🎣 The Catchup

Dear readers,

I sincerely hope you had a better week than I did… 😅

After my bout with a tepid case of covid (which I though would be the most of my troubles for the week…):

• The rest of the family was hit with some weird Covid/stomach flu combination

• A critical water pipe burst in town, shutting water off for 60% of the population (and closing our daycare for 3 days)

• Both the Ottawa Senators and Montreal Canadiens are still playing below .500… 🙄 (Will we ever get a Stanley Cup again in Canada?!)

As promised last week, tonight’s note is about how you can apply the concept of ‘small bets’ to your Procurement transformation initiatives to increase your chances of success.

Enjoy and have a great week ahead.

Best,

Joël

P.S. In case you missed it, here was my most popular LinkedIn post of the week:
A 3-way matched purchase beats a Non-PO Invoice every time…

🌙 Sunday Night Note

Taking good decisions is a skill. This means you can improve your performance over time with systematic practice.

However, materializing good outcomes from your decisions is never guaranteed regardless of your skill level. Why? Well, positive outcomes are a combination of both skill and luck. The more complex the decision, the more luck is involved.

Ergo, you only have partial influence on the outcome of your decisions.

To me, this makes it all the more important to develop your decision making skills… You want to exert as much positive influence as possible over the outcomes of your decisions.

Making better decisions is a 4-step process:

1. Gather information needed to make a decision

2. Take an informed “bet” based on your desired outcome

3. Analyze the outcome and determine which parts are attributable to your analysis and decision (skill) and which parts are attributable to luck

4. Apply your learnings to your next decision in a similar context

Thinking of your decisions as “bets” is useful as you are forced to consider the probabilities of different outcomes. As your decisions are rarely white and black, “thinking in bets” forces you to play in the grey.

Making better decisions over time is hard because:

• You have to be deliberate about doing steps number 3 and 4 (most people never do them…)

• When doing steps 3 and 4, you have to identify your beliefs and biases to sort each element of the decision/outcome into the correct bucket (skill or luck). Iteration is needed to get better at contextual decision-making.

In the context of improving the performance of your Procurement function, you would:

• Gather information your organizational context and relevant best practices to build a business case for change/improvement (“transformation”)

• Make an informed “bet” on the way forward based on your perception of the probable outcomes (e.g. implement an optimized sourcing process supported by a system)

• Analyze the outcome (e.g. project lessons learned) and determine what could have been done better (skill) vs. the inevitable headwinds you faced (luck)

• Apply your learnings to the next similar decision process

The big challenge in the context of a Procurement transformation is that, contrary to something like poker, where you can go through this cycle 30 times in an hour, we typically only set ourselves up for a single shot... We secure a budget, pick a software provider with a rigid RFP, hire an integrator who promises success and hope we nailed the recipe for success. 🤞

Woah… That’s a lot of pressure. No wonder digital transformation failure rates keep steady at 80%... We keep doing this! It’s quite literally the definition of insanity…

So, what's the solution? Build the expectation of failure into your project plan and business case. You must give yourself the ability to go through the decision feedback loop a few times as you implement a new process/tool to find the winning combination of People, Process and Technology for your business.

This is where the concept of “small bets” comes in.

By betting small at the beginning, a poker player can play low risk hands to gather information about the table and the players to establish a winning strategy.

For a CPO or Procurement Director implementing a new transactional system, this would translate to:

• 1-2 pilot phases with the software vendor (depending on the size/scope of the solution)

• Establishing the smallest viable scope of transactions, sites, users, vendors or spend for your pilot(s) (depending on which type of solution you are implementing).

• Similarly, trialing your integrator during the pilot phase(s) (if one is required in your context).

• Building out your contracts in consequence 👆

  • e.g. negotiating the terms for the entire rollout of the solution but with an option to sever the agreement after the pilots if certain acceptance criteria are not met.

This allows you to validate 4 things:

1. Your solution design, once implemented in a “live” business environment, delivers the desired benefits

2. The software vendor’s team is able to deliver on commitments

3. The integrator’s team is able to deliver on commitments

4. The correct internal team members are involved

If, for whatever reason, one of these 4 elements falls short the thresholds required for success, you can analyze the root causes (decision or luck) and make adjustments in a second iteration while the stakes are still low. This could mean:

• Changing/tweaking the design of the solution

• Adjusting your deployment plan based on learnings (e.g. starting with different business units that have particular characteristics)

• Changing the software entirely

• Changing software vendor team members

• Changing the integrator or key team members

• Changing your internal staffing strategy

The way to create space for this iteration in practice is to build pilots into your project plan and business case.

“But Joël! This will never fly with my executives!”

• Businesses with lots of digital transformation experience will have ‘broken their face’ on more than one project in the past. They will appreciate your acknowledgement and mitigation of the inherent risks of transformation to increase odds of success.

• Digital transformation newbie organizations can be convinced by the fact that they are juniors… “So let me get this straight… We haven’t replaced our systems since 2003 but we’re going to get this right the first time when 80% of organizations usually fail?”

In both cases, here’s some documentation to support that number… 😅

• 12 Reasons Your Digital Transformation Will Fail (Forbes)

• Do You Really Know The Financial Impacts of Your Digital Transformation? (HBR)

• Digital Transformation: How to Beat the High Failure Rate (Nagesh Ramesh)

Once you run your pilots and have proof that all the important components are in place for large scale success (e.g. deployment to the rest of the company), then you can go “all in”.

You may still fail (remember you don’t control the luck aspect of your decision) but you’ll be in a much better position to succeed. You will have taken sound decisions.

💭 Quote of the Week

💎 Diamond in the Rough

If you enjoyed today’s note and want to go deep on mental models for better decision making, this book is for you. Written by Annie Duke, it’s a great read on cognitive-behavioral decision science applied to business and daily life. Can you believe she’s still in the top 5 money winners in World Series of Poker (WSOP) history despite having retired in 2010!

Here’s a excerpt:

P.S. I get a small commission if you purchase a book via my link. Read it either way 😅
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