Category Archives: Knowledge Management

Good Data Will Not Guarantee Good Decisions … But Informed Skeptics Increase the Odds

In our last post, we noted how great it was to see this recent article in the Harvard Business Review on how Good Data Won’t Guarantee Good Decisions because investments in analytics can be useless, even harmful, unless employees can incorporate that data into complex decision making and only 38% of employees and 50% of senior managers, on average, are equipped to make good decisions given good data. As pointed out by the authors, there are too many “unquestioning empiricists” and “visceral decision makers” and not enough “informed skeptics” who can effectively balance judgment and analysis with strong analytic skills and a willingness to listen to others’ opinions, but dissent if necessary.

As a result, organizations need to do whatever they can to increase the number of informed skeptics within their four walls. So what can they do? According to the authors, they can:

  • Train workers to increase data literacy
    and more efficiently incorporate information into decision making so they can make better decisions and
  • Give the workers the right tools
    to turn the data into information.

With respect to training, the authors recommend workshops and coaching. Workshops can teach them that they must understand the factors and calculations behind the numbers and learn to think critically about the accuracy, sample sizes, biases, and quality of their data. Even people who took statistics in college could probably use a refresher to help them apply what they learned then to their current jobs … especially since most people, analysts included, don’t understand statistics. (Remember that there are lies, damn lies, and statistics.) Coaching by people-oriented data experts can provide informal, ongoing training to employees that can gradually improve their skills. Given that surveys indicate that only 25% of all knowledge workers receive effective training in information analysis and use, this is a good start.

With respect to tools, there is a vital need to interpret data displays in a manner that allows them to deduce the information the data contains. Just because most executives choose to go with good-enough data now vs. perfect data later doesn’t mean it’s the right thing, not because perfect data is always a useful goal (as sometimes good enough is good enough), but because, without the right tools and understanding, it’s not always clear if good enough is good enough.

But is this enough?

No.

Three factors are always required for success: technology (tools), talent (training), and transition (change management of the process). Overlooking how the training is to be applied, the technology is to be used, how the results are going to be interpreted, and how the change from dumb data to intelligent information is going to be implemented so that it sticks, the training takes hold, the technology gets used, and the results get repeated is very important. Otherwise, a few moderate wins will be made, but as pressure mounts to get things done, the talent will revert to the old ways and the tools and training will be for nought.

Good Data Will Not Guarantee Good Decisions

It was great to see this recent article in the Harvard Business Review on how “Good Data Won’t Guarantee Good Decisions” now that we are in the age of “Big Data” (which, in business, is Bullshit in Guise) and everyone is diving into their OLAP and reporting tools without even a clue as to what they are (or should be) looking for. There’s data. There’s information. There’s knowledge. There’s the intelligence required to understand it. And then there’s the wisdom to choose the right course of action.

As the authors state, investments in analytics can be useless, even harmful, unless employees can incorporate that data into complex decision making.

In the article, the authors summarized the result of a study by the Corporate Executive Board that evaluated 5,000 employees at 22 global companies. The study separated the employees into three groups:

  • Unquestioning Empiricists
    who trust analysis over judgment
  • Visceral Decision Makers
    that go exclusively with their gut and
  • Informed Skeptics
    who effectively balance judgment and analysis with their strong analytic skills and willingness to listen to others’ opinions but dissent.

Only the latter group are equipped to make good decisions, and, not unexpectedly, only 38% of employees and 50% of senior managers fall into this group.

And when you consider that their analysis also found that the functions where the employees had the highest average scores performed 24% better than other functions across a wide range of metrics (including effectiveness, productivity, employee engagement, and market-share growth), this is not a good thing.

Why is this the case? The researchers identified the following four problems that prevent organizations from realizing better returns on their data investment:

  • analytic skills are concentrated in too few employees
    just because you have a few experts doesn’t mean that the analytics skills will trickle down
  • IT spends too much time on “T” and not enough on “I”
    IT is used to working with functions where business needs are clearly defined, stable, and relatively consistent … when the needs become less defined, IT becomes less able to support them
  • reliable information is hard to locate
    many organizations lack a coherent, accessible structure for the data they’ve collected; the authors found in their survey that fewer than 44% of employees say they know where to find the information they need for their day-to-day work
  • business executives don’t manage information well
    (at least when compared to capital and brand) — they focus on more physical or traditional assets

While not addressed, and possibly not covered, by the study, I’d also add the following to the list:

  • No Good Roadmaps Exist
    Analytics skills are not enough — a guide on how to find the needle in the haystack is also required; take Spend Analysis for example … how many practical guides exist? (At least one.)
  • Lack of EQ
    as an employee needs to not only understand where to look, but when something is worthwhile to chase and when it’s not as there is a need to understand the business impact of what the data might be suggesting which requires understanding the business needs as well as the data

So what can an organization do to get more informed skeptics?

