Clarity in Contracting . . . More Than a Question of Automation (A Contract IQ Post)

Posted on July 17, 2010

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“That said and in line with the above referenced October 30th, 2008 Procurement Insights post, Evans stressed the importance for government buyers to “put out has much information as possible to remove any barriers or perceived barriers for suppliers.”

While Evans stressed the importance of reaching out and engaging as many suppliers as possible, especially with large IT acquisitions, as it is virtually impossible for a buyer to “know what all the technologies are in terms of what is out there (in the market), the need for greater clarity in terms of articulating what service the government wants to provide and how it is different from what is currently in place or is known is crucial.

This according to the former US Federal Government CIO, provides vendors with the ability to clearly state and demonstrate how their solution is going to get the job done.

The clarity to which Evans referred also extends to providing a meticulous outline as to how vendor solutions and capabilities are going to be evaluated by the government, as it can reduce the potential for challenges or protests of contract awards down the road.”

The above excerpt is from a May 2010 post from the Procurement Insights Blog in which the former CIO for the U.S. Federal Government Karen Evans, stressed the importance of clarity in a successful RFP acquisition process.

Now one might think that this isn’t exactly breaking news or that we are sharing what had until this point in time been an unknown secret of successful contracting.  In reality, this is such an obvious observation that it would seem to be somewhat redundant to even mention it at all.

However, if it is such an obvious statement, then why are organizations in both the private and public sectors struggling with declining RFP response and eroding supply bases?

In the December 4th, 2009 post from the same Procurement Insights Blog titled “The Paucity of suppliers bidding on City of Ottawa contracts is a symptom of a much larger problem” city officials were lamenting the fact that on average they only receive a handful of responses to their bid requests despite a significant investment in SAP as well as posting RFPs through the ubiquitous government-wide MERX site.

So in the spirit of the old Johnny Rivers hit, where have all the suppliers gone and, why did they leave?  Of even greater importance, how do you bring them back?

In a recent roundtable discussion in which I was joined by industry experts to talk about transparency in the public sector procurement process, there were many reasons presented for the decline in supplier bid response.

From one-sided belt with suspenders contract terms and conditions that unduly place the lions share of risk on the shoulders of the supplier, to policies that can turn a simple acquisition into a Magna Carta event, the tendering process can in and of itself present a daunting obstacle to transacting business.

In other words buying organizations, for the most part unintentionally, make it difficult if not outright impossible for a supplier to do business with them.  What is ironic however is that the very thing that is supposedly designed to attract suppliers, is usually at the heart of the exodus problem.  I am talking about technology.  And this is a problem that is not confined to the supplier side of the equation, but also extends to include the buyers themselves.

According to a November 2009 article by Leon Smith titled “Chances and Challenges for Buyers” despite the huge investments made in procurement technologies during the past decade, “usage of these systems remains markedly poor.”

Based on his research, Smith found that only “14% of the companies surveyed expressed confidence that 60% of spend was being channeled through eProcurement,” which is the typical benchmark for applications of this nature.  What is even more telling is that “more than 60% of those who responded to the survey placed eProcurement usage at less than 20%.”  Less than 20%!

This is one of the reasons why I have always viewed the McDonald’s-type “billions and billions served” tag line that has been adopted by some vendors who trumpet that they process more than x number of dollars in spend, as being the quintessential red herring.

In fact, and coupled with the disclosure 0f these negligible adoption rates, it may not be all that unreasonable to surmise that commensurate with the introduction (and forced compliance) of an automated system, there is an accelerated rate of decline in terms of supplier participation.

So if technology is more a part of the problem than it is the solution, then what is the answer?

Evans, who oversaw more than $70 billion U.S. in IT acquisitions by the Federal Government during her tenure as CIO, expressed the firm belief that “products” (re technology), does “not replace skill sets.”

A sentiment that is obviously shared by the CPOs who responded to the Smith survey when they indicated that “raised expectations on procurement to deliver sustainable bottom-line savings,” emphasizes the fact that there is an “acute” need to “nurture top talent.”

Some 65% of these respondents rated “capability development and talent management as a key objective area for the coming year,” which includes “the right blend of category, supplier and market expertise with the usual contracts and pricing knowledge.”

Could it be that the industry’s enamored view of procurement automation has caused both vendors and their customers to overlook an immutable truth . . . people buy from people whom they know, like and trust?

Is it a possibility that in the misguided attempt at maximizing throughput through the introduction of automated eProcurement systems organizations have somehow ignored the importance of practical expertise and industry knowledge?

At the end of the day, and this is where I believe that both Evans’ and Smith’s CPOs references to skill set requirements should also include software vendor personnel – especially those whose origins are in the ERP world – people transact business through relationships of understanding versus automated bid notifications.  Specifically, organizations that have become enamored with what the technology is purportedly capable of doing re the famous features/functions/benefits list, ultimately lose sight of what really counts which is the ability to share expertise and experience.

It is these latter two “people-centric” skill sets that cannot be replicated or scaled as a turnkey system.  Perhaps this is the key contributing factor to the low adoption rates about which Smith wrote?

If this is in deed the case, which I am inclined to think it is, then a change in the way that vendors and their clients view technology is in order.

Included in this renewed state of perceptive reasoning is the need for vendors to alter their approach in terms of their sales and marketing efforts, placing a greater emphasis on leveraging important indigenous skill sets versus what I call automation abdication.  In short, execution and ultimately the scalability of any procurement strategy is driven by a particular vendor’s unique understanding of the real-world operational challenges faced by their prospective clients outside of their technology’s functional capabilities.

This means that the viability of a software solution should not be predominantly based on an analysis of technical functionality, but instead on the vendor’s industry expertise associated with properly assessing risks, structuring contracts and managing supplier relationships.

I am certainly not alone in this thinking, as Evans also talked about vendors having to “change their business models”  and begin focusing on the critical areas of “quality of service and reliability of data.”

Unfortunately, you very rarely if ever read about the operational skill sets of the people behind a software company, and how they can address areas such as effective policy development and calculating shared risk.

Front and center on Ariba’s main landing page for example is the tag line “Better Commerce for Everyone – Introducing the Ariba Commerce Cloud,” as well as other technologically oriented links.  If, as Smith’s article claims, only 14% of all companies process 60% of their spend through their eProcurement system, how important is technology or computing in the clouds?

After all virtualized or “cloud computing” architecture Evans reasoned, is really just “optimizing the use of infrastructure” and is therefore a commodity versus being an actual service.  Therefore vendor expertise must shift from their technology to the very processes and operational realities of the procurement world they are seeking to serve.

Given that eProcurement technology has done little to reverse the decline in supplier bid participation, instead of asking for technological specifications, end-user clients are going to start examining and comparing the purchasing skill sets of individual software vendors.  This will include areas like category, supplier and market expertise, as well as contracts and pricing knowledge.

To sum it all up, don’t tell me what your technology can do for me, tell me what you can do in terms of providing the expertise to create contracts that are balanced and effective at delivering a best result outcome for all stakeholders.  This alone, is the all important first step to improving supplier engagement and participation.

How you get there technologically is largely irrelevant.

NOTE: The above post was provided courtesy of the new Contracting Intelligence Blog.

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