Tag Archives: Sourcing is dead

Applying the Ladder of Inference to the Death of Sourcing

Posted on by
1

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.

Did you like this? Share it:

Testing the Theory that “Sourcing is Dead”

Posted on by
Reply

Today’s post is from Dr. Lowell Yarusso, Senior Vice-President, Talent Management, of The Mpower Group (TMG) and a contributor to the News U Can Use TMG blog.

My, how time flies when you’re having fun!  It’s been a while since I posted my thoughts on how Kuhn’s The Structure of Scientific Revolutions could inform the discussion about the “Death of Sourcing”.  In today’s blog, I want to take a look at what how, over the past twenty-five years, we may have been our own worst enemies.  As I do so, the focus of my comments will be on how the way we have chosen to think about Strategic Sourcing has influenced what we have done to demonstrate its value.

Let’s start with a sports analogy.  Growing up, I was a football fan.  One of the things I noticed along the way, and it still seems to be true, was the tendency for new approaches, whether to offensive or defensive play, are always touted as the death knell for the other side of the ball.  For example, when the Shotgun formation was first introduced (By the San Francisco Forty-niner, if memory serves me right), there were stories all over the place, i.e., In the two newspapers I read (Hey, the internet wasn’t even a brainchild yet!) about how “No one” could stop that new offensive formation.  Then, someone looked, not at the results the new formation achieved, but at the underlying structure of the offense.  Viola!  It’s now just a standard option that no defense particularly fears.  The same has happened to the 3-4 defense, the wishbone offense, the Cover 2 defense, and so on.  Whether you’re coaching football or coaching a sourcing team, stagnation is just another word for losing. 

So, what does that tell us about Strategic Sourcing?  By and large, we have been focused on evaluating results, i.e., the effectiveness of efforts to apply the Strategic Sourcing process, and have pretty much ignored the question of the underlying structure, i.e., the effectiveness of the Strategic Sourcing theory.  I believe that has led us to a false sense of comfort that we had developed an approach and process that were so powerful there was nothing left to do but execute.  (The ongoing efforts to evolve the Strategic Sourcing Maturity Model are, in large measure, a good indication that we did not have it right at the outset.)

What we failed to consider was the possibility that the underlying structure has flaws that, while we focused on results, were largely hidden.  That led us to avoid the messy business of thinking through our assumptions and their implications, i.e., of evaluating the theory upon which the process was built.  To Kuhn’s point, our apparent success in solving problems of the type, “How do I reduce the price for goods/services?” and, later, “How do I reduce the total cost of goods/services?”, led us to accept the theory without question.  Recently, there has been a subtle shift in emphasis to problems that are more of the type, “How do I create value across the enterprise?”  And, with this continuing evolution of the nature of the questions we face a realization that we may be operating under a set of assumptions and a theory about sourcing that do not allow us to resolve the real issues Supply Chains face.  Again, like the football team, continually rethinking what we are doing is forced on us by the realities we face.

This is neither the time nor the place to undertake a detailed analysis of the assumptions that have informed Strategic Sourcing Theory.  However, it may be useful to undertake a short thought experiment to see what such an analysis may reveal.  One assumption we may want to test is that Strategic Sourcing must be driven by quantifiable data, i.e., that, if it can’t be measured, it can’t be managed.  The experiment is this:

Consider a sourcing event that focused on the category, “Motor Oil”.   I have a friend who sources that category on an ongoing basis.  His decision criteria focus on traditional “total cost of ownership” variables, i.e., price per quart, Mean Time to Failure, recycling costs, etc.  So far, so good.  But, what are the less obvious value drivers related to Motor Oil.  One is ease of handling.  Purchasing in gallon containers yields a lower total cost of ownership per unit (quarts) of oil used.  But, a gallon container is more difficult to handle, has a greater propensity for spillage, and, because few vehicles have a crank case that holds an even number of gallons, gallon containers lead to overfilling or underfilling as his maintenance staff try to gauge when “enough is enough”.  (The alternative is to add significant time to the oil change process to allow for careful measurement of the exact amount above an even gallon that is needed.)  And, all those partially used gallons further complicate his life.  The issue is, how does he quantify the value of buying in quarts rather than bulk containers?  The answer is, he doesn’t.  He just “knows” quarts are better than gallons and only buys in quarts.  Note, too, that this discussion assumes that the highest value approach to lubrication is motor oil, a conclusion that, as technology evolves, may not continue to be the case.  A focus on “quantifiable variables” may be totally inadequate to deal with that kind of change in the environment.

