Like many economic disciplines, procurement tends to be driven by traditional economic ideas. Classical economics views human beings as rational, making decisions based on a logical evaluation of the potential outcomes.
However, economics itself has undergone a radical change in recent years with additional research on the behavioral perspective, which considers the role of unconscious, emotional and instinctive factors in decision making. If procurement professionals, employees and suppliers are not acting out of purely rational motives, what does this mean for purchasing?
For one thing, according to behavioral economist Paul Craven, procurement departments should look beyond simply getting the lowest price and consider the ways in which they build relationships with suppliers. Excessive focus on the transactional aspects of supplier relationship management without considering the human side can lead to short-term interactions that provide lower total value over time.
Preferring the path of least resistance
Driving user adoption of online procurement solutions is another area in which behavioral understanding can play a key role. Organizations often assume that tools with the most features and options for every need and situation will be adopted by users who rationally evaluate the functionality.
However, research shows that people typically choose the easiest option available to them. For example, an opt-out program will typically have more success than an opt-in program, even though the outcomes are the same for participants.
This “bird in the hand” behavior may explain why people are often reluctant to adopt new tools or solutions. The perceived cost or inconvenience of learning a new system overcomes the higher ultimate value it could provide because of this natural behavioral tendency.
Procurement leaders should look beyond the rational, quantifiable benefits of new technology to understand how users will perceive it. The easier and more familiar a process is to them, the more likely they will be to adopt it—and, ultimately, adoption is what drives ROI.
Leading by a nudge
Another concept from the field of behavioral economics is the “nudge,” which is a non-coercive way of influencing behavior through suggestion and positive reinforcement. A commonly cited example is putting healthy choices at eye level in stores to encourage people to buy them rather than banning certain unhealthy foods.
In a business world where employee empowerment, creativity, and autonomy are increasingly valued, organizations are becoming less hierarchical and less process-focused. Self-service procurement is one example of this trend, but the issue becomes how to ensure compliance with company policies while giving employees discretion to purchase. “Nudges” built into a purchasing experience can help. For example, Amazon Business customers can designate items as “preferred” or “restricted,” which helps guide users to make optimal choices without placing hard limits on their choices.
Perception is reality
Managing perceptions about the role of procurement by finding ways for procurement teams to partner with others across the business, creating “win-win” situations and offering solutions people can efficiently use can increase the department’s influence and ability to achieve bottom-line results.
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