People who make forecasts about AI assume that because AI is a virtual machine (albeit an adaptive one), that it will be good at things we’ve come to know machines are good at and bad at everything else.
Strangely, the past few years have disproved this – AI seems quite good at writing poetry, producing artistic works of decent quality, making jokes, and even debating.
Our team often encounters this same assumption when we introduce Arkestro AI to a team of strategic sourcing professionals. But what if AI were actually (and perhaps even paradoxically) most helpful in the soft skills of negotiation?
Emotional frameworks – why it is rational to evaluate the role of emotions
Aside from the groundbreaking work of Arkestro advisor Damien Beil, upon which the original concept of our AI engine is based, my all-time favorite article written about procurement auctions is titled: “Understanding auction fever: a framework for emotional bidding.”
Written in 2011 by a group of that includes: Marc T. P. Adam, Jan Krämer, Caroline Jähnig, Stefan Seifert, Christof Weinhardt, the article struck me as important because it speaks to something that has always fueled my interest in procurement negotiations: it makes certain people act wild.
During procurement negotiations, I have personally experienced or been on calls where the following behavior from suppliers and stakeholders has taken place: yelling, whining, complaining, blatant lying (or making misleading statements), pleading, begging, threats and my favorite, the feigning of technical difficulties when it is evident to all that no such technical difficulties are taking place.
Of course, this behavior is the exception, not the rule. Most negotiations are perfectly professional and businesslike. But why write a blog post about those? What has struck me about the rising popularity of e-auctions, and now with the advent of Arkestro AI negotiations, is that the emotional dimension of these interactions goes completely unexamined. This omission was something that the writers of this article wanted to correct. I was hooked.
Adam and others define “auction fever” quite simply as a bidder (a supplier) deviating from their intended bidding strategy due to emotional motivations. They break the drivers of these into three categories:
1) Market forces or other economic trends (e.g., a market crash, a high price of oil, etc.)
2) Auction forces (e.g., things that happen during the auction, like the supplier being in first place and then being overtaken)
3) Prior experiences participating in auctions
For understanding the way that emotions can inform bidding behavior, the authors break emotions into two categories: expected and unexpected. The most common expected emotion in an auction is “expected regret.” In this case, a bidder knows that the outcome of the auction is uncertain, and so they can conditionally anticipate the feeling of regret based on the outcome being unfavorable.
However, “expected regret”, under certain conditions can become an unexpected emotion – fear of regret, or dread of losing, a fear that powerfully threatens the need to win. In his excellent book “Negotiation for Procurement Professionals,” Jonathan O’Brien writes of the “need to win”:
“In negotiation terms this is possibly the single most powerful force within us and one that can drive an individual to be relentless and uncompromising in pursuit of his or her goal, often at the expense of others. Franken and Brown (1995) suggest that a need to win comes from a deep-rooted fear that the world is essentially hostile and so the only way to survive is to win.” (p. 62)
For individuals who experience such a compelling ‘need to win’, it is clear why procurement auctions are an emotional rollercoaster – they are literally perceived as threatening survival, and trigger fight-or-flight instincts with all of the attendant rush of adrenaline and cortisol. Rational game theory? Studies show that rational decision making is likely not an appropriate framework to analyze the actions of bidders who are operating in such a heightened state.
“Auction fever” and understanding what the bid says about the bidder
If you have ever trained a group of suppliers for an e-auction (electronic reverse auction), you have probably heard some bellyaching. It may not rise to the level of threats, lying, or intimidation. Still, most salespeople worth their salt will at least express a preference for using another channel for the negotiation to proceed. Why is this?
There are two critical reasons. First, is that salespeople own relationships, and e-auctions feel impersonal and sterile – they take the fun out of closing the deal. The true enterprise salesperson wants to add value to the sales process on both sides of the table – they want to take the procurement person out to dinner, discuss the intricacies of their business operations, and demonstrate clear value with a service-oriented demeanor. Like any fancy restaurant, with top enterprise salespeople, you aren’t just paying for the food – you’re paying for the ambiance and white-glove service experience.
