Is the End of the Wild Digital West in Sight? I Hope So!

The MIT Technology Review recently published a great article on The Dark Secret at the Heart of AI which notes that decisions that are made by an AI based on deep learning cannot be explained by that AI and, more importantly, even the engineers who build these apps CAN NOT fully explain their behaviour.

The reality is that AI that is based deep learning uses artificial neural networks with hidden layers and neural networks are a collection of nodes that identify patterns using probabilistic equations whose weights change over time as similar patterns are recognized over and over again. Moreover, these systems are usually trained on very large data sets (that are much larger than a human can comprehend) and then programmed with the ability to train themselves as data is fed into them over time, leading to systems that have evolved with little or no human intervention and that have, effectively, programmed themselves.

And what these systems are doing is scary. As per the article, last year, a new self-driving car was released onto New Jersey roads (presumably, because, the developers felt it couldn’t drive any worse than the locals) that didn’t follow a single instruction provided by an engineer or programmer. Specifically, the self-driving car ran entirely on an algorithm that had taught itself to drive by watching a human do it. Ack! The whole point of AI is to develop something flawless that will prevent accidents, not create a system that mimic us error prone humans! And, as the MIT article states, what if someday it [the algorithm] did something unexpected — crashed into a tree. There’s nothing to stop the algorithm from doing so and no warning will be coming our way. If it happens, it will just happen.

And the scarier thing is that these algorithms aren’t just being used to set insurance rates, but to determine who gets insurance, who gets a loan, and who gets, or doesn’t get, parole. Wait, what? Yes, they are even used to project recidivacy rates and influence parole decisions based on data that may or may not be complete or correct. And they are likely being used to determine if you even get an interview, yet alone a job, in this new economy.

And that’s scary, because a company might reject you for something you deserved only because the computer said so, and you deserve a better explanation than that. And, fortunately for us, the European Union thinks so too. So much so that companies therein may soon be required to provide an adequate, and accurate, explanation for decisions that automated systems reach. They are considering making it a legal right for individuals to know exactly why they were accepted for, or declined, anything based on the decision of an AI system.

This will, of course, pose a problem for those companies that want to continue using deep-learning based AI systems, but the doctor thinks that is a good thing. If the system is right, we really need to understand why it is right. We can continue to use these systems to detect patterns or possibilities that we would miss otherwise, many of which will likely be correct, but we can’t make decisions based on this until we identify the [likely] reasons therefore. We have to either develop tests, that will allow us to make a decision, or use other learning systems to find the correlations that will allow us to arrive at the same decision in a deterministic, and identifiable, fashion. And if we can’t, we can’t deny people their rights on an AI’s whim, as we all know that AI’s just give us probabilities, not actualities. We cannot forget the wisdom of the great Benjamin Franklin who said that it is better 100 guilty persons should escape than that one innocent person should suffer, and if we accept the un-interrogable word of an AI, that person will suffer. In fact, many such persons will suffer — and all for not of a reason why.

So, in terms of AI, the doctor truly hopes that the EU stands up and brings us out of the wild digital west and into the modern age. Deep Learning is great, but only as a way to help us find our way out of the dark paths it can take us into and into the lighted paths we need.

Will Cognitive Dissonance Lead to the Inadvertent Rise of Cognitive Procurement?

Despite the fact that machines aren’t intelligent, can’t think, and know nothing more about themselves and their surroundings than we program them to, cognitive is the new buzzword and it seems cognitive is inching it’s way into every aspect of Procurement. It’s become so common that over on SpendMatters UK, the public defender has stated that this house believes that robots will run (and rule) procurement by 2020. Not movie robots, but automated systems that, like hedge fund trading algorithms, will automate the acquisition and buying of products and services for the organization.

And while machine learning and automated reasoning is getting better and better by the day, it’s still a long way from anything resembling true intelligence and just because it’s trend prediction algorithms are right 95% of the time, that doesn’t mean that they are right 100% of the time or that they are smarter than Procurement pros. Maybe those pros are only right 80% of the time, but the real question is, how much does it cost when those pros are wrong vs. how much does it cost when a robot is wrong and makes an allocation to a supplier about to go bankrupt, forcing the organization to quickly find a new source of supply at a 30% increase when supply goes from abundant to tight.

The reality is that a machine only knows what it knows, it doesn’t know what it doesn’t know, and that’s the first problem. The second problem is that when the systems work great, and do so the first dozen or so times, we don’t want to think about that someday they wouldn’t. We want the results, especially when they come with little or no effort on our parts. It’s too easy to just forget our knowledge that as great as these systems can be, they can also be bad. Very bad. Much more bad than Mr. Thorogood, who claims to be bad to the bone.

