10 Common Biases Companies Need to Eliminate From Their Vendor Selection Processes

Posted by Dan Miklovic on Wed, May 31, 2017 @ 10:00 AM

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Solution Selection - The DemonstrationMany manufacturers are now beginning to invest in technology more so than they have since before the economic downturn of 2009. Whether it is automation, technology supporting the Industrial Internet of Things (IIoT), or other solutions they believe will drive Operational Excellence, an increasing number of respondents to LNS’s APM and IIoT surveys are indicating they plan on increasing spending in the next 12 to 18 months.

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Some of this is likely due to the political climate pushing for more localized manufacturing, some of it may be due to simple economic realities, and some is due to investments to pursueDigital Transformation in their business. LNS’s Digital Transformation Framework is a five-step methodology to succeed in reinventing your business in the digital era. The last step in the process is Vendor Selection. Frequently, our clients engage with LNS or other research firms because they are in this phase of decision making and desire to ensure they remove biases from their selection processes. They recognize that vendors have a natural bias to their own products. System integrators often have a bias towards products that they are familiar with and can offer implementation services. They also recognize that there may well be biases among their own company related to a specific vendor or solution. What they struggle with is understanding those biases and how they can impact their decision-making process.

Understanding Cognitive Bias

Bias is natural and unavoidable. The term cognitive bias relates to the tendency to think a certain way that can lead to decisions that may not be rational or demonstrate sound judgment. There are literally hundreds of classifications of bias. A number of factors can drive these biases, some being social, memory, belief or behavior. Many common biases have minimal impact on us in our professional lives, or it is so minimal it does not lead to bad decision making. One example of this is “courtesy bias,” where people to express a more socially acceptable position than the one they truly hold.

Some biases, once understood and recognized, can easily be compensated for by ensuring objective criteria is used. One such bias is the “IKEA effect” or “the tendency for people to place a disproportionately high value on objects that they partially assembled themselves regardless of the quality of the result," much like IKEA furniture. This explains why companies often tend toward custom built or highly customized applications instead of packaged solutions even if the functionality is identical. By having a straightforward scoring system for functional capabilities is one way to overcome this. Some of the other biases that are less understood but often creep into the vendor selection process and result in less than optimal decisions include:

  1. Anchoring: This bias is the tendency to rely too much or to anchor on one piece of information; often the first information acquired on a subject. It manifests itself in the vendor selection process when the first vendor encounter that meets expectations becomes the favored vendor. The evaluation team will “anchor” on that solution and reject later alternatives, even if they are better.

  2. Bandwagon: This bias is also called groupthink. It is the tendency for people to believe something because others believe it was well. If several people on the selection team seem to start to focus in on a particular solution, bandwagon bias can drive the entire team to select that solution even if better alternatives exist.

  3. Exposure effect: This bias is the tendency to express a preference for a vendor simply because team members have been exposed to the vendor before. Essentially this is the case of familiarity driving acceptance.

  4. Functional fixedness: This bias is the tendency to think of something as useful only in the same way it has been used in the past. An example of this is thinking a particular application used for SCADA cannot fulfill a company’s MES requirements or that a quality application could not be used to perform an EHS function because you have never used it that way before.

  5. "NIH" (Not Invented Here): This bias is the tendency to discount new ideas or products that have not originated within the organization. Similar to the IKEA effect, it places undue preference for history regardless of whether the newer solution is superior.

  6. Pro-innovation: This bias is the tendency to believe new and innovative technology (or way of doing things) is inherently better than existing alternatives. Essentially, it is a fascination with “shiny new toys." Of course, innovative technology may be exactly what is needed to enable Digital Transformation, but the bias must be recognized, and the vendor selection process must not place undue weight on this area.

  7. Reactance: This bias is the tendency to do something from a perceived need to resist attempts to constrain your choice. This often manifests itself as the business choosing a vendor because the IT organization has decreed that the company needs to use a different vendor. This can be one of the most insidious biases in the vendor selection process when IT and OT organizations do not collaborate and take an adversarial position.

  8. Status quo: This is the bias to keep things the same; it is the resistance to change. The old vendor is perceived to be adequate because to adopt a new solution will require process, cultural, or other changes in the organization.

  9. Triviality: This is focusing on the simplest problem because the larger problem may appear too daunting. It might be choosing a vendor who only does shop floor control because the business doesn’t feel capable of tackling an entire MOM project, even though that might be what is really needed. When this bias is encountered, it may be indicative of a need to back up in the Digital Transformation process to either the Business Case Development or the Operational Architecture steps.

  10. Zero risk: This is very similar to the Status Quo bias. It is the aversion to risk. Rather than selecting a vendor with high capabilities but some risk, a less capable but well known and low-risk solution is chosen. Companies often opt for a larger vendor with a capable but average solution over a small vendor with a superior capability.

You may not be able to eliminate bias from your solution selection process but if you understand how it may manifest itself you can design your selection process to avoid the most serious consequences.  To read about how to maintain due diligence and objectivity download our Research Spotlight on maintaining objectivity in solution selection.

Tags: Operational Excellence, Enterprise Quality Management System (EQMS), Solution Selection Guide, Industrial Internet of Things (IIoT), Digital Transformation