Big Corp Enterprise LTD are in the business of making widgets.
They are a huge business and have led their industry for decades. However, they have been experiencing a number of business challenges - increased competition, disruption, reduction in margins, quality issues, difficulty in retaining staff.
To combat this, their business want to bring a new generation of widgets to market, target new markets, build some new online widgets, and improve how they work to drive efficiency and reduce costs.
The C level are supportive of the strategy and ready to execute. The business representatives, leaders and budget holders are on board. Their engineering function have prototyped new solutions and know what they would like to achieve technically to support the new world.
To deliver on this initiative, they need suppliers. And because this is an innovation and transformation project designed to set them up for success over the coming decades, they need the best! They need best in class modern tooling, the best platforms, fresh thinking and approaches, the most rigourous intellectual property and the deepest expertise on the market. This is really strategic for *Big Corp Enterprise LTD *and the costs if not successful are unthinkable.
The problem is that their existing suppliers don’t really offer the latest and greatest. So *Big Corp Enterprise LTD *begin speaking with a selection of the most modern and innovative technology and solutions providers. It’s all cloud hosted widgets, widgets on the blockchain, real time widget analytics and mobile widget solutions. Awesome!
They identify the best in class partners and specialists and decide to move forward to POC and implementation. Everyone is onboard and excited about the new widget world.
Then they engage procurement to seal the deal. And this is where it often goes wrong.
Procurement: We are consolidating our list of suppliers. We can’t take on any new widget solution providers right now.
Response: You are consolidating to a small list of generalist legacy suppliers or one stop shops, instead of working with the best niche and most innovative solutions in the industry. This may drive down costs through economies of scale, but does it allow you to access the most business valuable solutions?
Procurement: Widget Inc already provide that solution to us. We will buy it from them.
Response: That is why you need to transform, because your existing partners have failed to provide you with disruptive innovation that a true partner should. This is because the supplier themselves have in turn fallen behind state of the art.
Procurement: You are too expensive. Widget INC provide that service cheaper.
Response: The new solution costs more compared to Widget INCs commodity and generic approach, but the new solution drives massively more value in less time and with less risk.
Procurement: We need to go to RFP for this.
Response: That will reduce it to a check box and cost driven exercise which is set up in favour of legacy and incumbent suppliers. It will add huge delay. It adds huge effort and cost to you, to us, and the other poor niche suppliers who invest time in a huge RFP response which only one party can win.
Procurement: It will take us 12 weeks to onboard you.
Response: Whilst you are doing that, your business is falling further behind and losing momentum on their transformation. We are on the other hand are fast, flexible and could probably complete the implementation by the time we are onboarded.
This is of course slightly tongue in cheek, and I don’t intend to bash procurement departments. It is a valuable function for many commercial, operational, legal reasons etc. However, the above conversations are happening on lots of transformation projects and they are a real drag on innovation.
In todays world of falling barriers to entry and the startup culture, startups are increasingly developing the best technologies and solutions. Change agents within the enterprise see those solutions and want to bring them in to deliver value to their business, but they have so many procurement hurdles in doing so!
How to fix this? Tactically, it seems to work to have an appointed contact and a rapid route through for small innovation purchases. The projects are highly strategic for their business, and in the grand scheme of things, often relatively low cost compared to the legacy suppliers. So an accelerated path through for niche providers is not going to bring the company down.
This said, procurement should also be modernised as a strategic imperative. It’s a new world where ability to compete is based on technical innovation. Enterprises need to access the best solutions in the market at scale and with urgency. If you enable this, the outcomes for your business can be significant.