Reconsidering Outdated IT Procurement Methods
Businesses demand flexibility, innovation and agility from their suppliers. So why are we still sticking to cumbersome RFPs and lengthy tenders for critical IT services? Velocity’s director, Anthony Lamoureux, thinks there’s a better way.
I’m not knocking dating web sites. Lots of people use them to find true love. But the idea that the best way of finding a soul-mate, one who will open up your world, is to specify a series of partner preferences based on what you already like? And then apply those choices to a tiny universe of candidates? I’m not buying it.
And yet that’s exactly the approach the majority of companies apply when they’re looking for an IT outsourcing partner. The request for proposal (RFP) and tender process is a time-honoured way of describing what you want from a supplier. The paper trails and competitive bids are reassuring for management grappling with a business critical decision.
But it’s also a resource-hungry way of creating the illusion that you’re managing risk; that you’re tracking down the ideal IT partner; that you’re getting the best value for money; and that you’re buying in the services you need.
Why Traditional RFPs Often Fall Short
None of those are true of the traditional RFP in a world that’s changing at an exponential rate. No wonder 65% of outsource deals fail to meet their promises and finish early. So what’s gone wrong? And how do we fix it?
Box-ticking
The core problem is that an RFP is usually just box-ticking. The people involved are rarely at fault. Procurement experts, IT specialists, finance people, business leaders – they all want to, and can, add value. But the nature of the RFP keeps their contributions fragmented. Yes, it helps them ensure rules are followed. But it’s almost designed to rule out a coherent, strategic conversation with suppliers.
And although it’s decades since the phrase “no-one ever got fired for buying IBM” was coined, it’s still true. If your RFP turns out to be biased in favour of big brand suppliers – well, that’s a safe mistake to make.
But it’s still a mistake. Less prominent firms, the revolutionary consultancies without baggage around platforms and pre-prepared solutions, might offer approaches much better tailored to your business. Yet even if they’ve been invited to tender at all – and since many companies default to Gartner’s ‘magic quadrant’ for tenders, that’s not a given – there’s a risk they’re in there just to make up the numbers.
The Real Cost and Drag of RFPs
Time is (not) on our side
Then there’s the sheer grind of the RFP. We often see companies spending six to nine months just working out what they want to ask. That’s a massive amount of negotiation between business and IT decision-makers – before they even have the first meeting with the people who’ll end up running that part of their business.
Typically just 20% of the process will be spent with suppliers. So those tendering for the contract have a massive incentive to reply only to the questions in the RFP. With little time, why elaborate? If the decision only rests on only the RFP criteria, why innovate? In many tenders, suppliers are actually marked down for going off-piste. No wonder many major consultancies turn out boilerplate responses in tender after tender. It’s a percentage game to them.
(It gets worse: if you’re using a sourcing adviser who accelerates the process by transposing tender responses directly into the ultimate contract, you’re committing to work within that standardised and constraining boilerplate for the life of the deal.)
The Need for Strategic Supplier Relationships
Where’s the strategy?
Any IT contract ought to have a transformative effect on your people and capabilities. That’s complex. And it relies on a deep relationship with suppliers and technology.
That’s particularly true now that disruptive technology is a defining facet for every business. Companies recognise the need to bring in technology experts to help them become agile. But the RFP is often more focused on a list of out-dated prerequisites than open-minded thinking in support of higher-level strategy.
The process ought to foster relationships designed around change. The adoption of cloud technology is a great example. It’s democratised IT at a speed that no conventional outsourcing deal could accommodate. (At Velocity, we scale our own business to meet any customer need using cloud apps – so we know it works.)
If the market flexes around a technology and you’re locked into an approach defined by an RFP set four years ago, you’re going to lose customers. The same is true inside the organisation: IT users now have high expectations. Poor user experience or inflexible approaches can cost you loyalty and productivity.
A richer approach
A Practical Alternative: Pilot-Based Partnerships
The alternative is simple. Locate a supplier who can understand your transformative journey. Find a project you can work on – something contained, but still meaningful to the journey. It should be deliverable relatively quickly, allow for innovation and have clearly defined service levels and maturity targets.
That way, instead of spending 80% of your time debating the RFP internally and just 20% with suppliers, you spend 10% of your time articulating what you need internally, 20% sharing ideas and innovating with the supplier and 70% actually working together. (It’s like flat-sharing with your partner before you get married.)
If the supplier doesn’t hit targets? Well, you’ve learned something about them, and about your own business. You’ll have experimented in ways no traditional RFP would generate. Both parties walk away wiser.
And if it’s working well? You can enhance the relationship with confidence. You’ve had meaningful time together – not just a few hours of tender pitches – to understand the personalities and see the deliverables. That’s much better than relying on the unsupported and often wild promises of a supplier in an RFP response.
Single sourcing isn’t without risk. There still needs to be discipline. Objectives and maturity milestones must be well articulated and aligned with strategy. You need to outsource solutions, not problems. And you need people to manage the supplier.
Delivering True Win-Win Outcomes through Change
The win-wins of change
But our approach is more likely to be a win-win. With a traditional tender, you’ll often hear what we call the Big Lie: “we’ll save you 30% in lifetime costs and deliver that rebate to you on day one.” That feels like an instant win. But it’s usually just financial engineering – and promotes over-aggressive cost management, as well as off-the-shelf solutions. The RFP puts a ceiling on innovation and cost-savings for the client – and creates an incentive for suppliers to slash their own costs instead.
For us, win-win means innovative approaches, a clear upside for the business and smart cost management – not just a lower first-year cost line in the CIO’s budget.
The year-long RFP, like the dating site questionnaire, helps you tick some due diligence boxes. But a good IT service deal – like a good marriage – should be based on growing and learning together, not just trying to fix yesterday’s problems or play it safe. If you want real value and innovation, it’s time to revolutionise the RFP.
