Top 10 Reasons Why Procurement Fails
#9 Failure to Understand the Marketplace
* Market Research
* Paid vs. Public Research
Coming in at number 9 in the series of the “Top 10 Reasons Why Procurement Fails”, is “Failure to Understand the Marketplace”. Another lesson learned through observation of failure and another opportunity to “Fail Forward”. Let’s face it, as procurement and business professionals, we are BUSY! Now more than ever, in our roles, we are expected to do the work of more than one individual and wear many different hats and often we must prioritize and choose the best investment for our time and resources.
When prioritizing we sometimes ignore the importance of Market Research. Ok so what is Market Research and why is it so important, I mean, who cares? Well, if you are a business or procurement professional you should. In the context of procurement and strategic sourcing, put simply, it is an organized effort to gather information about target markets or suppliers. It is a very important component of developing a sourcing strategy. Best to share a story here to make my point. A team member of mine was asked by the IT department to help run a Request for Proposal (RFP) to select a software solution. The young procurement specialist, met with the IT business partner, asked a lot of questions to determine their requirements, which suppliers they were interested in, critical dependencies, urgent timelines etc. Eager to please the business partner and meet the urgent timelines, the procurement specialist decided to short circuit the process, skipped doing any market research and only included the suppliers the business partner had initially showed interest in. Seeking executive approval to proceed with launching the RFP, the Chief Information Officer (CIO) questioned why the leading provider, according to the Gartner Magic Quadrant hadn’t been included in the competitive bid process? Oops!
Neither the business partner, nor the procurement specialist had done their research and so was caught by, of all people, the CIO! Imagine the perception of the CIO of their own IT person and the procurement person. Shoddy work, lack of diligence and quality. Argh! Once made, a first impression is hard to change. It took a long time for that procurement specialist to turn around the perception of the CIO and build their confidence and trust.
Paid vs. Public Research
So how do you complete research and what sources of information are available? As mentioned above, a common and invaluable paid source is Gartner Research. Some call it the gold standard for technology. To get access to the latest Magic Quadrant(s) you will need a paid subscription. There are many paid research sources out there, for technology, Gartner just happens to be one of the most popular and most extensive. Other sources include Sourcing Interest Group (SIG), McKinsey and Aberdeen, to name just a few. Again, to be transparent, this is just my opinion based upon over thirty years of experience sourcing technology solutions.
So, what to do if you can’t afford a fancy, expensive subscription? There are copious amounts of free information that is available to the public. It may take a little bit more time depending on what your researching, but, there are many sources of information available on the internet, by doing a web search. Type in “Top 10 XX for XX companies, XX”, you fill in the XX whether its “financial software” for “mid size” companies in “Canada” or “call centre providers” for “banking” companies in Asia, the great Google will find it! Suppliers often will provide free white papers or survey findings to promote themselves by making the “Top 10 XX”. I’ve even seen suppliers give away free downloads of a magic quadrant they ranked high in.
What is that? Well, of all the research, sometimes seemingly the hardest to find is an accurate benchmark of a supplier’s solution, whether it be price or other critical terms. Or is it the hardest? Maybe not.
Admittedly, due to market fluctuations and ever-changing conditions, prices will fluctuate. Just look at oil and gas prices. They fluctuate multiple times per day, driven by supply and demand. The more oil produced, the greater the supply, the lower the price. This is true for other categories such as technology. Depending on the Research and Development (R&D) cycle, where the product or solution is positioned in the market (think Magic Quadrant), the length of time its been on the market (market leader, new challenger), scarcity (often of resources to implement), customer ratings, all play into what the market price will be. So, with all this uncertainty and fluctuation, how do you benchmark accurately?
One way, and a favourite of procurement professionals, is to simply look at your historical cost. If you have bought this product or service before, you will know what you last paid for it. Historical pricing is an indicator of what you might pay in the future adjusted for market pressures such as inflation. Labour rates as an example, tend to go up over time and should be adjusted accordingly. Products that have become commoditized tend to go down over time. Remember when personal computers first came out and cost thousands?
Never bought before? You can do a quick Request for Quote (RFQ) and ask for prices from 3 or more potential providers. Again, this will help you set an estimate of what it might cost you. Or even better, run a more formal competitive bid like a Request for Proposal (RFP) for more complex solutions. Both are a good test of what the market price is at that point in time.
Another, less common, nor well known option, for really complex procurements is to engage with a professional benchmarking company. Yes, they really do exist and are great and more often than not, really expensive. Often, they will charge a contingency fee or percentage of the savings gleaned from their benchmarking information. These services are used most often for very large and complex solutions such as software, hardware and networking equipment. In addition to IT, I’ve also seen benchmarking services for outsourcing, telecommunication services and other professional services.
Ok, so again, who cares?! Well, you should, and the CIO certainly will. If I had a nickel for every time a CIO asked me “How do you know we are getting the best price?” I would be able to buy a really expensive coffee! You know the kind that you get from Starbucks.
Failing to understand the marketplace, whether it’s the best suppliers to provide solutions or what the market competitive price is, your level of diligence, or lack thereof will affect your credibility with your business partner and the CXO. Being prepared, and doing your homework, for that’s what market research really is, will prove your value and professionalism and make your business partners want to engage with you more often.
Need help doing market research or running a competitive bid? Let ProcurePro Consulting, help you! Contact us today for a free no obligation, consultation.