I retired from personal blogging in July 2008.
But you can find me over at http://blog.xero.com.
Had this article published in The Channel this month …
Government and Large Business Procurement policies are a lost opportunity for the software industry.
Telstra CEO Ziggy Switkowski presented in Wellington a few years ago. His opening words were an apology to all of the vendors in the room. “Due to the contraction of the telco space Telstra hadn’t been spending.†Ziggy was very aware of the impact Telstra has on the Australasian economy being at the top of the money-go-round. Telstra management understood their spend is revenue for a large number of suppliers.
NZ business and government do not appear to share that awareness. The best money into a company is revenue. Revenue creates a virtuous circle that drivies growth and investment. Deals won provide the references required to make further sales and start to build the credentials required for overseas wins.
Making this spend efficient benefits the entire economy. A government dollar spent can go directly overseas or spend some time here where it can stimulate investment in local companies helping them grow towards earning export dollars.
Around the Ford auto plant in Detroit there are a multitude of small suppliers that exist solely as suppliers to the blue oval. Ford is not the only company that benefits from the sale of one of their cars.
That is why having a procurement policy that stimulates local investment and eliminates unproductive costs is the single best thing Government could do for our industry. And that would cost nothing! The money is already being spent. Right now Government procurement policy is biased towards covering some perceived risks and ironically is far from transparent.
A common complaint of local vendors is the cost of responding to Request For Proposals (RFP’s). In many occasion 5 local firms will each spend 20k of time preparing a bid to win 50k of business. This is negative productivity.
Many times the RFP response required is so large that you need to be the size of a multi-national just to be able to afford to complete the response.
A common complaint from respondents is that RFP’s are often so prescriptive that the Vendor, who is the expert, does not have the ability to add value. All parties lose the opportunity to discover an innovative and perhaps more effective solution.
Many product companies have to keep responding to the same RFP process for each potential customer even though they may have proven themselves to be the best solution numerous times before. There appears to be little RFP reuse across Government Departments resulting continuing wasted cost and cash flow delays in completing yet another RFP.
One of the bizarre evolutions of the current model is an insidious consulting layer that promotes the RFP and has a vested interest in prolonging the process. Out them I say!
In some occasions Government Departments are concerned about Intellectual Property (IP) created during an assignment. Contracts can get hung up on who owns that IP. In most cases the Department has everything to gain by letting a vendor develop the IP into a viable product. If they can obtain further customers than that may lead to a shared investment across the customer base resulting in greater functionality for the original Department. And are they in the business of owning IP?
In many cases the RFP process is manipulated because of other agenda’s. (Shock, Horror.) While discussed frequently in the café’s around Wellington this behaviour is seldom reported as vendors don’t want to put future business at risk.
As procurement policy is so important in growing the ICT sector it needs to me managed and monitored. A great start would be a Procurement Ombudsman that can provide a confidential and independent path for addressing procurement issues. This person cannot reside inside the Ministry of Economic Development as they are one of the biggest procurers themselves. The Audit Office or State Services would be a more appropriate home.
Their first job would be to establish a Procurement Policy. This seems to have been kicked off several times but nothing useful to industry has ever surfaced. It needs an owner.
Perhaps policy like an approved register can be established. Nothing heavy but once companies or products have crossed a certain threshold then CIO’s could select those vendors without an expensive process, without fear of recrimination. As a control, all deals should be published so that deals can be monitored. There would be some details to work out but once economic development is prioritised ahead of middle management safety then those details should be easy.
The solutions seem quite easy, but the first change required is awareness of how important procurement policy is to accelerating our industry. It is not a ‘Buy NZ campaign’ (that just does not make sense – what if every country did that) it is about eliminating negative productivity and making it easy for our small and high growth companies to get revenue, invest and grow.
blog
Having been on the response side of dozens of RFP (and similar) processes over the years I am very happy someone like yourself can stand up and offer some possible new scenarions. I have also been on the inside of a few such processes and I believe there are many frustrations from both sides.
Unfortunately if I want to keep working in the industry I mostly have to follow the particular formulas - as flawed as they might be and that will be holding many people back from public debate.
I do remember back in the early ’90s there was a move to become Government approved suppliers which was a way to “raise the bar” and in my view dispense with some of the wasted efforts of restating the obvious on each bid.
Whatever the future - there does need to be a change. The new system also needs to allow outsider and new entrants into the market as every industry needs that.
I also seem to remember that there were some themes around egovernment initiatives of being a model customer for the best local and international service providers.
Many years ago (early ’90’s) - in Australia I was involved in some public policy around such issues. It resulted in a manifesto called “The Creative Nation” which stimulated and provoked many changes in both the arts and technology industries of the day. It was an example of thought leadership at the time.
We do need more debate on public procurement policies. Thank you for raising this issue again.
Perhaps the owner for the revised policy could be the Digital Strategy Initiative - since they are interested in “productivity” and according to the note underneath have $10.4m in funding.
“business ICT productivity - see http://www.biz.org.nz ($10.4 million), and contingency monies for ICT procurement workshops and other initiatives.”
http://www.digitalstrategy.govt.nz/templates/Page____26.aspx
Hi Rod
Wonderful to see this being raised.
…
Thank you for raising the Procurement practice issue once again Rod. It needs to be raised and practices altered. Raising awareness as the next step is too soft to make a difference. You noted that it has been raised several times, ineffectively. Yes. The one new approach that will make a lasting difference is constancy and gravitas from private industry leaders – like you.
You mention Government and large business procurement. Yes they can be grouped, however Government procurement has the added flavour of being direct-able by their electors.
With the NZ Government work being such a massive chunk of our national economy changed procurement practice can certainly bring about major economic development in just a few short years. Developing the (IP) intellectual property attributes of procurement are a powerful mechanism for change. The costs are minimal, the risks are shared more and the ongoing support from private industry suppliers grows inexorably on the back of new export business.
IP, RFP re-use, enabled innovation in responses are all focal areas and they interlink.
The solution is easy to understand. What’s needed remains missing still, yet the gap can be filled by a few private industry leaders. Those who are affected by and involved in RFP responses won’t make the difference. A new and higher level of thinking is required. This is why seminar programmes to buyers and consultants won’t make any lasting improvement.
There is a danger in talking about procurement policy. It is that the conversation and focus quickly switches to government officials. They do not intrinsically have the drivers or understanding to make the needed changes.
Procurement practice rather than procurement policy is a useful new focus. The missing ingredient to make lasting improvement here is a succinct, coherent and constant voice and lead from private industry. Government exist to serve, never lead. We need more successful entrepreneurs who are also great business leaders – like you Rod. It is people with this type of thinking and genetics that can see both the aim and the method of the change that is needed, who will stick with it to see change implemented. Good to hear Min. Cunliffe mention procurement at the Hi Tech Awards but let’s not be beguiled into hoping that MED or Government officials can understand or lead the change that is desperately needed.
There is a wonderful opportunity to immediately raise our procurement dollar ‘efficiency’ in NZ and stride up the OECD rankings. “people get the Government they deserveâ€!