Procurement’s use of an RFP (for enterprise software or services) is meant to compare competitive product offerings against a set of requirements. The intent was to create an environment where vendors could respond with functionality, price, implementation details, and unique offerings. Unfortunately, the RFP process has largely failed and fallen out of favor for several reasons. We’ll address those and alternatives that -- not only drive value quicker for organizations -- but offer innovation stifled during a traditional RFP process.
A common theme heard throughout many procurement teams is that, “To implement this project successfully, we need a ton of upfront documentation so nothing falls through the cracks.” In reality, many specifications and requirements change and evolve as the project evolves. It’s in the requirements gathering that innovation and creativity occur, and the ability for all parties to adapt and provide real change during it is critical.
Why traditional RFPs are lacking
Though the original intent was to provide transparency, open communication, and reduce risk, there are many reasons the traditional RFP process fails to provide the necessary information to truly understand and compare vendors.
The RFP process is expensive, both to organizations running RFPs and to those vendors who choose to respond. There is considerable time to develop (on average, companies involve nine people in the creation of every RFP), evaluate, and select a vendor.
What’s more, companies are wasting months of innovation derived from new technology by dragging out an inefficient selection process, potentially costing even more money and opportunity. Margins, time-to-market, and time-to-revenue are all being impacted. There's an opportunity cost of not getting the innovation engine working, moving fast, and generating new ideas that can help reduce cost and generate growth.
Too much information
RFPs demand too much information upfront and often without the right level of detail for vendors to appropriately respond (on average, RFPs are 50-150 questions and RFP responses are a similar number of pages). It’s impossible to gather all the necessary requirements from all the key business stakeholders in a comprehensive enough manner before a project begins, even if an organization has purchased enterprise-level technology previously. The scope for many vendors is too broad to narrow in on the specifics of what business issues an organization is looking for them to solve. The speed of innovation in technology today makes this impossible. This leaves vendors often unsure and frustrated by the process.
The sheer amount of work needed to complete an RFP (many of which are hundreds of questions long) also causes fewer vendors to respond and best-in-class vendors to slip through the cracks. Other vendors, depending on the technology or service offering, will go around procurement processes altogether direct to business, increasing cost and risk.
Because of the structure of an RFP, the questions being asked are often one-size-fits-all to attempt to offer a level playing field. They are fit for industry standards versus innovation, leaving companies at risk of buying archaic technology solutions for strategic, future-centric business problems. They do not enable vendors to respond with differentiation, focus on functionality over outcomes, and as a result, often leave organizations missing out on technology that is truly unique and disruptive.
There is also very little customization of questions that provide additional context. Companies tend to create requirements in an RFP that mirrors their existing tech stack or solution. They struggle to explain their future business objectives in a way that elicits the best response. Today, importance should be placed on transformation, agility, and progress. Rarely can an RFP capture this in a meaningful way.
Poor RFP management
Managing vendor communications, providing timely feedback, scoring and evaluating vendors, and enticing vendors to participate is a full-time job. Often, because the RFP sections are managed by different team members, it can be poorly managed. Thousands of requirements are tracked on documents and spreadsheets, making it a labor-intensive, inefficient process for all involved.
Questions to consider
In a recent webinar “Innovation in Procurement: Alternatives to Traditional Practices,” we spoke with three procurement executives -- Dean Edwards (Kaiser Permanente, Yahoo, Levi's); Paul Campbell (Hewlett Packard, Phillips, Schneider Electric, BA); Roger Jellicoe (Motorola, Intel) -- about the work they’ve done consulting procurement executives that want to capitalize on innovation and speed-to-market. Part of this discussion centered around how organizations reframe the traditional RFP, can “fail faster,” and how to deal with the impacts of enterprise-wide change management.
“Process is so important for a well-run company,” Roger said of the intent of an RFP. “And there are some pretty good processes that people use. But process, it's damaging when it's overused. One of the keys to innovation is recognizing when an exception to a widely used process is going to be helpful rather than hurtful.”
