What is an RFP?
An RFP, or request for proposal, is a document companies use to describe the product or service it wants to purchase, explain how bids for it will be measured, and provide a framework for evaluating multiple vendors.
Once the bidding vendors turn in their RFPs, the company short-lists the best proposals. Negotiations take place, lasting months and even years. The company then awards the contract to the bidder that best meets the needs defined in the RFP.
RFPs are often confused with RFIs (requests for information) and RFQs (requests for quotation). RFP can also refer to a request for pricing. While RFPs might seem like a practical approach to capital expenditure, there are three significant drawbacks and implications to this approach.
RFP and reap what you sow
The first drawback to RFPs is purchasing companies—often unknowingly—asking generic, and sometimes leading, questions. Common RFP questions include, “What are your product’s reporting capabilities?” or “What forecast algorithms are available in your product?” These standardized questions result in selecting a solution that checks all of an RFP’s boxes without due consideration to whether they were the right boxes to begin with. Some questions can even inadvertently deselect innovative solutions that could provide significant business value. RFP questions can also be written to ensure a particular bid wins. Ethics aside, the biases inherent in RFPs invariably bias the outcome of the selection process.
The second drawback is vendors being incentivized to provide less-than-truthful answers to an RFP’s questions. Since the vendor doesn’t have to substantiate its answers (yet), it could choose to omit important information or worse, fabricate answers to help it win the bid. RFPs can contain clauses and penalties to prevent this but enforcing them is exceedingly challenging. Some applications aim to improve RFP transparency. But regardless of how an RFP is presented, a vendor’s answers are not guaranteed to be factual. Indeed, they tend to serve more as a sales pitch.
The third drawback to RFPs is how they are measured. RFPs are quantified by return-on-investment calculations. These calculations ensure the product or service will deliver the revenue and efficiency required. Though this approach may seem logical, many of these metrics were designed to measure the ROI of outdated technology. This frequently leads to more innovative products and services being passed over for more traditional ones, which is akin to buying a motor vehicle instead of an electric vehicle because the efficiency of the latter can’t be measured in miles per gallon.
As demonstrated by these three drawbacks, RFPs can significantly hamper a company’s vendor evaluation process and, consequently, its capacity for innovation and change. While companies are understandably risk-averse and therefore rely on the well-trodden path of RFPs, it is worth noting that immensely expensive failures of traditional, ‘proven’ enterprise solutions are never far from headlines either.
Shiny old things
Not all vendors skew their answers to fit an RFP’s questions. Still, many will build or improve their product or service based on the criteria that commonly appear in these documents. This stifles innovation. The vendor is more incentivized to win (or keep) the contract rather than to challenge the status quo with a new, more effective solution.
To make matters worse, Gartner quadrants, marketing hype, and compelling presentations unduly influence companies’ multi-million-dollar investment decisions. This leads vendors to allocate more resources to sales and marketing campaigns than to R&D, further constraining and even thwarting technology advances.
The result is that R&D is stymied in favor of equalling competitor capability. Support for custom extensions and regular updates take precedence. Innovation becomes a slow grind instead of advancing by leaps and bounds. Large incumbents market their ‘Next Generation’ solutions (flashy versions of old legacy solutions designed to win RFPs). Disruptors appear, but winning contracts proves challenging as they struggle to compete with the large install bases of their more traditional competitors.
To avoid stagnation in innovation, vendors need companies to apply outside-in thought leadership as much as the vendors themselves need to break the pattern of tailoring their products and services to the limited requirements of RFPs. The main obstacle to this, however, is the RFP process itself.
Limiting the possible the RFPs
RFPs tend to lead companies to choose limited solutions based on limited criteria that block the possibility of exploring more innovative solutions.
For example, o9 Solutions’ patented Enterprise Knowledge Graph capability could significantly alter business planning from the outside in. But the constraints of the expected norms driven by RFPs restrict its possibilities. Customers cannot envisage, request, or measure a different and better future because the RFP approach does not allow for it.
For decades, the trend in Supply Chain Planning has been to focus on implementing cost reduction and efficiency. But the most efficient solution may not be the most effective in delivering business value. RFPs are a flawed framework for defining the selection criteria of technology and the implementation of process change. They restrict research and development and the ability for change and growth for both vendors and purchasers. The next article details a better alternative to RFPs.