.00 per m² has a strong influence on any other price we see-higher or lower. The anchor is the $10.00 per m².
Looking at an example from the last decade, when did procurement realize what it didn’t know? When a contract for copy paper was due to expire, there was relatively little discussion about doing anything different but having procurement running an RFX. Everybody knew that a competitive bid would be issued to the usual suspects and that was the best way to determine value. The purpose of having a paper-based copy was to share and store information for relatively easy access, as filing systems were intended for decades. The status quo remained as is. Take the same situation and ask how to share, store, and retrieve information and invite IT members to the team. Bringing in IT members would probably advance the idea of eliminating paper as the medium in the first place. Investing in digital solutions would be the 2nd right answer, rather than falling into the trap of continuing what worked for the last contract.
The 2nd right answer was to eliminate paper, not perpetuate its use. This same thinking has potential for every decision in the planning phase of procurement. Disruptive technologies are created by people that look at the same problems through a different lens and find a better solution. The advocates for the status quo phase will often dis the new ideas and rationalize why these ideas won’t work.
Finding the 2nd right answer requires stirring up the procurement team membership and looking at the issues from other perspectives. Bringing a team together is like having the right ingredients for a recipe. The recipe can be the same as last time and have the same outcome or change it up with zest and appeal using new, yet complementary flavours. i.e., trying gochugaru instead of cayenne. With a new team of people focused on a problem, we want to include those with a diverse set of values, experience, expertise, and some with no familiarity with the problem.
The latter bring fresh eyes to think outside the books. They aren’t anchored with previous solutions. Give this new team the same problem and see what their suggestions bring to the table. Likely not the same as your first conventional team. You could end up with a blend of both teams to find the 2nd right answer. Having a strongly vetted review process brings more convincing arguments into the solutions.
Alternatively, bring in external advisors or suppliers to look at status quo problems. Vested outsourcing is based on the premise that the supply side of the market knows more than the demand side of the market. Custodial services are a good example of how the 2nd right answer provides breakthroughs.
Most organizations have provided custodial services with their own labour force for several years. They knew where the problems were and where the performances were lacking. Next, they outsourced the problems with little change in outcomes. Until…they found vested outsourcing. Rather than draft an RFP based on their knowledge of managing custodial services, they invited private sector service providers to come in and tell them how the services could be performed; the performance metrics which could be achieved; the staffing level requirements; and the critical element – custodial staff received a bonus for achieving and exceeding expectations. The vested interest was part of the 2nd right answer to increase value. The planning phase needed a change in the point of view to change the outcome.
Another way of finding the 2nd right answer involves the theory of independent judgement. When a VP of Finance comes into a team meeting and implies that running a competitive bid to save on the cost of copy paper seems to make sense for the organization, it can’t help but impact other team members’ opinions on how to proceed. To avoid this bias, have all team members submit their opinions as to which options could be considered, unfiltered, and then debate the options presented. Form a diverse team where opinions can be presented without fear of criticism. Assess the ideas put forward based on their own merit and not with preconceived outcomes. Independent judgement invites a means to find breakthrough ideas as the 2nd right answer.
Imagine running an inventory cycle count where the physical count and book values are reconciled on a daily basis. The status quo in many organizations is only the annual inventory count- the anchor. Shut down operations and pay overtime to get the count right through an annual count. Procurement staff know that cycle counts work but a VP says you can’t because auditors say so. The status quo rules.
The 2nd right answer: negotiate with the VP to run cycle counts concurrent with a commitment to doing a physical inventory count for the last time. Prove it works; improves processes; reduces costs; improves services; get the auditors to sign off; and create a new status quo. The next time you count inventory it could likely involve drones!
Planning is one of the times where you want to take the tabula rasa approach. For any upcoming procurement, ask how can we find better value or outcomes? Forget the anchor of how we did it the last time, what do we need for this time? Invite outsiders inside the tent. What are other thought leaders considering to resolve or address similar issues and how can we tap into more objective possibilities in our planning?
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Author: Larry Berglund
Disclaimer: The views and opinions expressed in this article are those of the Subject Matter Experts and do not necessarily reflect the official policy or position of The Procurement School.