Managing Indirect Spend: An In-Depth Review, Part II.2

Our last post continued our review of Managing Indirect Spend, a new book by Joe Payne and William (Bill) Dorn of Source One that is the culmination of everything they have learned while doing nothing but Strategic Sourcing, primarily on Indirect Spend, since 1992 — before it was cool. Specifically, it discussed the chapter on Market Intelligence, which is critical to the success of any sourcing initiative and one of the most important tools in any sourcing professional’s toolkit. In this post, we review the other non-software tools at a sourcing professional’s disposal that were discussed in Bill and Joe’s tome on Managing Indirect Spend.

The major tools at a sourcing professional’s disposal when conducting market research can generally be classified into the following categories:

  • Traditional Industry Publications
    One of the first stops should be one or more traditional industry publications that publish in-depth case studies that include best practices, savings achieved, and new processes or technologies being employed by suppliers and your competition.
  • Indexes
    Indexes such as the CPI (Consumer Price Index), the ISM Manufacturing Report, the ISM Non-Manufacutring Report, and speciality indexes such as the Pulp and Paper Weekly and American Metal Markets can be extremely valuable. Furthermore, for just about any commodity that can be listed, somewhere in the world is an index tracking it. For example, Mintec has over 15,000 indices in its database.
  • Blogs
    Practitioner, Commodity Specific, and General Supply Management blogs can all be helpful. Of course, we agree with Bill and Joe when they indicate that you should start your search in the latter category with SM and SI.
  • Import Records
    This is a great source of competitive intelligence. You can find out who your competitors are using, what types of products they are importing, and in what volumes. Sites like Panjiva, Import Genius, the Datamyne, and PIERS are great places to start for easy access.
  • Search Engines
    It is surprising just how much information is available through Google, especially if one takes the time to learn advanced search capabilities, like restricting to a domain or a set of document types. There are often a considerable number of presentations in PDF and PPT format on the web which already contain the data you need free for the taking. One just has to find them.
  • Social Networks
    It’s amazing the information that some people will let slip on a social network or how frank they will be in a one to one discussion in a group or forum. Don’t forget to use these tools as well – but be careful what you post – it may be archived for eternity.
  • Research Reports
    While most research reports are sponsored and skewed towards the sponsors, the generic market data as well as the capabilities they describe are always useful, and it’s especially useful to see which vendors didn’t make the tragic quadrant or grave analysis. Sometimes they are just as good for your organization’s needs.
  • Group Purchasing Organizations
    GPOs often have oodles of benchmark data. Your organization might need to join, and use them for some non-critical spend, but a judicious use of their master contracts where other members have more volumes can often result in better rates for the organization with very little effort.
  • Electronic Sourcing Tools
    Some SaaS/Cloud providers will often bake-in aggregate market intelligence into the tools they offer. If the organization is already paying for these tools, use them to their full advantage!

Another tool at the organization’s disposal for a successful sourcing project is a spcialized consultancy or Procurement Services Provider (PSP). A PSP with the tools, consulting experience, and skills in the right categories can jump-start an organization’s indirect sourcing efforts and get significant returns months, if not years, earlier. The key is to find the right one that is incentivized to do the job. As such, the organization should probably look for contingency providers that only get paid when hard dollar savings are realized. Providers that get paid based on man-hour effort often have no incentive to get the organizatio the best deal possible as they are paid regardless and providers that get paid based on estimated savings have no incentive to make sure the savings are actually realized. And while contingency providers that get paid on hard dollar savings may ask for a (significantly) higher percentage, it’s better to pay 30% of realized savings and realize 80% of the estimated savings than to pay 15% and only realize 40% of the estimated savings. In the first case, the organization still nets 56% of the savings in its pockets while, in the second case, it only nets 34% of the savings.