So, how can your organization take advantage of a certain amount of rigor without missing out on innovation, time to revenue, and risking cost (growth vs. loss)? Here are a few questions to consider:
Is the bidding process owned by the right person?
To make a big change within an organization used to running traditional RFPs, you’ll want to ensure the entire process is owned by those who can impart changes in a meaningful way. “Many in procurement have had to figure out that a 40-page contract and a vendor evaluation process is not the right way to work with the startups, the companies that any innovation team or R&D team are bringing in,” Paul said. “The procurement team supporting innovation should be running the evaluation process.”
Are you asking the right questions?
Often, companies have a lot of bureaucracy that supports their core business and subscribe to the “this is how we do it because we’ve always done it this way” mentality. When it comes to teams that are now saying, “We want to create a new business model and a new go-to-market process,” traditional functions that support procurement like finance, legal, supply chain, and risk don't know what to do, so they pull out their SOPs and manuals and attempt to remain status quo.
The key is asking the right questions upfront like, “How did we decide this was the ‘right’ process?” By slowly dismantling or deconstructing the original approach, Roger said, organizations can find out the reason, motivation, and goals. This helps target how the company is motivated, how they're approaching things, and what can be shifted. “You kind of deconstruct their approach, their mindset, their processes, and you reconstruct it in a new way,” Paul said. “You focused on this new opportunity and the new business model that's needed to support that.”
Are you engaging the right people?
By proactively engaging the supporting functions of the business, there is much to be learned about formulating a new approach. The more business lines feel a part of the solution, the more likely they will be to champion a new process. These business lines are designed to support functions like procurement, so use their expertise to your advantage.
Alternatives to an RFP
The intent of an RFP is to ensure value for money, competition, and fairness in the bidding process. Now that there are benchmarks in the market in terms of what technology costs, this may help lessen the need for a lengthy RFP and encourage a new way of thinking.
- One such alternative is to institute a proof of concept (POC). This not only helps to manage risk, it allows new, innovative technologies to come in, understand how they may add value, and quantify that value to the organization in a scalable way. Through an iterative process, this also helps other key stakeholders buy into change.
A POC isn’t without its concerns. It costs money to mobilize the procurement team to help accelerate that effort and generate that value. There is inherent risk involved, but it allows for innovation and collaboration in a way a traditional RFP does not.
- Another option is for an organization to pick their tech platform of choice. Through the implementation, this option can add value because an innovation team can quickly understand how it works, how to quantify that value, identify savings opportunities, and value generation in real-time. Process isn’t all bad, it makes sense when it’s rooted in innovation.
Spend time talking to industry experts, colleagues, and other businesses within your industry to get feedback on vendor performance, pricing, and functionality. You can learn a lot by simply tapping your network.
- Finally, some companies have implemented a quick bid solution to speed up their lengthy RFP process. This involves getting the business line to fill out a one-page requirements document detailing their technology needs. Procurement, based on their experience, selects vendors to participate. Once selected, there is a Q&A session with the business to go over the document and ask detailed questions. A request for proposal follows the Q&A, and the project is awarded from there. This is more typical with smaller projects but does have merits in speeding time to market and driving innovation.
Companies must innovate or die, and procurement is central to that. If procurement doesn’t bring new ways of finding and engaging vendors to the business, it doesn't fulfill its core purpose within an organization. Procurement is designed to innovate and bring new products, services, processes, compensation and cost savings methodologies, and ways of thinking to the business. Doing away with the traditional RFP process allows for this to happen.
As with anything new, there will be a certain amount of resistance in the organization, both structurally and culturally, as people tend to be concerned about the impact of change, what it means to them, and the risk associated. But as Roger said during our discussion, “If you're not getting the scorn and ridicule of your colleagues, you're not pushing the boundaries far enough.”
If you want to learn more about how Utmost works with organizations to bring innovative, disruptive technology to enable, manage, and provide visibility to the extended workforce, please contact sales@Utmost.co.