A strategist’s mind examines a problem from the point of view of other players that compete with, buy from, or supply to us. Inability to do so can cause serious errors of judgement.
A window to our minds
To explore how experienced managers handle issues of this nature, I wrote about Mr. Sharma’s problem in December 2017. I narrated his predicament and asked my readers’ opinion on what they would do in his place.
The comments and suggestions were a telling window to how our minds function when we are torn between what we want and what is possible. We simply ignore the latter. But first, a quick recap of the situation.
Mr. Sharma has a problem!
For a major project, India Engineering & Construction Company (IECC) had invited closed tender bids from a number of pre-qualified suppliers of steel. According to tender rules, the lowest bidder would be the sole supplier. If more than one quoted the lowest price, each would be given equal share.
Coincidentally, Standard Metals and Sterling Steel Mills, a much smaller firm, had quoted the same lowest price. As a courtesy IECC had invited Standard to finalise the order. Next, they would issue the order to Sterling.
The Managing Director of Standard Metals had urged his Vice President Mr. Sharma to wrest two-thirds of IECC’s entire requirement instead. He had asked him to highlight their size and reputation. What should Mr. Sharma do during the meeting with customer? Should he accept what he is offered, or go for the bigger prize?
The heart’s desire
Many readers responded to my post and most were reluctant to accept fifty per cent share. The responses were on the lines of:
* Insist on the larger share or decline and put the buyer in a spot.
* Offer additional discounts to sway the decision in their favour.
* Accept reluctantly only if they failed to win 67% volume.
* Buy from Sterling their share of business, or supply to them at lower than the order price.
Only a third of the respondents were unequivocal: they would accept 50% volume. However, all respondents felt Standard was better equipped than Sterling to fulfil the customer’s requirement.
Heart and the mind
The response of the majority surprised me considering all were experienced business managers. And yet, it was not unusual if you consider how the human brain works.
Simply because Mr. Sharma’s boss had asked for a larger share, we were inclined to accept it was possible. The tender conditions were specific and Standard had accepted them when they participated. IECC too could not violate them without consequences.
What consequences? Sterling could complain to the higher management of IECC. If that didn’t help, they could obtain an injunction from the court. That would stop procurement in its tracks and delay the project. Would IECC be unaware of the potential costs and yield to Mr. Sharma’s exhortations?
Bigger is better?
Most of those who pitched for a larger share said they would point out the risks of buying from a small firm like Sterling. Was there really a risk? Weren’t all bidders pre-qualified for their capacity, ability, and quality? What if Sterling had been the lone lowest bidder?
Mr. Sharma could have asked each of these questions and realised it was futile. A bigger share might be possible if the smaller firm failed to fulfil their obligation. That would be later, if at all. Not only was his request inadmissible, IECC would be in grave error if they conceded. But the majority of respondents either ignored these constraints or considered them unimportant.
Arrogance, bias, or….?
Did their responses reflect hubris of a big player? Or, were they suffering from anchoring bias simply because the boss suggested 67% share? Did they believe that being bigger they posed lower risk as a supplier? Was it not confirmation bias? And in its throes were they inclined to disregard the fact that Sterling had been assessed to be fully compliant and capable of servicing the entire requirement?
The game of strategic thinking
Asking such critical questions is the essence of anticipatory thinking and a strategic mind set. It doesn’t help if we remain fixated on our goals and believe assumptions are facts. A few readers had responded with the incredulous query: how could Mr. Sharma expect any different when the rules of the game were explicit? Their wisdom was borne partly from experience, in great measure from the ability to see from the vantage points of other players. For lesser mortals like us, Game Theory can teach us how to inculcate the discipline.