However, be sure to follow the best practices outlined by the authors if engaging a (contingency) PSP, or your organization might not get what it bargained for. Specifically, don’t engage an organization that

  • Baits and Switches
    Insist that if the organization provides a resume, that resource actually works on the project.
  • Overstretches
    Make sure the organization has the resources to complete the project – manpower and financial stability.
  • Asks for Double Payments
    If the consultancy gets a commission for (re)selling a certain product or service, they aren’t out to get you the best deal. Period.
  • Asks for Up-Front Payments on Soft-Dollar Savings Claim
    It’s not a savings until the goods are received, invoiced, and paid at the negotiated price without any extra financial gotchas tagged on.
  • Bakes in Hidden Additional Costs
    Read the Fine Print. If you are responsible for travel, software, hardware, and miscellaneous expense costs, your organization could pay more than it saves.
  • Makes Ridiculous Savings Claims
    If a PSP comes in and promises 30% off the board in a category where the base market index has gone up 20% over the last year, that’s probably not a valid claim (unless your organization has the worst sourcing team imaginable).
  • Lacks Analytical or Technical Skills
    Long-Gone are the days when hardball negotiations or reverse auctions were enough. Creativity and deep analysis are often key to uncovering new savings opportunities.
  • Doesn’t Include Audits in their Proposals
    How else will you insure you get the promised savings? Seriously – if the PSP forgets the audit, you forget them.

Finally, it’s important to note that if the organization uses an electronic sourcing tool, it’s doubly important to remember what not to do or the tool will blow up the event faster than you can read this post. Tools don’t replace the necessary human contact and it is vital that the team does not neglect to:

  • insure the right tool has been selected for the event
  • insure the right suppliers are being invited
  • personally invite suppliers
  • follow up on the RFx/Auctin invitation
  • insure the right specifications are included
  • insure the right training is provided to supplier representatives

There are a lot of tools at a Supply Management organization’s disposal for conducting market intelligence and managing indirect spend, but they have to be used wisely.

At this point SI is going to take a short break, but next month it will continue with Part III of it’s review of Managing Indirect Spend and discuss some examples from the field.

Knowledge Based Sourcing V – The Verdict

This week examined Knowledge Based Sourcing, Booz Allen’s entrant into the Next Level Arena. Described as a competency consisting of a set of powerful techniques used to identify high impact value drivers that result in increased understanding and knowledge of ‘ideal’ cost structures that can be used to develop better relationships with suppliers, focused on reality based improvement plans, and gain an ongoing business advantage, KBS turns out to be a sourcing paradigm largely based on advanced cost modelling and associated analytical techniques.

Since advanced cost modelling is a solid foundation for both strategic sourcing decision optimization and spend analysis, KBS is a good foundation for any sourcing effort, but does it go far enough to truly be a next level supply management paradigm? Let’s look at some of the key tenets of the other entrants into the Arena.

  • High Definition Sourcing (HDS)
    Category Excellence. Adoption. Stakeholder Partnership. Decision Monitoring. BI Focus.
  • Value Focussed Supply (VFS)
    Working Capital Optimization. Revenue Enhancement. Corporate Reputation Protection. Increased Supplier/Customer/Stakeholder Loyalty. Strategic Advantage. Intellectual Capital. Sustainable Value Chain.
  • Next Level Supply Management (NLSM)
    Leadership. Transformation. Corporate Finance Focus. Talent Management. Collaboration. Energy Management. Idealized Design. (Lean) Supplier Development. Complexity Reduction. Working Capital Management. Early Involvement.
  • Next Practices (NP)
    Talent Management. Adoption. Execution. Implementation. Optimization. Utilization. Customer Value Focus. Risk Focus. Mind Share. Information. Alignment.
  • Supply Management Transformation (SMT)
    Innovation.
  • Supply Chain Leverage (SCL)
    Value Creation Framework. Market share. Diversification. Productivity. Tax Effectiveness. Demand Management. Lean.

Hmmm. While most of these start with a foundation of modelling and cost management, that’s as far as the similarity goes. In most of these models, modelling to understand current costs is simply the first step on the path to category excellence, revenue enhancement, working capital optimization, or customer value improvement. It is not an end in and of itself. Furthermore, most of these next generation methodologies start with TVM (Total Value Management), realizing that TCO doesn’t go far enough for most categories — and KBS seems quite content with TCO.

Verdict? While KBS might last a few rounds against SMT, against HDS, VFS, NLSM, NP, and SCL, it wouldn’t last three rounds before getting KO’d. I guess it’s time for Booz Allen to update their model!