We forget because it’s very discomforting to simultaneously think about how much these systems can save us when they identify trends we miss while also realizing that when they screw up, they screw up so bad that it’s devastating. So, rather than suffer this cognitive dissonance, we just forget about the bad if it hasn’t reared about it’s ugly head in a while and dwell on the good. And if we’ve never experienced the real bad, it’s all too easy to proclaim the virtue to those who don’t understand how bad things can be when they fail. And this is problematic. Because one of these days those that don’t understand will select those systems, but not to augment our ability (as we would only use them as decision support), but to replace part of us and that will be bad. Very bad indeed.

So don’t let your cognitive dissonance get in the way. Always proclaim the value of these systems as decision support and tactical execution guidance, but never proclaim their ability to get it right. They give us what we need to make the right decision (and when they don’t, we’re smart enough to realize it, feed them more data, or just go the other way). They should never make it for us.

Whichever Moron Decided that “Touched Spend” Was a Good Metric Should be “Touched” Out of a Job!

Last week over on Spend Matters, the maverick pointed out that there is a new benchmarking metric being collected by CAPS Research called “touched spend“, which is supposedly defined as a new metric to encapsulate sourceable spend and managed spend … and then some. Specifically:

  • Sourceable Spend
    All company-wide external purchases that could be sourced by supply management (whether they currently are or are not). Does not include such items as taxes, fees, legal judgments or charitable contributions.
  • Managed Spend
    Purchases made following policies, procedures or commercial framework developed by the supply management group.
  • Touched Spend
    Total of all spend that has been bid, negotiated, indexed or influenced in any way by the supply management group during the reporting period.

The first two metrics, appropriately defined (using the definitions provided by the maverick, are quite good, but the latter, not so much. the maverick points out that it could use a “little” touch-up, and, in particular, the word “influence” should be removed. As influence could refer to any policy/procedure/system/tactic/whim put in place by Procurement but executed by someone else, who might have a completely different definition or interpretation of the policy/procedure/system/tactic/whim and source using a methodology that would not be approved by any Procurement personnel under any market (or mental) condition.

But that alone wouldn’t make the definition meaningful. There’s still that word “indexed“. Just because you “index” something doesn’t mean you actually take, directly or indirectly, any action to actually manage, or even influence, the spend. The index can be completely ignored by anyone doing the actual buying. Or, worse yet, interpreted as “the minimum” one should pay (instead of the maximum) and lead to all sorts of problems.

And even though what remains after removing the words “influence” and “indexed” is a decent definition of a spend metric, it shouldn’t be called “touched” spend because that just conveys a definition so loose that anything qualifies.

If we examine the definition of touch, which is to come so close to (an object) as to be or come into contact with it, then my way, your way, anything goes tonight. You sent a policy to an end user, they half read it. The spend was touched! You passed an engineering manager in the hall, gave him a tip on a metals category, that he may or may not have taken into account, the spend was touched! You compiled an index that no one looked at … hey, they spend was touched! Because, in each case, you came so close that you could have come into contact with it … even though you did squat. See how stupid this metric is. How blazingly stupid. If you report this metric to any CFO with half a brain (and the vast majority have a full brain, by the way), your credibility is shot … forever.

It’s just too damn easy to touch too much.

And that’s why whichever moron that decided touched spend was a good metric should be touched, where, to be specific, we use the other definition of touch that is to handle in order to manipulate, alter, or otherwise affect, especially in an adverse way where we define “adverse way” to mean shown the door.

… Don’t Forget the Contract, Part V

In this series, we’ve indicated that contract lifecycle management (CLM), which is becoming big, is useless without good contracts. But good contracts don’t just happen. They have to be created through a careful process. A process that first creates a detailed SOW, then defines the risk, and then defines the dispute process and resolution options where both parties can agree. And that even defining all of this might not be enough to construct a good contract. And we proved a lot of details. And we are at the point where we asked if you do all of the above and everything it entails, can you finally start drafting the contract? And the answer is …

Well, you can, but if you do, the contract will be mostly harmless, and that’s just not good enough. There’s still a few things that need to be figured out first. Possibly a few dozen things, but the following is a starting list.

Performance Monitoring and Rights of Action

Specifying acceptance criteria and performance requirements of each product, service, and deliverable, as well as corrective action requirements on failure is a great start, but there should be performance improvement requirements if performance is not, or barely acceptable, in the beginning or starts to go downhill. One should not have to suffer a supplier continually being late or underperforming just because they continually correct their mistakes at the 11th hour.

One needs to be sure to specify actions that can be taken or retributions that can be demanded if one party repeatedly fails to meet their agreement. In addition, the contract should also specify that both parties may maintain performance data beyond the contract and consider such performance in future sourcing events and contract negotiations.

Unpredictable Events

There’s force majeure, and then there is the collapse of the only mine the supplier has at their disposal, the banning of a product, component, or raw material in your target market, or some other unforeseen, and totally unpredictable event that makes it impossible for one or both parties to continue the contract.

In addition to a solid force majeure clause, there must be an explicit specification of what could constitute an unpredictable event that is contract ending.

