Why making business decisions is harder than ever
“It has long been recognised that industrial buying is a complex process.” So long, in fact, that that is the first line of an article published in 1978.
That complexity, however, has snowballed in recent years. We used to talk about buying centres: a small, dedicated team of senior people who would review potential purchases and make a choice. Today, that term no longer captures the levels of collaboration involved in buying in B2B organisations. Deciding what technology and services to purchase now involves a web of stakeholders across multiple roles and functions – what we might call a buying matrix.
New research by Raconteur shows that the average number of stakeholders contributing to a purchase decision is 11.4. That’s up significantly from 2016, when CEB research found an average of 6.8 people were involved, itself an increase from 5.4 in 2014.
In Raconteur’s survey of 1,100 senior decision-makers in UK businesses with more than 250 employees, 41% say between six and 10 people are involved in the average purchase. Almost a third (32%) say it is 11 to 15, while a fifth (21%) think more than 16 people row in. Just 6% of those surveyed say it is five or fewer.
Those figures remain consistent across all seniorities, suggesting that complexity is increasing for decisions of all sizes. In the C-suite, 16% of those surveyed say more than 16 people are involved, compared to 24% of directors, 17% of department heads and 26% of managers.
Meanwhile, decisions now involve a diversity of job functions. Most departments have decision-making power over four or more products and services, the survey reveals. Finance, IT, operations, marketing and sales wield influence over decisions far beyond what would be deemed their core areas of expertise.
For instance, 55% of all respondents say the sales team is regularly involved in the decision-making process, while 62% of PR and communications leaders say they are involved in the final sign-off for security services and technology, including cybersecurity. Almost half (49%) of respondents in IT significantly contribute to decisions on outsourced services, and a third (32%) of HR leaders have a hand in the final say on cloud and data storage purchases.
More complex businesses
David Clemente is research director in C-suite technology buying at IDC and says he isn’t surprised that the net is widening. “Some of the questions that are asked in the technology investment process tend to expand across the organisation and bring more people in. They rarely contract,” he notes.
In particular, digital transformation means technology platforms touch far more of the average business than ever before. Whereas a decade ago a specific product might have been used by just one function, today, technology forms a web of interconnected tools that span an organisation.
Buying a new product might mean training people right across the business or integrating multiple existing systems. Clemente says, “Whether it’s enterprise resource management or a cloud migration, if it’s something that a lot of the different functions are going to use, or it will impact them in some way, usually they’ll have something to say about it.”
Riccardo Drentin, partner at McKinsey & Company, thinks the trend has been underway for decades, with buying complexity following a “hockey-stick” curve.
“In the 80s, procurement was just about sending out an order and getting the products that you wanted,” he says. “By the 90s, there was an evolution and procurement started to be a function, with more process and more alignment with internal stakeholders. Then in the early 2000s, digitisation started to take place, leading to more complexity. That saw a stable [increase] year on year until the Covid-19 pandemic.”
Managing growing risks
That increased interconnectivity means the risk of adding any new technology is magnified. “If something doesn’t go as planned, it ripples across the business, both more broadly but also faster,” says Clemente. “For a large organisation that’s bought into one or two public cloud services, if there’s a disruption you’ll know about it within minutes because it propagates so fast.”
He thinks that is a major factor in why leaders are collaborating more on purchase decisions. “The cost of getting it wrong can be career-ending. So there’s an incentive to disperse the decision-making so that no one person can be held responsible.”
The changing business landscape is also fanning the flames. Following the 2008 financial crisis, many sectors have seen their compliance load increase, particularly when it comes to data protection and anti-money laundering regulations. That increases the importance of input from legal and IT teams, for example.
More recently, inflation and soaring energy prices are piling pressure on departmental budgets. The British economy is facing a long period of recession, according to the Bank of England, with weak economic growth expected until 2024. Less than a fifth of European CEOs expect the outlook to improve in the short term.
In this climate, having a tight grip on procurement is becoming a “matter of survival” for leaders, says Drentin. Many companies have already saved what they can by passing on costs to customers, but in some fields they have now hit that ceiling and inflation will start to eat into profits.
“At the moment, your risk is that your budget will skyrocket,” he adds. “Functions like sales and marketing that have never been historically very deeply involved in sourcing strategies are now asking questions and looking for transparency.”
The pros and cons of complexity
Is this growing complexity a good or bad thing for leaders? “I think it’s human curiosity to step into a territory that is not their own,” says Drentin, who cautions that it could be going too far. “Rather than being constructive, it is [sometimes] creating even more work and making everything more complicated. Some procurement leaders have told me they spend five times longer in internal meetings than they used to.”
Dr Yetunde Anibaba, a decision-making expert at Lagos Business School, says involving more people in a purchase decision can provide a vital diversity of perspectives. But she warns, “If the team is not properly constituted, it’s not going to make a difference. More people should only get involved to the extent that they add value to the process.”
But the leaders Raconteur surveyed have a more rosy outlook. More than eight in 10 (85%) agree that they valued regular communication, insights and updates from the different functions in their organisation when they make a decision. And 83% say they would benefit from even more visibility and understanding across the business.
That’s a good thing, because none of the experts thinks the trend will reverse any time soon. Collaborative, cross-functional decision-making, it appears, is here to stay.