“All models are wrong but some of them are useful”

November 29, 2013

This is my full article contribution as published in Procurement and Supply Australasia earlier this week.

There are times that we get so engrossed into the black and white way of thinking that we forget that life is far from having absolute truths.

George Box put this in a succinct way:

“Essentially, all models are wrong, but some are useful”.

                                              George E.P. Box (Statistician)

Math model

WHAT IS A MODEL?

A model is a particular way of interpreting the world. A great definition can be found here:

“A representation of a system that allows for investigation of the properties of the system and, in some cases, prediction of future outcomes”.

We have been using modelling since times immemorial as, it is our means of understanding the world. Models have always superseded older versions or worked alongside each other satisfying different targets.

e.g. Isaac Newton had conceived a very elegant model of understanding the cosmos which worked very well until it was superseded by Einstein’s (see here for details).

Well, it happens to the best of us.

PROCUREMENT AND GEORGE

George Box’s quote above is relevant to any discipline.

Specifically, in Procurement we have many models we are working with: RFP, RFQ,RFI, Krajlic, ROSNA, Pareto, ABC and the list goes on. But, there is not one of these though that can apply to all situations.

As an example consider this:

If the requirement is to simply get the best price e.g. for commoditized products in fragmented supplier markets, then a strong candidate to use as a model is an RFQ tender.

The RFQ model though is not working for e.g. high spend/high risk categories. That is where you would want the supplier to invest in the relationship and collaborate achieving innovative customer solutions as you are probably also targeting new product development.

Especially when in today’s world the battle is between Supply Chains and not organizations in isolation, strategic alliances are becoming key differentiators for organizational success. RFQs as well as other transactional Procurement techniques do not work for developing such relationships.

I know that we all have personal favourites.

Models that may have produced great successes in the past. So, deep inside we tend to give these models more credit than they deserve.

The important thing here is to recognize every model for what it truly is i.e. just one more tool in our toolbox to choose from and use.

Reading, discussing with colleagues, experimenting,continuously learning allows you to expand your toolbox enabling yourself and your organization to choose wisely the right model for your next procurement project.

So, when on your new procurement project remember dear old George and spend time in choosing the right model for your targeted outcome, because:

“All models are wrong but some of them are useful”.


 

[Image courtesy of fdecomite / flickr.com]

Filed under Procurement, Sourcing Tagged with , ,

12 Essential Tools to maximise Productivity, Profitability, Employee Retention and Customer Satisfaction!

November 16, 2013

In previous posts (here and here) I explained how by using the concept of (Net Promoter Score) NPS you can establish  whether your notion of running a great Team / Organisation can be measured by this simple feedback loop.

But, how can you tell which areas you need to improve on when your internal NPS score is low?

Let’s look at a simple and practical method to do just that.

East Stroudsburg University

THE METHOD

The method I am suggesting is a simple 12 questions survey as detailed in Marcus Buckingham‘s books, “First Break All the Rules” and “Now, Discover Your Strengths”.

The survey was developed by the Gallup Organisation after their 25 year study of more than 1 million employees and 2,500 business units. What they found was a strong correlation between positive answers to this 12 question survey questionnaire and the below key business outcomes:

  • Productivity
  • Profitability
  • Employee retention and
  • Customer Satisfaction

THE GALLUP ORGANIZATION’S 12 QUESTION SURVEY:

    1. Do I know what is expected of me at work?
    2. Do I have the materials to do my work properly?
    3. At work, do I have the opportunity to do what I do best every day?
    4. In the last seven days, have I received recognition or praise for good work?
    5. Does my supervisor or someone at work seem to care for me as a person?
    6. Is there someone at work who encourages my development?
    7. At work, do my opinions seem to count?
    8. Does the mission of my company/department make me feel like my work is important?
    9. Are my coworkers committed to doing quality work?
    10. Do I have a best friend at work?
    11. In the last six months have I talked with someone about my progress?
    12. This last year, have I had opportunities at work to learn and grow?

