The one-size-fits-all proposal harms the buyer as well as the provider.
Imagine the following conversation in a doctor’s office…
“Doctor, I’ve been having headaches for the past year.”“OK, let me examine you and see what I can find.”
“Actually doc, I’ve already decided I need surgery. I’m having you and seven other doctors complete this comprehensive treatment plan telling me exactly how you will use surgery to treat me, and what it’s going to cost. If you are the cheapest, I’ll let you examine me.”
Sounds farfetched, unless you’ve recently been through a request for proposal process. To standardize and gain control of the complex purchasing process, HRO buyers have borrowed from the experience of colleagues in other areas where an RFP process makes more sense. In purely commoditized purchases—for paperclips, PCs, or payroll processing—it’s easier for buyers to ferret out the lowest-cost provider. For complex, customized, value-added services such as recruitment, employee relations, and learning and development, buying solely on price may not be the smartest solution, especially when a few more dollars could deliver significantly more value.
Typically, the decision to outsource begins when a company decides that its internal process is “broken.” The buyer writes a statement of work indicating what needs fixing, and this statement of work becomes the basis for the RFP. The problem is that, like a patient seeking a medical opinion, many buyers don’t have the expertise (not to mention the emotional distance) to examine their situation with the critical, experienced, and unbiased eye of a specialist provider. No matter how thoroughly the buyer details the scope of needed services in the statement of work, if it’s not the right scope of services, then the buyer may miss out on finding the best solution to their problem. Perhaps a more limited scope could solve the problem; alternatively, a broader scope may provide better value for the money.
From the HRO provider’s perspective, being asked to submit a detailed proposal without the opportunity to do any exploration or due diligence limits the provider to shooting in the dark. If the provider is lucky, it will correctly guess the buyer’s problems and prescribe the right solutions. More often the provider either will not understand the problem correctly or may fail to understand some critical piece of information that gets left out of the proposal. Additionally, the arms-length “propose first, due diligence later” style of most RFPs discounts important cultural and “fit” issues required for mutual success.
The end result is that today’s RFP process often leaves both sides feeling dissatisfied. The provider doesn’t feel it has a chance to evaluate the client’s situation to prescribe the best solution, and the buyer ends up buried under hundreds of pages of proposals, which are generic in nature and don’t address specific needs.
There is a solution with the potential to make everyone happy. The HRO industry would benefit enormously by adopting the concept of a “fixed-price RFP.” Rather than price an RFP with a fixed scope, the buyer should prepare an RFP in which the price is fixed but the scope is not. Competing providers are each given a set period of time (from a few hours to a few days) with the buying company’s team to conduct preliminary discovery and understand the specific challenges of that company. Using the established budget, the providers can submit proposals indicating just how broad and deep its services are for that amount.
This model is especially relevant in the emerging areas of outsourcing (such as RPO) for which there are not yet standard scope and process definitions or good benchmarking data, and where significant current-state process variability exists from company to company. In these cases, a conventional RFP is likely to return a wide variety of proposed solutions and costs, making an apples-to-apples comparison impossible. By choosing a fixed-price RFP with the price set 20 to 40 percent below current costs (assuming the buyer has a good handle on current costs), a company is guaranteed savings to justify outsourcing while evaluating providers based on the strength of their offering.
Those of us in the provider community live for the opportunity to demonstrate how smart we are by providing innovative solutions to the buyer’s problems. The reverse RFP process allows us to spend the time needed to diagnose the buyer’s pain, before prescribing our best solution. To all the buyers considering outsourcing as a solution to their ailments, all I can say is, “The doctor will see you now.”