Unfortunately, the business case for paying extra for ambiance is – in most cases – questionable at best. Meaning that in any space where there is market competition, a strong service experience should be table stakes – e.g., people without it are deemed unfit for business partnerships right out of the gate. The real negotiation ought to come down to quantifiable value. If the business stakeholder wants to pay for a top-tier service experience, then it should probably be either a line item or a weighted evaluation criteria. However, rightly or wrongly, stakeholders have strong preferences regarding suppliers based on long-term relationships, and businesses are willing to pay a lot more for the same product sold by a stronger brand.
The second reason, however, is that the procurement auction experience holds the salesperson accountable for an outcome that they have nearly zero control over. In most cases, it is not the salesperson that decides how the product or service is priced or what line items the supplier’s actual margin is located (e.g., where their ability to offer a discount is inflexible).
Because of this dynamic, a salesperson wins a procurement auction by dint of one thing and one thing only: working for the company that can offer the most desirable outcome at the lowest possible price. Procurement may still decide to award the business to the company with the well-known brand, the better track record, or the tastier steak dinners. But e-auctions are won and lost based on quantifiable value – a blend of service, quality, lead time, preference, and price. In such a data-driven world, how can a salesperson possibly be the master of their destiny?
For a supplier salesperson persona whose sense of personal identity and survival is bound up in winning, losing a deal because of competitive pricing – a factor that the salesperson cannot control – feels both viscerally threatening and deeply unfair. It’s certainly enough to make people feel wronged and get angry.
In my career as a procurement consultant, before founding Arkestro, I always had one or two suppliers in events that I was managing who would call me up and let me know what they thought of e-auctions – as someone who was also fundamentally a salesperson, how could I possibly sleep at night knowing what harm I was causing them, knowing what hell I was putting them through?
These suppliers would talk themselves quiet, log in, and submit a bid. They would receive feedback. They would bid again. Then one (or sometimes multiple) would win the business. Because at the end of the day – it’s still procurement. It’s not personal. It’s business. But the role of emotions both before and during these events was clearly demonstrated to me, and this played a huge role in the development of Arkestro AI Sourcing Platform.
Business isn’t personal, but business people have personas
When you begin thinking about the best way to design an organization, there are inevitable questions about roles and responsibilities.
Roles can be job descriptions: category managers, buyers, and so on, and responsibilities typically outline what business metrics the role is responsible for managing while also defining what they can/cannot be held accountable for. But where does personality fit into this?
Persona-mapping has come into vogue recently as part of the trend towards agile software development and a move towards agile product cycles beyond the technology sector. The simplest, most straightforward way to try persona-mapping is to complete this sentence: “As a __(role)___, when I __(activity)__, I want to __(outcome)____.” For example:
“As a buyer, when I shortlist a supplier, I want to see a list of suppliers organized in alphabetical order.”
By persona-mapping, I have generated a requirement – that the suppliers shortlisted by a buyer appear in the user interface in alphabetical order.
But why do personas matter when it comes to supplier negotiations? Because not all salespeople are alike, and their differences impact the way that they perceive the outcome of a negotiation.
For example, there are salespeople for whom controlling the channel is everything. The true negotiation may take place anywhere, face to face, across a table, over a video call – only after such a discussion happens, will they submit an electronic quote. Control, frequent communication, and basic sales techniques such as FOMO and emphasizing reputational benefits are the bread and butter of these interactions. Then there are salespeople who prefer to demonstrate that they are no-BS, simple, and easy – they are here to please, but not fill up your inbox. Other salespeople may realize that winning means getting a foot in the door, getting a chance to prove themselves – particularly if they are from a newer company. These salespeople want to quantify value frequently and offer their best possible price.
Should AI for negotiation – especially for direct materials – offer the same price and the same feedback for every salesperson, for every quote? Absolutely not. These are fundamentally different sets of concerns associated with fundamentally different selling personas. That’s why Arkestro AI begins with the assumption that the best way to leverage data is to personalize the digital experience for price negotiations using quantitative analysis of a seller’s emotions. If you’re curious how, our team would love to show you a demo: arkestro.com/demo.