As the first post in this blog for 2011, let me begin by wishing you a happy and successful New Year.  In many ways this year is already shaping up better than the last.

In my last post, I concluded that any response to Dalip Raheja’s claim that “Sourcing is Dead” should begin to look more deeply into the concept of ‘sourcing’.  The goal is to deepen our understanding of sourcing and how we think about it.  Chris Argyris (http://en.wikipedia.org/wiki/Chris_Argyris)  provides a handy tool with his Ladder of Inference.  Briefly, the Ladder of Inference describes how we move from the reality we perceive to taking action on that reality.  Argyris proposes that there are several steps in that process.  They are:  Perception, Selection, Interpretation, Assumptions, Conclusions, Beliefs, and, finally, Action. 

With apologies to Argyris for oversimplifying a very complex concept, here is what the Ladder of Inference tells us.

1)      We are confronted with a reality that has a virtually infinite data field.  In order to take action, we first narrow that field by selecting what appear to be the salient pieces of data and, from that point forward, we seldom question the selection we have made. 

2)      We then interpret the data we selected, that is, we create our personal account of what that data means.  Based on that interpretation, we develop assumptions and create a “story” that lets us make sense of the situation.  That story will inform us as we go forward and largely determines the conclusions we arrive at, that is, we create a moral, i.e., something to be learned from the story. 

3)      Based on the conclusion we draw, we adjust our beliefs to align with the moral we have created and take action that is consistent with our beliefs.  And, in most cases, we run up the ladder without even thinking about it. One of the keys here is to recognize that the Ladder of Inference is largely unconscious.  (As an aside, Argyris called becoming more aware of the steps we are taking on the Ladder of Inference “Action Learning”, a concept that is NOT about learning by doing but about increasing our understanding of what drives our actions.)  So, what can we learn by becoming more aware of the Ladder of Inference, that is, by applying Action Learning to increase our understanding of the “death” of Strategic Sourcing?

To begin with, I won’t bore you with a detailed review of each step.  Suffice it to say that we can make errors at every level on the Ladder of Inference.  I’m going to start at the bottom and try to show what can go wrong as we unconsciously (and almost instantaneously) run to the top rung and take action.  Simply note that we can make errors at any step on the Ladder of Inference and any errors we make will lead to actions that do not achieve our goals. 

First, we may misperceive reality.  That gives us a false starting point and virtually ensures that we will not take the most appropriate action as a result.  So, could we be missing something at the “Perception” step on the ladder?  In other words, could there be data that we simply did not see?  The answer to that is difficult to evaluate.  We’d have to go back to the starting point and evaluate what the thought leaders at A.T. Kearney included in their field of perception at the outset.  For now, it is probably O.K. to assume that their perception was accurate, i.e., that they knew of all the data that would impact sourcing.  As we will see shortly, that is really not the most significant source of possible error as we move up the Ladder of Inference so we will simply assume that Perception is not the source of flawed action in the development of Strategic Sourcing. 

So, let’s continue up the ladder and see what else may be contributing to the less than satisfactory sourcing results that vex our efforts.  The second step on the Ladder of Inference is Selection.  Argyris pointed out that, whether we are aware of it or not, we have to select a small part of the data available to us as the basis for our actions.  We can’t possibly consider ALL that is out there (think information overload) and, because we do this constantly, we frequently overlook the impact our selection has on how we analyze any given situation. 

How does that apply here?  Simply put, could we be missing something at the “Selection” step on the ladder?  The answer seems to be, “Probably”.  Few, if any, who commented on Dalip’s original blog argued that our actions are achieving our intended consequences in Strategic Sourcing.  Or, to be more kind, few would argue that the sourcing process is robust enough to achieve those results in every case.  And, most would agree that at least some of the data we selected, i.e., that price / cost is the key variable in strategic sourcing, needs to be amended and that we need a greater focus on value throughout the supply chain. 

That, in some respects, ends the discussion.  If we created a process based on a faulty selection of the data on which to focus, it should be clear that we cannot adjust the outcomes without revisiting our selection criteria.  If Selection was faulty, then continuing with the effort to “adapt” the current Strategic Sourcing process without identifying our mistakes means we do not have the data necessary to make informed changes to the way we act.  The old definition of insanity, i.e., “Doing the same thing over and over and expecting different results”, should come quickly to mind.

Even if the selection was accurate and included all and overlooked none of the key data necessary to successfully define a Strategic Sourcing process, the next step on the Ladder of Inference, Interpretation, has to be factored in.  Here is where it gets exponentially more difficult.  While we seldom consciously make the Selection of data we are, at least in most cases, aware at some level that we have narrowed our viewpoint to focus on what we think is applicable.  It is very unlikely that we paid any attention to what informs our efforts to interpret the data we selected. 

In this regard, one of Argyris’s key insights is that our interpretation of reality is colored strongly by our Beliefs, one of the later steps on the Ladder.  And, our Beliefs about, in this case, sourcing, are a personal construct that is largely based on our prior experience in the same or similar situations.  In other words, if we have seen sourcing efforts that were debunked or praised because of their impact on price or cost, we are likely to develop an, and this is important, unstated and unconscious belief system that places high value on price and cost as measures of success.  That belief system will drive our interpretation of all the data about sourcing that we selected as we created a Strategic Sourcing process.   Argyris calls this a Reflexive Loop that will ensure we continue, in this case, to (unconsciously) place a higher value on price and cost outcomes than on any others as we move forward. 

If we stop here, it should be clear that there are many ways in which the original effort to create a Strategic Sourcing process could have gotten off track.  Thus, even if the meaning we added and the data we selected was spot on, the Assumptions we make, i.e., the story we tell ourselves to make sense of the situation, may not be appropriate.  If everything through the assumptions is spot on, we may still draw the wrong moral from the story or we may just as easily generalize the moral, that is, come to conclusions, in a way that takes us off track. And so on.

Some time ago I raised the issue that we need to start evaluating the theory and not the effectiveness of its application or we will never resolve the issue, “Is Strategic Sourcing dead?”  Applying Argyris’s Ladder of Inference is one way to begin evaluating the theory behind the Strategic Sourcing process and not the results obtained when the process is implemented.  The key is to make the Perception, Selection, Interpretation, Assumptions, Conclusions, Beliefs, Action sequence more conscious and to then consider what the process would look like if we made different choices on each rung.  Of course, throughout, we have to be aware of the way the Reflexive Loop can lead us astray as our current belief (Sourcing is alive and well or Sourcing is dead) can impact our results. 

Does the Ladder of Inference make sense to you?  Do you think this is a useful starting point for reassessing the Sourcing is Dead controversy?  Let me know what conclusions you draw from applying the Ladder to gain a better understanding of the Sourcing Process.