                                                                                                   Marcus Buckingham, First Break all the Rules

QUESTION CLUSTERS

As you have probably distinguished the above 12 questions form 4 distinct clusters:

  1. Questions 1 and 2 -> “What do I get as an employee?”
  2. Questions 3 to 6 -> “What do I give as an employee?”
  3. Questions 7 to 10 -> “Am I in the right place to make the greatest possible contribution?”
  4. Questions 11 and 12 –> “How can we all give as a group?”

NECESSARY CAVEAT:

As with any such survey, running a productive culture survey means that you have established trust within your Team so that the survey outcomes are useful.

The survey can be run anonymously. This is recommended especially, the first time you run it as this can be used as a benchmark.

Thereafter and provided that you have worked on overcoming any trust issues, it is recommended to seek eponymous feedback so, you can discuss specifics with the respondents afterwards.

 

[Image courtesy of East Stroudsburg University / www.flickr.com]


Filed under Continuous Improvement, Leadership, Team Development Series Tagged with , , , , , , , , ,

Logical Fallacies: Avoiding Common Negotiation Pitfalls

November 3, 2013 1 Comment

This is my full article contribution as published in TheSource e-news earlier this week.

Fail to prepare and prepare to fail! Negotiation is often 90% preparation and 10% execution and so we have enlisted senior procurement professional George Vrakas to give us his top tips on avoiding common negotiation pitfalls.

When you use logic as your approach to conduct a negotiation, the human element of the process still needs to be considered, and thus you need to be able to identify and avoid common errors in reasoning (the so-called logical fallacies) to ensure a successful outcome.
Here are George’s top 6 tips on dealing with the most common logical fallacies:

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1) AD HOMINEM (go against the person not the argument)

Definition: This is encountered when someone tries to counter a claim or a position by attacking the person rather than addressing the argument.

Example: “The current system is ineffective; the vendor who implemented it was only bothered about saving costs.”

Attacking the vendor because of their alleged motives does not address the issue. What is meant by “ineffective”? What were the specifications we gave the vendor? What can be done about it? Is the system used properly? What you need to remember is that character flaws are not evidence of the validity of an argument.

2) FALSE DICHOTOMY (either/or)

Definition: This is encountered when someone reduces the possibilities in a negotiation to a simplistic dilemma i.e. it is “either black or white.”

Example: “Japanese car makers must implement green production practices, or Japan‘s carbon footprint will hit crisis proportions by 2020.”

This is a logical fallacy because it assumes there are only two options: either Japan implements green production practices or Japan will have a disastrous carbon footprint. This logic fails to consider that there may be other reasons that contribute to the carbon footprint. It also limits our thinking e.g. focusing solely on green production we may miss out on another solution such as the increase of use of public transport.

3) SPECIAL PLEADING or ADHOC REASONING (the rules don’t apply as I am special)

Definition: This is encountered when someone suggests that he/she has special privileges that do not or could not apply to others.

Example: In 1996, Steve Jobs exercised a special pleading when he, misquoting Picasso, stated that “good artists copy, great artists steal,” and continued, “we have always been shameless about stealing great ideas.”

Subsequently, Apple went on with a lawsuit against HTC for allegedly infringing on 20 of Apple’s patents. Thus, this is a logical fallacy because what Steve Jobs implied is that Apple can “copy” or “steal” ideas as good artists do, but HTC cannot.

4) APPEAL TO AUTHORITY (It is correct because he/she said so)

Definition: This is encountered when someone appeals to an “authoritative” person or agency to support one’s claims. i.e. “Manager X believes Y, Manager X speaks from a position of authority, therefore Y is true.”

Example: The Swissair airline was once so financially solvent it was called the “Flying Bank.” However, they began to believe they were invulnerable and as a result of failing to question poor decisions and gross mismanagement, and the airline eventually went bankrupt.

This case strongly implies a case of “groupthink.” Instead of looking at the data and the shifting conditions, Swissair executives seem to have been persuaded that top management knows best, and so, did not challenge this notion until it was too late.

5) NON SEQUITUR (It doesn’t follow)

Definition: This is encountered when someone reaches a conclusion which does not necessarily follow the premise of the argument.