What does our “quantifiable variables” assumption say about my friend’s approach to sourcing Motor Oil?  Could he come up with a dollar value to add to the decision model?  More importantly, should he?  Or would the effort to do so be patently wasteful and unnecessary?  Of course, some would say, “so, make it a go-no-go decision criteria and be done with it.  That, however, is tantamount to saying, quantifiable variables do not capture everything we need to incorporate in our sourcing decisions.  In other words, the assumption is inadequate to the task and, therefore, the theory and the process need to be revised to accommodate the additional assumption(s) needed to cover this situation.  Or, the assumption itself is flawed and should be discarded. 

Now, I admit that this is an overly simplified example.  On the other hand, if the theory can’t handle the simple cases, how can it be considered adequate for the more complex realities of most of the categories that get run through our existing Strategic Sourcing process?  The point is a simple one.  We need to do some meta-thinking around Strategic Sourcing and not simply accept the current practice because it is current.  Kuhn, I am sure, would agree.

And, as an aside, I hope that you agree as well.  On the other hand,  I would like to do a future blog that addresses the rebuttals to my thinking.  I am sure there must be some but I’m running out of steam so I’ll ask that you help me out by sharing your reactions, whether positive or negative.

Did you like this? Share it:

Strategic Sourcing Is Ready For A Revolution!

Posted on by
Reply

Today’s post is from Dr. Lowell Yarusso, Senior Vice-President, Talent Management, of The Mpower Group (TMG) and a contributor to the News U Can Use TMG blog.

In my last blog, I raised the possibility that the “Curse of Knowledge” has significantly influenced the inability of Strategic Sourcing to deliver on its promise to drive Exceptional Business Results.  In that blog, I indicated that there are several steps that should be taken to address that failure.  One of the steps I offered was a reevaluation of the underlying theory that drives Strategic Sourcing.  That is the topic I want to begin to consider here.

The current debate over the life or death of Strategic Sourcing calls to mind the work of Thomas Kuhn who wrote The Structure of Scientific Revolutions in 1962.  His main point was that science does not march forward in linear progress towards ever-increasing knowledge.  Rather, it jumps as the result of revolutions in the paradigm that informs scientific inquiry.  Between revolutions, the periods Kuhn termed “normal science”, the major activity is applying the currently accepted paradigm to address the problems that are most readily solved using the current paradigm.

How this comes about is fairly predictable.  There is an issue, a question, a class of problems that are not well handled by the current paradigm.  During the period of normal science, those issues, questions and problems are less important or considered too difficult to resolve.  Eventually, however, the scientific community is faced with a crisis because of the unresolved tension between the theory and the practice of the science.  In response, a revolution (a new paradigm) is launched.  The scientific community responds in a predictable way.  Most ignore the challenge.  Some respond with vehement defenses of the existing order.  A few wonder if the challenge is viable.  After a good deal of thrashing around, the new paradigm, if it proves to be useful in addressing the tension, the new paradigm is accepted and the scientific community settles back into another period of normal science based on a new theory about the way things are.

How does Kuhn’s work apply to Strategic Sourcing?  Reviewing the debate in a variety of blog sites indicates that the reactions to Dalip Raheja challenge (click here and here for details) of the “Strategic Sourcing Community” is quite similar to the “Community of Science” that Kuhn was attempting to explain.  Briefly, for the past 25 years or so, Strategic Sourcing has been guided by a shared paradigm, the “Sourcing Process”.  During that time, the members of that community have been largely involved with what can best be thought of as “normal sourcing”, i.e., the effort to apply the process to the types of problems that it is expected to address.  Now, the community is responding to Raheja’s call for a new paradigm as Kuhn would expect any group that is guided by a shared world view would respond if that world view is challenged.

To make the point clear, virtually every Strategic Sourcing practitioner understands that, regardless of the way they have defined the process for themselves, the process they propose is derived from a common source, the A.T. Kearney sourcing process.  Whether they have recognized it or not, that process implies a certain paradigm, or theory, about the business world.  Following Kuhn’s thinking, that means that their focus has been on improving the application of the theory, not on demonstrating the validity of the theory itself.  What has that meant?

For most of the past 25 years, a great deal of effort has been expended demonstrating the results obtained from the application of the theory, that is, the Strategic Sourcing Process, in a wide range of venues.  That is the activity of “normal science” and, in this analogy, would be the natural focus of “normal sourcing”.  As a result, we have a great deal of evidence that specific applications yield demonstrable outcomes, i.e., specific ranges of cost savings.  Whether the original theory underlying Kearney’s ground-breaking process did or did not focus on cost is immaterial.  The problem that sourcing was seeking to address was “excessive supply chain cost” and that problem was being successfully addressed by the process driving the sourcing community.

