MailGuru
Well-known member
The RFP process is bad for your business, as well as your long-term business strategy:
1) It essentially strips away those important differentiators that separate you from the rest of the pack and made you successful in the first place and brings it primarily down to price.
2) It dilutes your brand.
Responding to an RFP means you are agreeing to be shoved in a box with a bunch of half-rate competitors who compete on price only. You’re better than that.
3) It undermines your credibility.
Most of your clients do business with you primarily because they know your job is to make sure they are successful. By doing so, you make yourselves successful. This normally entails providing logistical support and insight based on your knowledge, expertise and experience into their projects to insure their success. Through back and forth dialogue, and, a collaborative team effort on both sides of the table, you modify their project designs to provide essential processes that they originally didn’t even know they needed. The RFP process eliminates this very important dialogue. By responding to an RFP, you let the customer decide how to do your job – a recipe for disaster. Great companies lead their customers, they don’t follow them.
4) It shaves your profit margin.
The RFP is structured so that the requestor vaguely defines the specifications of the job, and then you explain how cheaply you can deliver those specs. This allows the requestor to alter the specs after the bid has been awarded and the winning bidder soon finds out that there is more to the job than anticipated which may drive the cost up, but, the bidder must honor his original bid and eat the cost differential.
Companies that live by price, soon die by price. If you acquire a new customer simply because you under-cut your competitor’s price, you will have that customer until another competitor under-cuts your price. Building a business on this philosophy is a no-win situation.
5) The uncompensated sharing of competitive knowledge and expertise.
Almost all RFP’s are written with such a lack of detail, that, no individual bidder can make an accurate bid. Most are just “bidding in the dark” in hopes that they will not lose too much money on the project. To compensate for this, most RFP’s will have a scheduled question and answer step wherein vendors will submit their questions so that they can get a clearer picture of what the project is and what its associated costs might be. These Q & A sessions are then made public to all participating vendors. In affect, prior to these Q & A sessions, a particular participant’s response may be more accurate & precise because they have a higher degree of knowledge, experience, expertise, and trade secrets in the project. The published answers to the Q & A allow all competing vendors, as well as the RFP originator to have access to these trade secrets without having to compensate the vendor who has spent years and literally hundreds of thousands of dollars to amass this knowledge.
Some RFP’s will even ask for a narrative of how the vendor would go about producing the requested outcome. In the MSA (Master Services Agreement), it will also state that, by responding to the RFP this innovation and knowledge becomes the intellectual property of the RFP originator to use as they see fit, whether or not you win or lose the RFP. So, basically, in order to participate, you must be willing to transfer your knowledge and expertise to the originator without compensation (give away free work). This is nothing short of legalized extortion.
6) It ultimately devalues your company and makes it less marketable.
You must realize that business acquired through the RFP process is temporary. They usually come with a 12 to 24 month contract period. Even if you win the business, the same corporate policy that forced the requesting company to tender the RFP in the first place, will kick-in again and force them to host another RFP process on this same project in the future, no matter how good a job you did.
The value of any successful business is linked to how repeatable its model is. Businesses know that RFP-won business is risky and temporary. As such, it is treated as a “one-off” project and not a repeatable model. That means you will spend a considerable investment on developing a project that is only temporary. It’s like a hamster running round and round in its wheel, never getting anywhere.
The true value of any company is directly relative to its dependable, long-term advantage over its competitors in experience, knowledge, and expertise, not whether or not it has the ability to be the lowest bidder on one-off projects. This long-term advantage gives the company pricing authority over its competitors and increases longevity and profitability.
The RFP process is bad for the originator’s business
1) In general, RFP’s dictate solutions to your vendors instead of engaging them to solve the problem. It’s like telling your physician that you want a prescription before he’s even made a diagnosis.
2) An RFP asks vendors to fit their solution into a box. This tends to eliminate the vendor’s expertise around their product or service and doesn’t necessarily lead to better prices. In fact, by eliminating a vendor’s expertise, the end result is usually sub-quality and may cost more in the long run in terms of the originator’s customer satisfaction.
3) RFP’s are constructed by human beings, some of which, are biased toward certain vendors. During the construction phase, an RFP can be written to favor one particular vendor over another and not leading to transparency in the decision making process.
4) RFP’s tend to eliminate the ability for a client and a vendor to actually partner and communicate about an opportunity or problem.
5) The RFP process tends to eliminate innovation, creativity and best practices from the discussion.
6) Low, or no profit equates to second class treatment. For example, a vendor has three different jobs from three different companies: On Company A, the vendor makes a 50% profit margin. On Company B, the vendor makes a 35% profit margin. On Company C, the RFP originator, the vendor only makes a 2% profit margin. Should the need arise for the winning vendor to triage, or prioritize production, who’s job do you think will get priority and who’s will be delayed?
7) In the end, the RFP originator will get exactly what they paid for: a cheap product or service for a cheap price.
In conclusion, I think John Glenn, the astronaut (and later a Senator) said it best when giving his first radio interview from the seat of a space capsule. When asked “How do you feel?” he responded with, “Well, I’m sitting in a capsule, mounted on the top of a rocket ship, both constructed by the lowest bidder. How do you think I should feel?”
