Spencer Hill narrates a parable of commercial thinking.
Organisations often expend considerable effort reacting or fixing something without tracing it back to a supplier relationship, contract management, procurement, or strategic commercial root. That is always where it originates to some degree and where it could have been avoided or mitigated before the situation turned difficult.
This can be highlighted through the story of the Three Little Pigs, that well-known parable of commercial thinking in the housing sector.
All three pigs needed somewhere to live. With the need identified and the outcome determined, they started to consider their budgets, whether to do it themselves or outsource to a third party, if there were any stakeholders to consult, how they would incorporate sustainability, identify any risks and consider building materials. They may have even gone as far as considering how to measure success and whole-life costs of maintaining the homes.
The first pig cared deeply about the environment, so prioritised sustainability, and wanted to keep costs low. They decided to use renewable materials and picked straw to construct their house. They recognised this would require regular maintenance but did not consider the importance of maintaining the house or the maintenance cost, nor seasonality of straw as they had not conducted sufficient market research. Most importantly, they failed to consider the risks of using straw and, to cut costs further, they decided to build it themselves. The result was a house that the Big Bad Wolf could easily blow down, so whilst costs were low and sustainability was achieved, the overall outcome was not. The pig fled to their neighbour’s house made of sticks.
The second pig who picked sticks had decided this was beyond their technical capabilities, so they outsourced construction. Most fairytale worlds are heavily forested, so this pig knew that the supply of sticks should be plentiful, and whilst there would be maintenance costs, prices should be low. Costs were low for materials, and the pig picked the cheapest builder they could find from the bunch basing the competition purely on price, rather than performing any due diligence. They hoped the wood would come from local and renewable sources and have a sturdy design which could withstand the elements. However, they did not specify that, so to keep its prices down the chosen supplier bought the cheapest materials they could find and built it as quickly as possible.
Finally, as there was no contract signed and no warranty, the pig did not have a trotter to stand on. The result was yet another house which the Big Bad Wolf did not take much time destroying with a huff and a puff, and once again, the pig was at square one with the budget spent, no house and no recourse with the supplier who had delivered what was requested. They both fled to their neighbour’s house made of brick.
So, all three pigs are now in the third pig’s house made of brick. This pig thought through the procurement process and did a great job considering the risk. They knew the Big Bad Wolf would come calling and baked that into their approach. They did their research, observed the market and orientated themselves accordingly. So their business case was thorough and considered the cost to build and maintain. They had identified and mitigated all the risks, including all the necessary stakeholders, and even considered sustainability by ensuring appropriate construction methods and systems were part of the specification. Picking the right suppliers by doing the relevant due diligence on the supply chain to deliver the project ensured it met its specification, allowing this pig to ensure they had a warranty and an ongoing relationship with the chosen suppliers.
The result is a house which could not be blown down, making the Big Bad Wolf resort to a less conventional entry route and ultimately ending up in the cooking pot. It is a fact that pigs will eat anything.
The moral of this story is that there are many Big Bad Wolves out there. Some come in the form of regulations, others in the form of ignored stakeholders, and others in the form of disasters (natural, economic etc), poorly performing contracts, lack of processes and due diligence, and spiralling costs. By taking a wider approach from the outset and including some commercial thinking in the process, the risk can be considerably reduced, and the outcomes of the project can be assured and wide-reaching. So, the next time something has gone awry, consider the commercial origins behind the crisis and consider what you can do differently next time to avoid it.
Spencer Hill is director of commercial services at Altair Ltd, email: spencer.hill@altairltd.co.uk, tel: 07471 314326