Can Procurement get results from game theory? Dr. Sebastian Moritz from TWS Partners explains how.
Game theory is a ground-breaking field of research that has triggered a large number of Nobel Prizes in recent years. Its commercial application, however, hasn’t been widely utilised to date. Even though, when applied to any business, it can help to transform Procurement from an internal, reactive service provider to a proactive and highly strategic value driver, which elevates cross-functional collaboration to a completely new level and ultimately improves bottom line results.
Change is in the air:
- In-house production across the globe is in steady decline with as little as 30% of production now managed in-house in some industries.
- Organisations are becoming increasingly reliant on their suppliers to provide innovative solutions which is leading to more complex and integrated supply chains.
- Procured goods and services are substantial driver of a company’s cost base.
The role of Procurement has never been more critical to an organisation’s success than it is today.
Yet there is seemingly a reluctance to change within the Procurement environment. So why isn’t Procurement changing? A recent Procurement World blog discussed this very issue.
Perhaps it is due to the fact that Procurement teams are naturally risk averse or maybe because Procurement has been a service function for so long. Whatever the reason, the world of Procurement is changing. With increasing pressure to reduce costs and to create a competitive advantage, Procurement teams need to become more strategic and entrepreneurial in their approach to ensure that their business remains successful.
But how does Procurement change? Game theory provides the way forward.
Game theory is a ground breaking field of research which is widely recognised but not widely adopted by businesses. An early example of the success of game theory was seen in the ‘biggest auction ever’ of 3G telecoms licenses in the UK, where it was shown that applying economics to procurement situations has a major impact.
TWS Partners is a company that has more than 50 experts specialising in game theory and industrial economics who are enabling companies to realise the true potential of game theory and transform their organisations by reshaping cross-functional collaboration, achieving significant bottom line results and changing the perspective of an organisation.
Jaguar Land Rover is benefiting from the game theory approach. TWS Partners worked with Jaguar Land Rover to rethink and redefine the role of procurement in the sourcing process, cross-functional collaboration and broader strategy setting process which is a tremendous success story.
The beauty of game theory is that it generates results and ROI quickly which can easily be demonstrated to the rest of the business. Better value-for-money and high quality sourcing decisions build momentum and drive change throughout the entire company, allowing further projects to be undertaken. This ‘inside out’ process sees businesses learning and evolving on a project-by-project basis.
TWS Partners’ unique approach utilises methodology derived from Nobel Prize winning research in game theory, industrial economics and contract theory. The approach rests on four pillars – Negotiation Excellence and Commitment, Cross Functionalities, Advanced Strategy and Market Design and Process and Organisation – conclusively creating a change of perspective, transforming Procurement from a service provider to a value driver.
To help Procurement make this change, TWS Partners has developed the TWS Agility Check. Tailor made to a company’s bespoke needs, the TWS Agility Check is a practical and scientific analysis tool which assesses a company’s performance and provides a roadmap of how to unlock short, mid and long-term potential and provides a blueprint for process improvements which can be a key driver for a future agile Procurement team.