• by Gord Hotchkiss , Featured Contributor, December 1, 2009

In 2000, we were all rushing to proclaim the arrival of the efficient marketplace. Analysts lined up to write paeans to the logical beauty of e-procurement. Billions and trillions of dollars would grease the wheels of ecommerce, flowing from business to business in clean, straight and rational lines. It all made so much sense: the stripping away of all the messy decision making, ruthlessly commoditizing the Business-to-Business (B2B) market, driving buying through simple value equations.

And surely, anything this logical could be automated. Machines could be procurers. B2B buying would become an algorithm. What could be more efficient? No emotion, no indecision, just cold, hard facts.

This, then, was the future. Everything we knew (admittedly little) about organizational buying was about to change. And this would not be a gradual transition. This would be apocalyptic, wrenching the very ground of the global marketplace.

Now, nine years later, we have the advantage of hindsight to pinpoint the mistaken assumptions about the perfectly efficient marketplace. B2B buying didn't become an algorithm. In fact, it's probably more complex and political than ever. It's still a people driven-process. And people are notoriously illogical and irrational. We don't leave that baggage behind when we reach the office. We stack it up with all the baggage of the other people we work with.

Exploration of organizational buying behavior is a fairly recent phenomenon. The classic models are just a few decades old. Indeed, the complexity of human decision-making, in any arena, is only now beginning to be explored, thanks to the converging sciences of psychology, sociology and neurology. As we blur the lines between disciplines, we're beginning to understand the forces that drive us. We're launching new "compound" sciences, such as evolutionary psychology and behavioral economics, realizing that human complexity spans across areas of pure academic study. We've made tremendous headway in the last decade or so, but even with this, we've barely begun to understand what makes us tick.

So this is what we have: a hunch that human decision making is more convoluted and irrational than we ever guessed, a realization that those same mechanisms are used at work just as they are at home, a limited understanding of how decisions are made when you have multiple people working within an organizational framework, and, to add an exponential dimension of complexity to everything, the explosion of information and communication opportunities presented by the internet. Our paradigm is shifting before we ever defined it. No wonder we can't catch up.

While the Internet didn't create a perfectly efficient marketplace, it did dramatically alter one aspect of B2B purchasing: the balance of information between buyers and sellers changed substantially.

Information asymmetry, where sellers know much more than buyers, is rapidly reaching a state closer to equilibrium. We can know more about what we're buying, because there is much more information available online.

Access to information speaks of logic, of rationality, of perfect decisions. But humans will be humans.
While we have more information, or, at least, access to more information, the ways we use that information still depend on the primary engines of human decision: emotions, beliefs, instinct and habit. Information is not an objective resource. Information is conveniently transformed to support our own goals and agendas.

As we approach the second decade of the 21st century, we find B2B buying has dramatically changed in some aspects, yet barely moved in others. The dynamic tension introduced by the force of technological change vs. the resistance of human behavior is forming a landscape that's increasingly hazardous for vendors to navigate. This, then, is the BuyerSphere. Most vendors have no idea of the lay of the land, because they're still trying to view it through the lens of mistaken assumptions. They try to label prospect activity based on arbitrary models or obsolete labels, with no understanding of the true forces at work. The Buyer-Sphere Project had one goal: to create a new lens for vendors based on a better understanding of how businesses buy from businesses in a digital marketplace.

The B2B Marketplace is an extraordinarily difficult thing to map. In the past several decades, an inordinate amount of time and money has been spent trying to understand consumer behavior, in the hopes that with greater understanding comes greater success in marketing to consumers. Especially in the past two decades there has been a concerted push in many areas of consumer research that extend beyond traditional market methodologies; including psychology, retail anthropology and even brain scanning. But there has been precious little research done with the goal of understanding organizational buying behaviors.

The challenge, as one quickly discovers, is that it's not easy. It's like the old joke about the drunken man searching for his glasses outside the bar at night. A passer by stops to help and, after several minutes of searching, asks the man, "Where exactly did you lose them?" The drunkard points into a shadowy alley in the distance. The good Samaritan, exasperated, asks, "Why are you looking here then?"

"The light's a lot better here."

If you study consumer behavior, you have the advantage of having just one subject. But in organizational buying, you have many people - all with their own agendas, all trying to reach a common decision. The complexity of that decision process increases exponentially.

Compounding this is the belief that B2B purchasing is a purely rational process, where facts are duly considered and every option is carefully weighed. The problem is that humans just aren't built that way. And therein lies the challenge.

If we spend millions or billions of dollars on behalf of our company, it helps to think that we do so in a purely rational way. But the fact is, we don't make decisions rationally. Humans make decisions irrationally. We use shortcuts: gut feelings, emotions, beliefs, instincts and habits, to reach decisions. Consumer research found this out long ago, but for some reason, we refused to accept that the same mechanisms were at play in the business world. The BuyerSphere research clearly shows that this attitude is wrong. We've created mechanisms to give the appearance of rationality, including formalized procurement processes like RFP's, RFQ's and vendor approval processes, but these mechanisms are driven forwards by a series of human decisions and at each point, irrationality raises its head.

When I say humans make irrational decisions, I'm not stating this as a negative. This is the way the human brain works, and it's remarkably efficient. Herbert Simon called it "bounded rationality." The human ability to operate heuristically is nothing short of amazing. We can take huge amounts of information and quickly sift it down to the relevant core. We can make gut-based decisions that turn out to be right far more often than they're wrong. We can analyze patterns in the blink of an eye and pull out the relevant information. All this is good; in fact, essential. It's just not rational. And, in the B2B world, we have the added complexity of knowing that we have not just one irrational decision-maker, but many-all contributing to the ultimate decision. No wonder researchers have been slow to start to unravel this particularly knotty problem.

Adapted from The BuyerSphere Project by Gord Hotchkiss, CEO of Enquiro, the company that conducted the BuyerSphere Research. He is a well-known thought leader in search marketing, combining neurology, psychology and sociology to get a better understanding of the impact of digital technology in the marketplace. (The BuyerSphere Project is available through thebuyersphere.com.)