Example: “This is new, therefore it is better.”

The fact that something is new and shiny does not mean that it will be better. New processes are generally an enhanced version of older ones, but before you make a decision, you will still need to investigate on whether: a) there is value in changing; b) the process is suitable for your specific needs; c) there are no inherent flaws etc.

6) APPEAL TO TRADITION (If it ain’t broke, don’t fix it)

Definition: This is encountered when someone claims that because something has been done in a particular way for a long time, this is the correct way of doing it.

Example: “We do not need a new ERP system. We have been doing alright using excel spreadsheets for years!”

Quite simply, there is definite value in looking to change the ways we go about things – new technologies (e.g. ERP systems), new processes (Six Sigma, Lean, TQM), the list goes on. Appealing to tradition is particularly prevalent during change management processes when people who are resistant to change raise this argument again and again.

The above six logical fallacies are just a small sample of the wide variety of bad reasoning out there. However, these are a good start on the journey to establishing integrity in logical arguments during a negotiation.

Now, put them to the test in your next negotiation!

[Image courtesy of Les Haines / http://www.flickr.com/]

Filed under Effective Negotiation Tools series, General, Procurement Tagged with , , , ,

Negotiation – what it really is!

September 28, 2013

Often the term negotiation brings to mind high level discussions solving global problems or austere negotiation teams sweating over price or the other usual targets that austere negotiation teams target.

I feel that this is a big misconception and so, in this blog post I will try to provide a wider perspective in an effort to be-free the term from this very restrictive viewpoint.

The broadening of the term definition is a necessary start.

DEFINITION OF TERM: NEGOTIATION

I firmly believe that we can define the totality of the human experience and our interaction with the world as, a negotiation between us and the world in an effort to find meaning and meaningfulness.

From the plethora of available definitions I think the below remark from Danah Boyd on the MIT Media Lab is capturing this nuance well.

“Fundamentally, social interaction is a negotiation between individuals performing within a particular social context to convey aspects of their identity. This negotiation often occurs with little conscious thought; people comfortably interact with one another, revealing what is appropriate while assessing what information is being given.”- Danah Boyd, MIT Media Lab, Master’s Thesis

When you think about it, common verbal or non verbal everyday interaction is effectively an effort to understand and be understood. This is because in its core, during our interaction with others we are negotiating the conveyance of meaning.

If we do this well we reach a positive self-image which assists in the development of our identity, among others.

Hence, the logical conclusion is that the negotiating process is:

i) far more frequent that some may think as it is the most common part of the everyday human experience.

ii) extremely important and so, to develop good negotiating skills as a basic human skill is a must.

Of course, negotiating the resolution of the conflicts in the Middle East has completely different gravity than negotiating the time your son or daughter should come home after a late night.

But in saying that, when we become conscious of the effect good negotiating skills have in our lives we may start aiming to develop more of this essential skill.

This can then become a necessary prerequisite for leading a happier and more fulfilling life e.g. the contemporary demand for work-life balance then becomes a target that good negotiating skills can definitely assist in.

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RESOURCES – FURTHER READING MATERIAL

As mentioned in an earlier blog post, the first step towards a successful negotiation depends on embracing the second position i.e. understanding the other’s point of view (see more about this here).

Over future posts, I will look into common errors in the negotiation process as well as different ways to approach a negotiation.

Moreover, I wholeheartedly recommend the below great resources that discuss effective communication and negotiation skills. These are now classics:

  1. Roger Fisher and William Ury – Getting to Yes: Negotiating Agreement Without Giving In.
  2. Robert Cialdini – Influence: The Psychology of Persuasion.
  3. Dale Carnegie – How to Win Friends and Influence People.

as well as, the Harvard Negotiation Project which has great resources for developing your negotiation skills.

Have you come across other good resources? Feel free to share in the comment section below or send me a private message.

So, how were your negotiation skills today?

[Image credit: 123rf.com]

Filed under Effective Communication, Effective Negotiation Tools series, Procurement Tagged with , ,

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