Introducing a Digital Twin of an Organization for Complex Deals.
The Original Request for Proposal process was designed for purchasing commodity products
The Request for Proposal (RFP) process has become a global industry standard for companies procurement of a commodity, service, or valuable asset, to get potential suppliers to submit business proposals. The RFP process is normally managed by Procurement in the buying company and may include a request for quotation (RFQ) and a request for information (RFI) from various suppliers to compare the features, pricing, and functionalities. On the supplier side it is normally managed by Sales which take the lead in putting together the proposal as part of their sales process. The RFP process follows a structured evaluation and selection procedure, so that a company can demonstrate impartiality, which is a crucial factor in both publicly listed corporations and public sector organizations.
From the buyer’s perspective, the RFP process comprises three fundamental steps: Creation of the RFP, Administration of the RFP process with the suppliers and finally Evaluation of the proposals and awarding Contract to one Supplier.
· Creation The most important step is to define the product / solution scope with key stakeholders, including writing the requirements and securing that the project scope is aligned with the business strategy. The other steps like budget, timeline, range of suppliers come as a consequence of the scope.
· Administration: The second step of the RFP process includes selecting suppliers, issuing your RFP, answering questions, waiting for proposals, and following up as the deadline approaches.
· Evaluation: The last step of the RFP process is to review the supplier proposals, compare them and select a winner. It is crucial to engage stakeholders in this process to provide their perspectives and expertise.
The RFP process was originally used for purchasing commodity products, but over the last decades it is being used for purchasing more and more complex services, such as multi-year outsourcing of business processes or IT-services, often including complex digital transformation projects. These complex deals very often include organizational and process changes as well as the introduction of new technology and competency changes, and significant expected cost savings and / or benefits for the buyer. The RFP process was never intended to handle such complex purchases, and, in this article, we will look into the following:
- Request for Proposals or Request for Problems for complex deals?`
- What is the real problem?
- Is there a better way of running the RFP process for complex deals?
Request for Proposals or Request for Problems for complex deals
The Requests for Proposals (RFP) processes selection method is expected to eliminate risk, but In reality, RFPs for complex outsourcing and digital transformation projects do not reduce risk, nor do they guarantee success, it may very well be a “Request For Problems”.
Figure 1 – Request for Proposal vs Problems - Risk matrix
The increased complexity in scope of the RFP’s makes it a very costly and time-consuming process both for the customer and suppliers, and there is a high risk for suppliers to waste a lot of money without being selected. On the other hand, it increases the risk significantly for the buyer to select a supplier that is not able to deliver according to the complex defined requirements, hence the project will fail, capital investments are wasted, benefits not being realized – and both the buyer and supplier will take a hit.
In 2023 Companies globally are expected to spend $1.8 trillion on digital transformation projects, increasing to over 2.2 billion by 2030, 75% of digital transformations settled for dilution of value and mediocre performance. (Source: https://www.soocial.com/digital-transformation-failure-statistics/ )
What is the real problem?
There are several problems related to the RFP process, especially when it is related to complex business processes- or IT-sourcing deals with digital transformation involved.
The problem starts already Day 1 because the buyer is not able to define all the business requirements for complex deals. This drives the suppliers to provide wrong solutions and priced responses. Then the buyer will try to consolidate the complex responses manually in word or excel where the evaluation team struggles to see the differences in the supplier’s response and what is the best match. Then in the end the strict scoring process which normally are weighted high on price, the lowest priced supplier wins, not the supplier which provided the best requirements fit, see picture below.
Figure 2 – The current RFP process is simply not designed for complex deals
Problem # 1 – Unclear & complex business requirements drive wrong solutions & price responses from suppliers.
Many organizations find it difficult to find up-to-date documentation of as-is situation of processes, IT-solutions, and environments in production, ending up accepting obsolete business requirements used currently or previously in legacy systems. Design documents with requirements lists are still being created in spreadsheets and text editors when needed. Processes are documented in a visual stand-alone tool and architecture sketches are documented in another other tool. Tools are detached from each other, hardly updated, and is reflecting what is already in production and not what is actually going on current development projects.
Then there is normally a strong resistance against change in large organization’s and the ‘sacred cows’ often comes into play: blind loyalty and avoidance of criticism or challenge of long-established but non-productive beliefs, policy, process, being supported by enough people to avoid change. Add to it that many business units ignore the needs of cross-functional dependencies and workflow which could improve efficiency and reduce cost. This makes it difficult to describe what the real problem to be solved is and even more difficult to describe new requirements to the future state (to-be) situation. Finally, user needs are often documented in an ambiguous, incomplete, incoherent way, and not cohesive terms.
The result of this is that unclear business requirements are included in RFP documents, creating a lose-lose situation. The more complex deals the more challenging the process is for the buyer to clarify and define all requirements and scope of the products and services to buy. Suppliers aren't sure what they want and interpret them differently and bid according to their own perceptions. However, propose they must, and as such the responses typically suggest specific features and solutions regardless of the requirements. Responses become more about what can be "sold" as opposed to what is actually needed. (Source: https://www.nojitter.com/why-your-rfp-request-problems)
Problem #2 – It is almost impossible to manually consolidate complex responses using word or excel.
