Is Your Taxonomy Flexible and Multidimensional?

For a taxonomy to be effective, and feed a cognitive engine, it needs to be multidimensional, flexible, and situation based…

There are many factors that require careful consideration to bring about effective cognitive solutions.

It’s akin to conducting a group of musicians – it might be possible (easy even!) to attain a pleasant sound from a solo instrument… 

But, if expertly managed,  you could accomplish a symphony from the entire orchestra! 

This week, our podcast series will guide you through the five steps required to conduct a dazzling cognitive symphony. 

On Day 2 of the series, Anna Madarasz, Analytics & Cognitive Lead , IBM Global Procurement discusses how procurement pros are using taxonomy today, assesses homegrown taxonomy versus industry standards and explains why an effective taxonomy needs to be flexible, multidimensional and situation based.

What is taxonomy?

Marco Romano, Procurement Chief Analytics Officer, Global Procurement, Transformation Technology, IBM defines taxonomy in his white paper, as follows “Simply put, taxonomy is a hierarchical representation of data, products and services into logical groupings through the application of an alphanumeric scheme of sorts.

“Sometimes, these are industry standards and sometimes, they are locally-devised schemes to meet individual needs. These conventions are useful for purposes of reporting spend or segregating categories into lower-level components.

“However, the world in which we operate is not hierarchical; it is more like a network of many disparate parts of an ecosystem that is constantly interacting and evolving, and that it needs to be intertwined together to drive value

“for a taxonomy to be effective, and to feed a cognitive engine, the taxonomy actually needs to be multidimensional, flexible, and situation based.”

What does this mean?

1. Flexible

“There’s a level of flexibility you have to have, and usually if you do have a homegrown taxonomy, then it is there by nature” explains Anna.

Problems can arise within organisations when there is no global standard and different regions adopt different practices. “Let’s say one of your geographies breaks down their software license spend into accounting software or project management software. Whilst another geography chooses to break down their software spend into whether that software license is delivered electronically or non-electronically.”

Of course, you can’t take much global insight from this. So it is important to enforce some level of standard taxonomy. “But, depending on the industry, depending on the geography, you have to allow a little bit of flexibility.”

2. Multidimensional

There are many dimensions of taxonomy. And, multidimensional means that you really have to define what you need that taxonomy for.  Sometimes it will be sufficient to have your homegrown taxonomy, other times it might be preferable to have an industry standard such as UNSPSC. If, for example, you want to monitor the price trend of a certain product, then you will definitely need an OEM part number.”

“Multidimensional means that you really have to define what you need that taxonomy for.”

An OEM part number, for example, clearly defines a certain product or a certain service. If you have a notebook in front of you, and you type the OEM part number into a browser, your search will return exactly the same notebook.

You might however,  want to go down to the component level and ask what characterises that notebook?

“Is it the screen size, it is the memory, and so on, and so on? If you want to look for a comparable product in your catalog then  you need ontology.”

“If your business challenge is to note which supplier is providing a certain model of notebook cheaper then it won’t be enough for you to have an eight-digit UNSPSC code defining the notebook.”

3. Situations-based

In his white paper Marco states “It is not about how you buy, but rather what you buy. I would argue that an appropriate taxonomy is about identifying how you resolve a business problem through products or services.”

“Try to use taxonomy for future transactions. Trying to predict what your prices will be, trying to evaluate whether the quotations, whether the bill of material in front of you is competitive enough. Or use it for risk evaluation. There are endless opportunities, but it really all depends on setting up the proper categories.”

“What you should keep in your mind” advises Anna “is that you have to come up with a powerful combination of these taxonomy characteristics.”

Striving to conduct a cognitive symphony but in need of some expert guidance? Our podcast series runs throughout this week and will have your orchestrating cognitive success in no time! Register here.