Procurement vs. Stakeholders: Same Conflict from Different Perspectives
The procurement management dilemma: transformation vs. stakeholder satisfaction.
Many of us wonder why procurement transformation constantly inhibits stakeholder conflicts and fails to attract their support.
As we're trying to cope with the evolutionary changes in the business and facelift (if not upgrade) legacy practices accordingly, we still fear stepping out from our comfortable jurisdiction.
Our stakeholders similarly guard their remits despite any broader transformational trends.
This post turns to classical theories to explain this duality of procurement management.
The evolutionary theory of economic change by Nelson and Winter
This theory looks at the behavioral aspects instead of neoclassical theory, which assumes that firms exist to maximize profits.
Nelson and Winter viewed firms as having specific capabilities and decision rules and engaging in various 'search' operations, determining their behavior.
Efficient firms drive out inefficient ones from the market (analogous to natural selection.)
External conditions are constantly changing. Firms adapt to survive, but they do not react to each change.
Firms are characterized by their routines.
Nelson and Winter considered that organizational memory is based on routines—regular and predictable decision rules firms use to react to changes. These routines determine firms' behavior in the evolutionary selection process.
Firms' routines are similar to individuals' skills. They are "deep channels in which behavior runs smoothly."
Sometimes, routines don't work effectively and need to be reinvented. Then, firms search for better routines.
Functions of routines
The evolutionary theory distinguishes three functions of routines
- routines as memory ("organizations remember by doing")
- routines as truce (they should "balance differences in cognition and interests between different functional groups")
- routines as target (maintaining routine becomes an objective for individuals.)
Routines as truce
Intuitively, our area of interest is when procurement and stakeholders tend to establish a truce.
Nelson and Winter suggested that routine as a truce is an informal contract between individual motivations and organizational needs.
Each side stays within its functional remits with clear demarcation lines. Attempts to compromise such equilibrium inevitably lead to conflict.
Sooner or later, the emergent situation will expose, e.g., an overlap of functional interests or ambitions. A typical example would be the clash of ambitions over relationships with a strategic vendor.
Once the truce breaks, disputes over jurisdiction will burst out. Conflict will arise, especially if the disputed topic is subjective or abstract, e.g., bonds with a vendor or knowledge of the market.
The Procurement Management Conflict of Interpretations
Arguably, the essence of the conflict between procurement and stakeholders resides not in the routine itself but in different interpretations of its basic rules, e.g., who owns the supplier relationships.
The fragile truce is maintained between parties as long as they don't enter each other's realms. Yet, conflict is inevitable once functional interests clash over abstract terms that cannot be quantified or measured unambiguously.
Therefore, we must remember that our relationship with stakeholders should follow a well-defined routine - a relational contract. This contract must contain mutually acceptable critical terms to avoid different interpretations and the further collapse of the truce.
Unfortunately, the flip side is the ultimate complexity of challenging the status quo. Stakeholders treat such efforts as the attempted breach of a relational contract and resist tirelessly.
Our relations are the truce itself. So hard to establish, so easy to break.
A view from stakeholder's trenches: confirmation bias
The previous theory tried to explain Procurement vs. Stakeholders conflict by looking at procurement as a victim, while another party is unwilling to break the status quo, i.e., being rigid and not welcoming the change.
It would be fair to look at the subject from a different perspective, where procurement might not be that unconstrained in their opinions.
We already discussed the bounded rationality theory and cognitive biases in our earlier posts.
Due to time, knowledge, or capacity constraints, we cannot think completely rationally. Therefore, we tend to apply ready-made mental patterns—cognitive biases.
Let's just take the confirmation bias as an example. It is described as the tendency of individuals to selectively seek, interpret, or favor information that confirms their preexisting beliefs, opinions, or expectations while disregarding or downplaying information that contradicts them.
The possible occurrence of confirmation bias in procurement
The confirmation bias alone (and there are at least 76 such biases) occurs in many familiar situations, e.g.,
- Supplier selection: Buyers may favor suppliers who confirm their preconceived notions or existing relationships without evaluating other potential suppliers or assessing their capabilities.
- Bid evaluation: During the bidding process, procurement professionals may unconsciously seek information that confirms their preferred bid, such as by giving more weight to information that supports their initial impression or expectations while discounting information that challenges them.
- Market research: Category managers may selectively interpret market research or industry reports to align with their preexisting beliefs or assumptions rather than objectively considering all available information.
- Negotiations: Confirmation bias can also impact negotiation strategies in procurement, where professionals may interpret supplier proposals or offers in a way that confirms their desired outcome or expected pricing rather than objectively evaluating them.
Debiasing, or the lack of it
The same post suggests that cognitive biases may result in suboptimal decisions.
Therefore, certain "debiasing" techniques should be applied, e.g., the involvement of cross-functional teams, as the diversity of views and interests may compensate for individual biases.
Let's consider how readily we involve stakeholders in our decisions, especially compliance. If we're to evaluate the supplier selection made by others, are we eagerly involving them in such evaluation?
If so, you work for a mature company with well-established processes and a solid corporate culture. We envy you.
Our experience isn't always that bright. Some procurement compliance teams may establish court hearings rather than a cross-functional opinion exchange. They question rather than listen and don't want strangers to affect their decisions.
We may accept that as much as stakeholders aren't willing to let us influence their demand, specification, and budgetary decisions, we aren't letting them into our proprietary domains either.
Both sides should consider cross-functional work as the mandatory debiasing technique.
Such an approach requires the hardest first step: parties to the conflict must accept that they're incapable of rational thinking without each other.
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