Any salesperson who hasn’t felt the adversarial friction with a corporate procurement officer hasn’t lived. Or hasn’t really sold.
CEOs look to their procurement guys for big savings: and these tough-as-nails negotiators want to make their bosses happy. They are obsessed with getting the most for the company in return for the least outlay.
The procurement weapon du jour is the Request for Proposal, or RFP, the closest thing in business to enforced hoop-jumping. But their use can be counterproductive for the buyer and extremely unfair for wannabe suppliers.
The RFP “process” has been the sole mechanism through which first governments, charities and then NGOs put out the availability of money for some service or project to be performed. Partially resembling a bid or auction method, the RFP quickly took hold and became a kind of procurement sector necessity eventually migrating into many other areas of business, government or charitable transactions.
Here’s the problem: the RFP became such a knee-jerk ingredient that it ceased being a good, efficient or even fair way to determine the best qualified or most economical service provider.
The outsourcing industry is a case in point: being a fairly new game in town, outsourcers rushed to adopt this tired old mechanism making it their mainstay for business, contract and monetary availability.
Doesn’t it seem that reflexively applying such a hackneyed, shop-worn apparatus to a brand new, high-tech industry bespeaks a certain laziness and inability to conceive new systems?
According to Gregory Salvato, chairman and CEO of New Jersey-based PWI Inc, "certain aspects of the RFP process are extremely inefficient". PWI is an outsourcing firm that specialises mainly in software development and works in conjunction with a Russian CTO and Moscow office.
“Vendors like us spend a lot of time preparing a response to an RFP; we sketch it out in a convincing way,” Salvato says. In spite of this care and attention to detail, he said: “One out of ten responses we prepare might offer a chance for new business. An RFP forces a supplier to articulate in a very formal way how they would serve the client.”
But is the RFP really a form of “articulation” or just a documentary bureaucratic process? Well, several small consulting firms are appearing on the scene to fill the gap and provide some good, old-fashioned common sense to the outsourcing sector. These new businesses provide a “trusted intermediary layer” between the client and suppliers. Eschewing the long, laborious RFP cycle, the OSP (Outsourcing Service Provider) goes aggressively scouting for the client’s specifications amongst a known supplier network. Once potential matches are found, conference calls, one-page pitches and site visits by the client to suppliers are quickly arranged. This can take 75 per cent of the time, paperwork and expense out off the top of the process.
The time variable is usually front and centre for both customer and especially the supplier.The paperwork and lost time and money resulting from unnecessary documentation is usually not.
Another aspect of immense saving on both the customer and supplier sides of the transaction is the opportunity cost. For the customer, the RFP cycle can be cut from six-twelve months to 30 days or less. On the supplier side, the frequently small company doesn’t have to waste its staff, financial and marketing resources on every RFP which comes around the corner and can concentrate on mainly those client opportunities they can really sink their teeth into.
The revenue model these new types of service firms use doesn’t involve the customers paying them anything at all, which these customer companies like very much.
Others believe the RFP is a necessary part of the industry. Atul Vashistha, CEO of neoIT, a California-based outsourcing consultancy, says what works in the RFP process is that it is a good way for a customer to really understand a supplier’s capabilities and then get a good price. What’s broken? An RFP is inappropriate, when services are immature, he says. “When the product or service is mature, an RFP can be very helpful. If they’re not mature and a lot of customization is required on the project then an RFP can be a waste,” he observes, “for complex services RFPs should not be used for selection services—otherwise you’ll live in scope creep and contract hell for years.”
On the customer side, from the large IT outsourcing players the perception of the RFP is understandably essential. It is the tool whereby they can slant the playing field toward themselves and away from smaller and medium-sized competitors.
Steve Keil, CEO of Sciant, a Swiss company of 115 employees with their operations center in Sofia, Bulgaria is another vendor of IT services who feels the RFP process is badly broken. “In most of my jobs,” he says, “I’ve had problems with RFPs. When I was working for a network operations center, we competed with CSC and the big boys. What happens is the RFP provider simply works more closely with one vendor (whom they really want to win) so that, of course, that vendor gets the contract.”
An example of this was an RFP put out as an “open tender” by a Bulgarian company. “Later they issued an amendment saying respondents must have offices in every single one of the provinces within Bulgaria,” Keil said. Immediately suggesting that four centers could be set up for coverage of the entire Bulgarian state, Keil was then told that the supplier would have to have this vast network of offices.
As it turns out, only one IT services company in all of Bulgaria has offices in all the provinces — and they got the contract. “What’s the point?” one might ask.
This is certainly something for Keil to ponder: “I just realized something … in my 10 years of working for companies that respond to RFPs — I’ve never won one! And, I don’t think that’s because we suck.”
Why is it important to create the appearance of a organized and fair process when all that really exists is disorganized unfair chaos?
The ugliest usage for an RFP, is when the customer decides its want to grind it current service provider down on price. This usually begins with a statement something like this, “Mr. Vendor, we’ve decided to see what else is available on the market and what further cost-savings we might realize.” This bald-faced lie, specially-designed to take advantage of a supplier by falsely threatening to take the business elsewhere, is a particularly distasteful business modus operandi. The customer never has any intention of moving the business elsewhere but just wants a better price for the acceptable service they’d already been receiving. This is just bad business and a real red flag.
If you’re going to put out an RFP, it should at the very minimum be an honest RFP. This way you don’t waste the time of any hopefulswhile heaping degradation on one of your vendors. ®
Bill Robinson has appeared on CNN, PBS, Bloomberg and had his own segment on SKY News commenting on high-tech and marketing issues and has written columns and articles for FORTUNE Small Business, The Financial Times, Marketing Magazine (UK), Forbes.com, The Moscow Times, Cisco Systems iQ Magazine, United Airline's Hemispheres Magazine and Upside Magazine. Bill may be reached at: email@example.com