When I was equally ambitious but somewhat younger one of my former employers supported my MBA. (That was during the Dotcom bubble with Internet still in its infancies). I recall one beer-night with fellow-students when we had a discussion on successful recruitment methods. We felt that networking and making good first impressions were important; we believed in and practiced on recruitment tests. We all had nylon shirts and ties and wore mass-made main-street suits from retail stores that have not survived the current e-commerce craze. Two or three years later I re-positioned my career into procurement and sometimes still wear a good suit. (New Zealand merino wool; manufactured in China; bought in Sidney).
Fast forward. This week I attended a Best Value Verkoop seminar with Dr Dean Kashiwagi on one of our core procurement dilemmas: selecting the right partner. The venue was Frankendael which you can see in the picture above this post is a splendid 17th century mansion in the inner-city of Amsterdam. The nice thing about the seminar was that it did not discuss best value procurement, but best value from a sales perspective.
One of the breakout workshops discussed some HR research by Schmidt & Hunter (1998, 2010). The workshop facilitator related this research to recruiting new sales talent. (See the above histogram based on Schmidt & Hunter). There seems some logic in the validity of recruitment methods. I certainly do not believe in astrology as a predictor for HR recruitment success, but then also see limitations in always trusting the outcome of a psychological test. (After all, that can still go wrong more than 3 out of 10 times). HR experts seem to advise a combination of methods (see e.g their update in Schmidt e.a. 2016). Nevertheless, the above ranking has two obvious implications for procurement: one is on procurement staff recruitment; the other is on supplier selection and intended supplier performance. I will start with the latter and will end with the first implication.
In procurement we are searching the holy grail on supplier performance. Following the four basic Van Weele steps some state the tactical work is all about drafting functional versus technical specifications. Best value people focus on selecting the experts on metrics; our legal people urge us to negotiate good contracts. The operational people-folks tell us not to worry because it is all about managing relations. And then the Vested people inform us to focus on a win-win situation with measured Desired Outcomes (Vitasek e.a. 2011, 2017). Which could all be true at the same time, depending on perspectives and context.
But what are the underlying procurement drivers? Considering the architecture of that beautiful Amsterdam mansion, I assume that the first owners probably made their money with overseas trading. Procurement in the Dutch United East Indies Company (VOC) is said to be very ‘sophisticated’. Old VOC records show that the non-product related (NPR) material and services needed for managing the trading ships were bought in a structured and efficient way. The same holds for buying spices and other valuable goods in the East that were then sold all over Europe. However, by our standards such historic procurement activities were not always ethical as people from the former Dutch colonies would agree. Such unethical procurement behaviour between sellers and buyers has continued through the ages. Emiliani (2010, p. 120) analysed US procurement practices in text books from the early 20th century . These books for large American companies described the prominent practices of “price beating” and the advantages of “treating suppliers fairly”. Emiliani for example cited Hysell (1923) who said that “common sense and not short-term expediency should guide [procurement] decision-making”. Hence almost a century back, Hysell concluded that zero-sum tactics used to reduce unit-prices will eventually “compromise the buyer’s ability to reliably obtain quality products and supporting service on time and at a fair price”.
We tend to learn slowly in procurement and still misuse our buying powers to squeeze-out costs. We tell otherwise but also play nasty win-lose games with suppliers as is discussed a recent article by Schleper e.a. (2017) The Dark Side of Buyer Power. They stated that studying unethical procurement behaviour is a somewhat “neglected” academic research topic. In business newspapers we may only see the tip of the iceberg. Buying firms will often deny such behaviour in interviews or surveys and on the contrary may display social desirability bias. Unethical behaviour during negotiations was described in the book “Give and Take” by Karras (1974, 1999) and was recently also discussed in research by Neun e.a. (2012) and Zhao (2000).
Perhaps contrary to common believe [see Vested, see “Getting To Yes” by Harvard / Fisher, Ury & Patton 2011)] a win-win situation does not always yield the best results. A moderately win-lose situation can sometimes be morally acceptable. It does not have my preferences, but buyer-seller markets are not always so transparent that we can easily draw exact lines. Nevertheless some buyers or sellers think they can benefit from nasty win-lose situations. And in the short run they sometimes (?) do.
From a moral perspective this is sad news. Nevertheless, this should be an important starting point for more realistic negotiation training programs. We can only create win-win situations when we are able to avoid and divert win-lose situations. (Hence check the TED-EX movie via the “Getting to Yes” link above).
Moreover and to conclude with, ethical values should be a serious selection criterion in the recruitment process for procurement professionals. Lowest cost is not the only or the ultimate success criterion in procurement. Likewise, hard procurement skills and tricks cannot be the only or ultimate selection criterion for recruiting staff. The procurement professional needs to be a leader, one with a moral compass.
For now I leave it to the HR professionals to find the correct mix of selection methods. At least Schmidt e.a. (2016) give support to combine an intelligence test with an integrity test. This gives a combined mean validity of .78 on predicting future job performance). When we would combine an intelligence test with a structured interview or an unstructured interview, the combined mean validity is somewhat lower.
Ending with procurement. I like the underlying ethical principle of fair buyer-seller relationships in best value thinking. In this respect, discussing best value in an old 18th century mansion was a good experience.
Enjoy the weekend.