What was largely unnoticed, or at least unremarked upon, was that a cost focus has an inherent limit on the results that can be obtained.  No matter how far up or down the supply chain you apply the process, there is a finite limit on the cost savings that can be obtained.   Now I doubt that any practitioner or any organization would argue that they have approached that limit as a result of applying Strategic Sourcing.  What has happened is that, once organizations pick the low hanging fruit on the cost tree, they find that the return on subsequent applications of the process quickly diminish.  And that is what has led to the current crisis for Strategic Sourcing.  A second order problem has arisen and the current process has had, at best, limited success dealing with it.

Now, back to Kuhn.  In his explanation of what happens in communities of practice, this is as it should be.  While the current world view is achieving the results the community in practice is seeking, the community will continue to apply it and will seek to measure and demonstrate success in the terms defined by that world view.  It is not that the community does not want to go beyond the terms of the world view.  It is that they can’t do so until they find that there are bigger (or at least different) issues that have to be addressed.  If the existing paradigm is sufficient to encompass those issues, there will be no revolution.  If not, tension will gradually build until some individual proposes a competing paradigm that will provide a response to the crisis issue.  And, interestingly, the new paradigm is often LESS successful at addressing some of the old issues.

Kuhn would say that where we are as a community of practice is on the cusp of a new, emerging paradigm.  The theory has not been articulated as yet but the source of tension has been identified.  What is critical at this point is to return to the underlying theory that supports the Strategic Sourcing process and begin to analyze it.  Until now, it has not been necessary to do so and, in fact, Kuhn would tell us that it would be counter-productive to have done so.  So long as the “Theory in practice” allows practitioners to address the problems with which they are confronted, the theory should be unquestioned and the focus should be on improving the results.  If Raheja (and some others) are right, then it is imperative that we re-examine the theory (and not just the process) that informs our collective thinking about Strategic Sourcing (or whatever it may be called under the next paradigm.).  Only when we have evaluated the effectiveness of the theory can we successfully amend the processes, procedures, and tools.  And that is about revolution, not evolution, of a community of practice.

Please share your comments.  If Kuhn is even partially right, the key at this point is to explore the limits of our current thinking so that we can clarify the direction we need to go.

Did you like this? Share it:

Ask The Expert – Tim Cummins and Dalip Raheja Debate the Future of Strategic Sourcing

Posted on by
Reply

Ask the Expert – The Death of Strategic Sourcing
23 Sep 2010 (Register)

Ask the Expert – The Death of Strategic Sourcing
September 23rd, 15:00 UTC, 4PM BST, 5PM CET, 11AM ET US, 8AM PT US

Join Dalip Raheja and Tim Cummins as they debate the future direction of sourcing and procurement …. and the impacts of today’s market conditions on traditional approaches to selling.

The growing importance of supply relationships is driving greater focus on value and outcomes. Can the sourcing function switch it methods and behaviors to meet changing business needs? And what are the implications for suppliers, in terms of the way that commitments are negotiated and managed?

This program will draw upon a series of articles produced by Dalip and Tim in recent months, with particular focus on Dalip’s series ‘The Death of Strategic Sourcing’.

Our Expert: Dalip Raheja

Dalip Raheja is President and CEO of The Mpower Group. Dalip has over 25 years of experience managing large organizations and change initiatives. He has worked across the spectrums of supply chain management, strategic sourcing, and management consulting.

Prior to founding TMG, Dalip created and led the Strategic Initiatives group for Bank One. This internal consulting organization launched and managed large complex change initiatives for the bank. The group’s capstone achievement was creation of a comprehensive Strategic Sourcing program that achieved over $1.3 billion in documented savings over three years and seamlessly integrated the spend of two other merged organizations. This effort encompassed every area of bank spend and involved both Insourcing and Outsourcing. Prior to joining the bank, Dalip was a Principal and Regional Business Development Manager in the Strategic Consulting Group of Digital Equipment Corporation.

Dalip is a recognized thought leader, a frequent contributor to research papers and articles, and a much sought after speaker on the topics of Strategic Sourcing, Outsourcing and Change Management. Dalip has been responsible for fundamentally altering the paradigm of strategic sourcing methodologies by incorporating change management practices.

Did you like this? Share it: