Competition is acknowledged as a core tool for procurement and whilst suppliers often decry it there are even upsides for them. Often the fact that a buyer is running a competition shows intent to purchase, gives a finishing line to aim for, and boundaries to work within. A well run competition, through focus and by its nature, can encourage performance whether in terms of the offering, the price, or other associated aspects.
The vast majority of competitions are relatively simple and relate to the purchase of products or services that are delivered over a relatively short time frame. Increasingly, however, organisations are looking to procure complex packages combining products and services which are delivered over extended periods. In these longer term opportunities, selecting a partner using a competition is still relatively straight forward, however, once selected one of the main challenges faced is how do you maintain the incentive to perform, continuously innovate, and avoid complacency.
Whilst much has been written on creating and running successful competitions, the challenge of maintaining performance over the longer term is a more complex challenge.
Whilst pre-signature a competition is effective, post-signature using a regular competition to maintain performance can have negative impacts in terms of the cost of delivery, and in terms of the cost of running such competitions. What is actually required is the creation of a competitive environment which fosters continuous innovation.
It sounds simple, yet it is regularly held up as one of the biggest challenges in outsourcing and long term contracting. So what can be done to help organisations move from “competition to a competitive environment”?
The first challenge, is that whilst there is usually a formal transition period for the services, organisations fail to understand and acknowledge that a competition is fundamentally different to a competitive environment and that action is also required on this front also.
Pre-signature a competition usually involves the buyer and seller(s) playing different roles, with the competitive aspect between different solutions/suppliers in order to drive up performance and innovation. Once you down select and sign the contract the context changes. Competition becomes less about competition between parties, and more about collectively driving performance vs. a baseline. This can be in terms of delivery performance, cost performance, or some other key performance metric but needs to be openly articulated and agreed by all parties. To achieve this the relationship has to change in order to create a competitive environment where it’s necessary for the buyer and seller to move to a more partnered approach and where they are both focused on shared outcomes in terms of performance improvement supported by continuous innovation.
Once organisations understand and acknowledge that such a change is required then it is key to have a conscious transition from competition to competitive environment. This change is one that requires re-calibrating the relationship, and a period in which the parties re-orient their mindsets, and re-align their relationship to one of mutual outcomes and benefit. Only by consciously acknowledging the required change, planning it, and investing in it will they stand a good chance of moving to a competitive environment supported by continuous innovation.
Key to the competitive mindset is that it requires the supplier, the buyer, and often the consumer/user to be active participants in the competitive environment. Competition is no longer something that only relates to the supply chain but all players have to act in a competitive way as a team. Rather than competing against each other they are competing with the status quo with the aim of constantly improving the baseline. In order to do this they need to identify the outcomes that they want to see improve, they need to create a way of articulating the baseline and measuring against it, and they need to link it to balanced incentives for all of the parties.
To bring this all to reality it’s important to identify a senior member of the team from each of the parties to be responsible for driving forward the competitive environment. It needs to become a key part of the governance and reporting framework with regular review meetings focusing atleast as much time and effort on the competitive environment as reviewing the delivery of the status quo.
Only when organisations truly embrace the idea of creating a competitive environment and allocate resources, including time and money, to it will they be able to create a culture of continuous innovation and transformation.