Complex RFPs can have endless requirements, and they normally use a manual process to consolidate this information into a purchase decision. There is no way to compare multiple products for both documents and spreadsheets in the RFP process, since both Word and PDF documents lack the ability to consolidate the information. Although spreadsheets are more efficient than documents, they are also more limited and manual. While spreadsheet RFPs can use macros to aggregate product response scores, this requires coding expertise. Spreadsheets are useful for evaluating a small number of requirements, but they do not scale to complex outsourcing and digital transformation selection projects.
Each RFP response stands alone, and the task of consolidating information collected from different RFPs must be done manually, making it a tedious and error-prone task. The responsibility of deciding what to include or exclude falls on the people performing this task, and their biases can have an impact on the selection decision. In the end, the software selection team may reach a consensus or vote, with the hope that individual biases cancel each other out. However, relying on hope is not a rational approach to software selection. (Source: https://olive.app/blog/disrupting-the-rfp-process/ )
Problem #3 The lowest priced proposal wins due to a strict and price weighted scoring and evaluation process.
The RFP process follows a strict scoring and evaluation process, especially for governmental organizations which need to have a transparent and impartial process. A Supplier which may have proposed the best solution to meet the business requirements is normally higher priced, since the supplier have included more features and functionality. A proposal from a supplier which has not understood the requirements of simply slash the price to win the deal, so called “strategic pricing” which is used by many suppliers to get inside the buyer and sell more services from inside.
The weighting of price tends to be high in the scoring, so the lowest priced proposals win, not the proposal with the highest requirements match. When the fix-priced agreement is signed, the foundation for a failure is laid out and can easily end up in the court. This happens in many industries, especially in the Construction and Public sector where the bids are high, and billions of dollars are in the pot.
Is there a better way of running the RFP process for complex deals?
The good news is that the continuous emergence of new and disruptive software technology makes it possible to improve the RFP process for complex deals and increasing the success rate significantly.
For the Company which issues the RFP for complex deals, it is critical to get the business requirements as clear and good as possible being able to evaluate the supplier’s response particularly the Scope of work in the best possible way. However, the manual process using word or excel needs to change and hence the scoring process needs to balance the price and proposal content in a more balanced way. Here are three key principles for a holistic and interactive data driven approach based on a Digital Twin of an Organization (DTO):
Figure 3 – Using a Digital Twin of an Organization in Complex deals
1. Model the business and technical requirements in an interactive DTO - “The expected change”
Define the new business requirements directly to a Digital Twin of an Organization (DTO) with business capabilities and processes, products and services, applications and integrations, infrastructure, organizational units, and physical infrastructure (dependent on the scope of the RFP). “The expected change”. The business problems, risks, and benefits to be achieved can also be visualized directly in the DTO. This creates 100 % transparency on the expected change and makes it easy to communicate and align requirements and scope of the change internally to key stakeholders, business users and IT-personnel. The requirements and scope of work can be reviewed and signed off in a proper document as needed and be part of the formal RFP documentation.
2. Invite suppliers to submit their proposed solution into the DTO “The proposed change”
Provide access to the suppliers to the DTO where they can map their Solution & Scope of work directly related to business capabilities and processes, products and services, applications and integrations, infrastructure, organizational units, and physical infrastructure. “The proposed change.” Not only can the suppliers map their requirements fit and gaps, but they can also define their required changes and work-packages, project plan and cost directly related to the specific areas in the DTO. This gives the suppliers a completely different possibility to show how their solution fits the requirements and estimate the cost of the changes to be implemented. The suppliers can interactively present their solution and scope of work to the customer directly in the DTO which makes it easier to have a constructive dialogue between all parties. The Scope of work and solution specification document(s) can be reviewed and signed off in a proper document as needed and be part of the formal proposal.
3. Evaluate the Suppliers solutions vs the business requirements in the DTO
When the proposal from the suppliers has been submitted, the customer can go directly into the DTO and instantly see the different suppliers’ requirements fits and gaps, proposed changes and work-packages, project plan and cost, risk, and benefits. The DTO will show the differences between the different suppliers and makes it much easier to evaluate the suppliers The Customer can also run different scenarios, like worst-case or best case across all the suppliers and evaluate the risks associated with the different suppliers’ solutions, plans and gaps. The DTO will provide management with an evaluation report which the business and IT-people can review before making a decision. It also makes it easier to see where the price differences are between the different suppliers, and it becomes very transparent if a supplier has excluded pricing or slashed prices for different parts.
Conclusion: The Benefits of using a DTO in complex RFP processes are massive both for the buyer and the supplier.
The benefits of using an Interactive DTO are obvious because it makes it 100 % transparent for buyers to define better and higher quality business requirements and scope related to the proposed change. In addition, it is much easier for suppliers to map their solutions and gaps to the requirements and interactively show how it fits the requirements. Finally, the buyer can evaluate and simulate alternative scenarios making it much easier to select a supplier based on a much more realistic and fair evaluation process for all parties involved. Both buyers and suppliers will find the Interactive DTO “a must have” and will never look back on how it was done in the old days.
Now, this is just the starting point, because the DTO is simply the baseline for the on-going engagement with the selected supplier. The DTO which can be used to map all changes and be the basis for continuous transformational work whether it is agile or waterfall software development, business process or IT-outsourcing. This is, however, a great topic for another white paper.
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