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Facts, opinions and informed judgment

February 17, 2017

When it comes to decision-making in business, what’s of greater value – a person with facts or a person with opinions? The answer, of course, is something of a blend. Good decisions often rest on the use of informed judgment.

Trading relationships are often established through a combination of fact and opinion – but unfortunately not an effective blend. This is due to a variety of factors, rnging from difficulty in establishing the facts through to internal processes or managemnt systems that impose narrow criteria and little room for judgment.

As examples, Procurement, has tended to operate a supplier selection process that demands facts, but only a selective few, which in themselves may not be good indicators of real value. Sales teams, also driven by highly focused incentive schemes, tend to do the same. Lawyers, on the other hand, often base their recommendations or decisions on ‘professional opinion’, a narrow view of risk that may be entirely consistent with classical legal theory, but may have little direct relevance to the overall business situation in hand.

In combination, such blends of fact and opinion regularly undermine business results. They lead to the wrong supplier, or suppliers with the wrong motivations, operating under inappropriate or incomplete contract terms. The result is frustration within business units, who may perceive support groups like contract management, procurement and legal as an impediment to their work. Indeed, in a study currently being conducted by IACCM, the business groups in one major corporation see contracts as irrelevant and contact with their in-house legal team as something to be avoided at all costs. This is hardly a healthy perspective.

For many relatively standard transactions, the absence of ‘informed judgment’ may be of minor impact (though cumulatively it could be significant – few people know). But in larger and more complex relationships, it is frequently lethal. It’s also bad news for the commercial teams that are supposedly supporting the business because their reputation is important for their future.

It doesn’t have to be this way. Support groups must look outward, to discover not only the thoughts and needs of their business units, but also beyond, to the leading practitioners in competitors or other industries. The potential to change measurement systems, to introduce new sources of data, to undertake work on benchmarks and norms, has never been greater, so there really is no longer an excuse. ‘Informed judgment’ should be the mantra.

 

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