The confrontation between Procurement and stakeholders
One of this blog's readers recently wondered why procurement constantly conflicts with stakeholders and fails to understand them.
Possibly, many of my colleagues asked themselves a similar question.
As we're trying to cope with the evolutionary changes in the business and facelift (if not upgrade) legacy practices accordingly, we still fear stepping out from our comfortable jurisdiction.
Our stakeholders similarly guard their remits despite any broader transformational trends.
This post turns to classical theories for the explanation of this duality.
The evolutionary theory of economic change by Nelson and Winter
This theory looks at the behavioral aspects instead of neoclassical theory, which assumes that firms exist to maximize profits.
Nelson and Winter viewed firms as having specific capabilities and decision rules and engaging in various 'search' operations, determining their behavior.
Efficient firms drive out inefficient ones from the market (analogous to natural selection.)
External conditions are constantly changing. Firms adapt to survive, but they do not react to each change.
Firms are characterized by their routines.
Nelson and Winter considered that organizational memory is based on routines - regular and predictable decision rules firms use to react to changes. These routines determine the behavior of firms in the evolutionary selection process.
Firms' routines are similar to individuals' skills. They are "deep channels in which behavior runs smoothly."
Sometimes, routines don't work effectively and need to be reinvented. Then firms search for better routines.
Functions of routines
The evolutionary theory distinguishes three functions of routines
- routines as memory ("organizations remember by doing")
- routines as truce (they should "balance differences in cognition and interests between different functional groups")
- routines as target (maintaining routine becomes an objective for individuals.)
Routines as truce
Intuitively, our area of interest is when procurement and stakeholders tend to establish the truce.
Nelson and Winter suggested that the routine as a truce serves as an informal contract between individual motivations and organizational needs.
Each side stays within its functional remits with clear demarcation lines. Attempts to compromise such equilibrium inevitably lead to conflict.
The collapse of the truce
Sooner or later, the emergent situation will expose, e.g., an overlap of functional interests or ambitions. A typical example would be the clash of ambitions over the relationships with a strategic vendor.
Once the truce breaks, disputes over jurisdiction will burst out. The conflict will arise, especially if the disputed topic is subjective or abstract, e.g., bonds with a vendor or knowledge of the market.
The Procurement Process Conflict of Interpretations
Arguably, the nature of the conflict between procurement and stakeholders resides not in the routine itself but in different interpretations of its basic rules, e.g., who owns the supplier relationships.
The fragile truce is maintained between parties as long as they don't enter each other's realms. Yet, the conflict is inevitable once functional interests clash over abstract terms, which cannot be quantified or measured unambiguously.
Therefore, we must remember that our relationship with stakeholders should follow a well-defined routine - a relational contract. This contract must contain mutually acceptable critical terms to avoid different interpretations and the further collapse of the truce.
Unfortunately, the flipside is the ultimate complexity of challenging the status quo. Stakeholders treat such efforts as the attempted breach of a relational contract and resist tirelessly.
Basically, our relations are the truce itself. So hard to establish, so easy to break.
More information on this and other exciting topics can be found in "The Technology Procurement Handbook." It represents 23 years of experience, billions of dollars worth of successful sourcing projects, and 1000s of hours spent on research, analysis, and content creation for the most demanding professional readers.
My Udemy course "Procurement Lab."
My Udemy course "Foundations of Contracts and Outsourcing."
My Udemy course "Adaptive Sourcing: Agile Procurement in Practice."
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