Discussion? Comments?
-Best
MailGuru
1) It essentially strips away those important differentiators that separate you from the rest of the pack and made you successful in the first place and brings it primarily down to price.
2) It dilutes your brand.
Responding to an RFP means you are agreeing to be shoved in a box with a bunch of half-rate competitors who compete on price only. You’re better than that.
3) It undermines your credibility.
Most of your clients do business with you primarily because they know your job is to make sure they are successful. By doing so, you make yourselves successful. This normally entails providing logistical support and insight based on your knowledge, expertise and experience into their projects to insure their success. Through back and forth dialogue, and, a collaborative team effort on both sides of the table, you modify their project designs to provide essential processes that they originally didn’t even know they needed. The RFP process eliminates this very important dialogue. By responding to an RFP, you let the customer decide how to do your job – a recipe for disaster. Great companies lead their customers, they don’t follow them.
4) It shaves your profit margin.
The RFP is structured so that the requestor vaguely defines the specifications of the job, and then you explain how cheaply you can deliver those specs. This allows the requestor to alter the specs after the bid has been awarded and the winning bidder soon finds out that there is more to the job than anticipated which may drive the cost up, but, the bidder must honor his original bid and eat the cost differential.
Companies that live by price, soon die by price. If you acquire a new customer simply because you under-cut your competitor’s price, you will have that customer until another competitor under-cuts your price. Building a business on this philosophy is a no-win situation.
5) The uncompensated sharing of competitive knowledge and expertise.
Almost all RFP’s are written with such a lack of detail, that, no individual bidder can make an accurate bid. Most are just “bidding in the dark” in hopes that they will not lose too much money on the project. To compensate for this, most RFP’s will have a scheduled question and answer step wherein vendors will submit their questions so that they can get a clearer picture of what the project is and what its associated costs might be. These Q & A sessions are then made public to all participating vendors. In affect, prior to these Q & A sessions, a particular participant’s response may be more accurate & precise because they have a higher degree of knowledge, experience, expertise, and trade secrets in the project. The published answers to the Q & A allow all competing vendors, as well as the RFP originator to have access to these trade secrets without having to compensate the vendor who has spent years and literally hundreds of thousands of dollars to amass this knowledge.
Some RFP’s will even ask for a narrative of how the vendor would go about producing the requested outcome. In the MSA (Master Services Agreement), it will also state that, by responding to the RFP this innovation and knowledge becomes the intellectual property of the RFP originator to use as they see fit, whether or not you win or lose the RFP. So, basically, in order to participate, you must be willing to transfer your knowledge and expertise to the originator without compensation (give away free work). This is nothing short of legalized extortion.
6) It ultimately devalues your company and makes it less marketable.
You must realize that business acquired through the RFP process is temporary. They usually come with a 12 to 24 month contract period. Even if you win the business, the same corporate policy that forced the requesting company to tender the RFP in the first place, will kick-in again and force them to host another RFP process on this same project in the future, no matter how good a job you did.
The value of any successful business is linked to how repeatable its model is. Businesses know that RFP-won business is risky and temporary. As such, it is treated as a “one-off” project and not a repeatable model. That means you will spend a considerable investment on developing a project that is only temporary. It’s like a hamster running round and round in its wheel, never getting anywhere.
The true value of any company is directly relative to its dependable, long-term advantage over its competitors in experience, knowledge, and expertise, not whether or not it has the ability to be the lowest bidder on one-off projects. This long-term advantage gives the company pricing authority over its competitors and increases longevity and profitability.
The RFP process is bad for the originator’s business
1) In general, RFP’s dictate solutions to your vendors instead of engaging them to solve the problem. It’s like telling your physician that you want a prescription before he’s even made a diagnosis.
2) An RFP asks vendors to fit their solution into a box. This tends to eliminate the vendor’s expertise around their product or service and doesn’t necessarily lead to better prices. In fact, by eliminating a vendor’s expertise, the end result is usually sub-quality and may cost more in the long run in terms of the originator’s customer satisfaction.
3) RFP’s are constructed by human beings, some of which, are biased toward certain vendors. During the construction phase, an RFP can be written to favor one particular vendor over another and not leading to transparency in the decision making process.
4) RFP’s tend to eliminate the ability for a client and a vendor to actually partner and communicate about an opportunity or problem.
5) The RFP process tends to eliminate innovation, creativity and best practices from the discussion.
6) Low, or no profit equates to second class treatment. For example, a vendor has three different jobs from three different companies: On Company A, the vendor makes a 50% profit margin. On Company B, the vendor makes a 35% profit margin. On Company C, the RFP originator, the vendor only makes a 2% profit margin. Should the need arise for the winning vendor to triage, or prioritize production, who’s job do you think will get priority and who’s will be delayed?
7) In the end, the RFP originator will get exactly what they paid for: a cheap product or service for a cheap price.
In conclusion, I think John Glenn, the astronaut (and later a Senator) said it best when giving his first radio interview from the seat of a space capsule. When asked “How do you feel?” he responded with, “Well, I’m sitting in a capsule, mounted on the top of a rocket ship, both constructed by the lowest bidder. How do you think I should feel?”
Discussion? Comments?
-Best
MailGuru
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