Unalterable Order of Precedence

There will be a contract. Appendices. Statements of Work. Addendums. Etc. At some point, contradictions, real or perceived, will creep in. All your hard work to try and prevent disputes that can lead to unforgiving arbitrations or costly litigations could be for naught! Be sure to specify in a clear, and unarguable manner, which document will take precedence in the case of conflicts.

Then, you have to get in the right mindset and figure out how you will ensure the following will be the case when you actually draft the contract.

No double (or triple) negatives anywhere. NO EXCEPTIONS!

Let’s face it. The more negatives, the more opportunity for misinterpretation. A lawyer might understand a 73 word sentence with 3 negatives, but will an average person? Probably not. And if all lawyers fail to understand equally, this could not only be used as a foundation for a lengthy, and costly, litigation that could easily be settled via arbitration but also result in an extremely costly decision not in your favour.

No reliance, or lack there-of, on Oxford Commas

The lack of one single Oxford Comma cost Oakhurst Dairy millions, and it will cost you too. (Source) Every condition should be clearly specified, and where there is any ambiguity, bullets, numbers, or smaller sentences should be used. Lawyer preferences be damned.

No sentences or paragraphs that cannot be shortened for clarity.

Remember your goal that this should be easily readable, and understood, by anyone with a high school diploma. So, if you can simplify it, without losing any meaning or detail, do so.

If you can address the key issues above and figure out how you are going to meet these key drafting requirements, then, and only then, are you ready to start drafting your contract.

But are you ready to complete it? That’s a good question and the answer is …

… Don’t Forget the Contract, Part IV

Contract Lifecycle Management (CLM) — which includes contract creation, management, analytics, and renewal — is becoming big and will likely get bigger still as organizations rely more and more on contracts to control price and mitigate risks. But, as we also pointed out in our first post, contract lifecycle management system is not only useless without contracts to manage, but is also useless without good contracts to manage.

And as we indicated in our second post, good contracts are more than just specifications of product, price, and a few boiler plate T’s & C’s provided to you by legal. A good contract is understandable — by both parties, and, especially, by a party whose first language is not the contract language. And, as we detailed in our second post, it clearly describes the need, which is first captured in a detailed statement of work that the contract will be created around.

But it doesn’t stop there. As detailed in our third post, it also defines the risk, how they are dealt with, who is responsible for mitigation and management, and who has to take action — and responsibility — should a disruption or issue arise. And, more importantly, it doesn’t include an open-ended force majeure, and should a force majeure event happen, it gives both parties a way to continue business, and an out if one party just can’t recover.

But once the Statement of Work, and the risks, are defined, do you start writing?

Nope! You’re close, but you still have to figure out what you will do when things go wrong — and capture how they will be addressed, and resolved, in detail in the contract. This is more than just choosing between arbitration and court, because the choice could be both, or neither, depending on the situation. And it’s more than just specifying the method of resolution, it’s all the terms and conditions around it that specify exactly how you want it handled.

Let’s start with arbitration. Just because you specify arbitration and the counter-party agrees to it, doesn’t mean there can’t be a court case around who the arbiter will be, what powers she will have, who will bear the cost, how binding the decision will be, whether or not there can be any appeals on technicalities, and so on.

You need to figure out who will chose the arbiter, what will be mandatory for arbitration, where the arbitration will take place, and what time limits there will be in initiating, conducting, and concluding the negotiations. Who will be responsible for the cost, under what conditions, and in what amounts or percentages must also be clearly defined. Furthermore, any rules or guidelines that are to be followed by the arbiter are to be completely spelled out. As are any laws they are to be adhered to in any details of the resolution.

Then, you need to specify the terms and conditions around legal action. Legal action should be the last resort, and the contract should be iron-clad forced arbitration wherever it can, and should, be used as litigation is unnecessarily expensive and not always fruitful. Arbitration may not be fruitful, but it’s quick and much less painful even if it doesn’t go your way.

Make sure that litigation opportunities are as limited as possible and that any litigation that could have been avoided, or that is determined by the court to be in violation of the contract, is at the full cost of the party who wrongly initiated the litigation. And make sure that if litigation is authorized, damages are limited to actual monies paid or maximum amounts clearly specified in the contract. And that parties who are responsible for products or services, and any damages that result from these, have appropriate amounts in bonds or insurance to cover worst case scenarios.

And, most importantly, the dispute resolution process must be fully specified in the contract to ensure that the chances of arbitration or litigation being needed are absolutely minimal. If the process is accepted by both parties, it will be embraced by both parties, and even if both parties can’t agree, they’ll try — and each will be much more likely to live with the decision of an arbiter, since they will also have thought through, negotiated, and accepted that process as well.

So, now that you’ve figured out the SOW, the risk management and mitigation, and the dispute resolution, can you start writing the contract? Stay tuned!