A recent survey by Gartner found that 77% of business buyers found their last purchase decision to be “complex or difficult.” So, why is that and what’s behind this trend?
According to Gartner, in business to business transactions the average number of individuals involved in the buying decision process has increased from 5.4 a few years ago to an astounding 11 in today’s business environment. That is an incredible statistic and one that leads to a number of questions for today’s corporate executives.
First and foremost, how did this decision process expansion happen? Why would any company need 11 decision makers to finalize a decision to purchase products or services for the company? And, finally and probably most importantly, how has this change affected corporate profits?
Well, we are sure in some organizations, the “Gang of 11” (as we call them), has worked cohesively, concisely and consistently to make the best business decisions for the company, thereby always guaranteeing financial success. This must be true or the trend would be to reduce the number of decision makers, not increase the number. If you believe this, I have a bridge to sell you at a very good price!
Looking at the opposite side of the spectrum, there are obviously organizations that just can’t get consensus on any purchasing decision from this “Gang of 11” or any size group for that matter. This is certainly a recipe for disaster in those organizations.
While the buying decision process in recent years has taken on this new trend of growing teams, the decision making process must be one that includes all of the key stakeholders within the organization. The salient point here is KEY stakeholders. Some question why companies would involve individuals in the buying decision who would not be affected by the final decision to purchase a product or service. Others believe having additional input in the buying process is extremely valuable. There are obviously arguments that can be made for both of these decision process strategies.
The real question is not how large the buying team is, the real question is how effective is the buying team in always making the right decision to purchase products or services that have a positive impact on a company’s bottom line.
To put a real-life example to this team based decision process, we’d like to share a story of a large wearing apparel retailer involved in re-negotiating a long-term contract. The organization’s Logistics Department was working with one of their major freight carriers to re-negotiate a new multi-year contract agreement.
The company’s Procurement Department was then asked to get involved in the negotiations with the freight carrier to assure a prompt and positive outcome, as the negotiations were dragging on for some time.
The Logistics Department decided to involve their new Freight Audit firm by having them perform a Comprehensive Benchmark Analysis based on its vast data base of actual shipping transactions that mirrored the retailer’s shipping characteristics. This was done for the sole purpose of determining just how much savings the company should expect to receive in the contract negotiation process that was now being handled by both departments.
This dual decision approach went on for months with neither side working collaboratively with the other to come to a decision that would be in the best interest of the company. After several months of receiving various pricing proposals from the freight carrier, the Global Procurement Group decided that the negotiations had gone on long enough and it was now time to take the carrier’s latest and hopefully greatest pricing proposal and close the deal.
However, the Benchmark Analysis findings indicated there was a huge delta between the carrier’s latest and greatest offer and the results from the Benchmark Analysis. The Global Procurement Group then made the unilateral decision to close the deal after getting heat from the freight carrier that the negotiations were dragging on way too long.
The decision to accept the carrier’s final proposal and end the negotiation process without using the Benchmark Analysis data turned out to be an extremely poor decision for this company. The retailer actually left somewhere between $4 Million and $5 Million on the table that could have been on their bottom line but ultimately wound up on the bottom line of the freight carrier.
So, the moral of the story is it’s irrelevant whether there is a “Gang of 11” or more or less individuals involved in the purchase decision, The real key is ensuring the decision makers factor in ALL of the data available to them to ensure their decisions are totally fact based.
Making decisions to close a negotiation because a freight carrier decided the process was taking too long is certainly not a good decision for any company. And, you can bet the carrier knew the shipper left $4 Million to $5 Million on the table and that’s why the pressure was put on them to end the negotiations. The carrier was ultimately in the driver’s seat and scooped the money up off of the shipper’s table.
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