How Do Buyers and Suppliers Game the RFP Process?
Consider an analogy for buying with an RFP.
Imagine you have to hire someone for a role in your team. You spent months lobbying the powers-that-be for the authority and they gave it to you. Finally.
When management approved the hiring event, they assumed that you would act in the best interests of the firm. But they also gave you a set of procedures to follow.
You have to develop a job description that states specifically what this person is going to do on a daily basis and with whom they will work. It will list the title they will receive. You will work with Human Resources to determine the acceptable salary range. You lay out the kinds of qualifications you expect to see.
The HR department has procedures for you to follow.
Ideally, this is a competitive process in which you solicit resumes from the market and you have multiple submissions from which to choose whom to interview. You interview a shortlist of candidates, inviting your colleagues to participate, so that you have a broad consensus on who to hire.
Contrast that with an alternative scenario.
Imagine instead that you are strapped for resources. To break the logjam in your department, a committee of your peers and superiors, along with someone from HR, decides that you should hire someone. The committee gives you general instructions, but nothing specific, leaving it to you to execute the hire, working with the person from HR.
You realize that this is going to be a ton of work, in addition to your daily responsibilities. You don’t know what the job description should be. You don’t know where to find people with this particular skillset. HR doesn’t have a clue either. There is no budget to research what the right job description or ideal candidate looks like. You don’t have the luxury of being able to find peers at other firms who can educate you on requirements.
You are on your own.
So, you call some recruiters. They are very happy to take your call. When you describe the problem that this new employee is to help you solve, they have opinions about what the job description is supposed to look like. You listen to them because, after all, they are experts on the market.
You really like one recruiter, Bob from XYZ Search. He seems like a trustworthy fellow. He is easy to talk to about these things. He has some good sounding ideas.
Bob offers to write the job description for you and gives you a sense for what to expect in terms of compensation and candidate availability.
Unbeknownst to you, the job description that Bob writes for you is tailor-made for one or two candidates that he has in his stable of executives who are open to a new job, for the right compensation package. He helps you understand that this is the range you should expect to pay. There are fewer candidates who fill the bill than you had hoped to see. The compensation range is expensive. Coincidentally, Bob’s bonus is tied to the first year compensation for anyone he helps you hire.
In fact, Bob’s job description is so narrowly scripted that it precludes most of the candidates other recruiters would suggest, or potential hires who might have surfaced organically.
Which one of these is preferable?
In the former case, we generate plenty of competition on human capital to match a job description that we have written and control, so it is likely to be well aligned with what we actually need. The market determines the price you pay in terms of compensation. The tradeoff is that you have to do a ton of work to research your needs and what is available in the market. Also, it takes a long time to execute.
In the latter case, with the recruiter’s assistance, we may generate very little competition to end up hiring someone who does not fit the actual role we need to fill, potentially at an inflated price. Sure, it didn’t take much time, but you now have to live with the person for a while. You must bear the opportunity cost of not having the person you would have hired had you been able to devote the time and energy to doing the work yourself. You pay Bob a large fee.
The only time when this stylized recruiter scenario makes sense is if you are recruiting for a junior position with little ability to move the organizational needle much and who is relatively inexpensive. It can be disastrous if you use it for a senior position. (To be sure, when managed collaboratively and effectively, there are many recruiters who could help you execute a competitive hiring process with lower overall transactions costs. But they have to be led and managed properly.)
It is obvious that the stylized recruiter scenario is a distortion of the business process.
The object of the exercise is to generate multiple potential candidates whom we evaluate against the true set of requirements.
The distorted outcome is one in which we have less competition and the requirements themselves are incorrect and misshapen.
The distorted outcome is very similar to the way in which buyers and suppliers game the RFP business process. It is something that happens because buyers are pressed for time and they lack access to market research.
EdgeworthBox is a platform for the procurement technology stack that seeks to address the tax imposed on buyers by lack of time, budget, and market research. We make it easy to generate competition by accelerating the time to onboard new suppliers, so that buyers can solicit vendors with whom they have no pre-existing vendor-of-record relationship. We enable easy access to market research with databases of live and historic RFP activity in structured format. And we connect buyers and suppliers to one another for the collaborative sharing of intelligence about the markets in individual vertical categories. Check out this short video for a quick overview. Give us a shout.