Why the *#^&! Do We Tolerate RFPs?

It’s time for change. Breaking what’s broken.

The agency and management consulting industries spend enormous amounts of energy responding to RFPs. So, how did we get here? It’s actually quite simple. It’s a flawed approach based on the premise that “free” thinking will be provided by companies with the “hope” that they will be selected and ultimately, awarded a contract. Let’s openly discuss the dirty little secrets of the RFP process. This will get interesting.

The RFP — Behind the Scenes

With 2 decades of experience, I can speak with authority on the challenges with RFPs. First, most RFPs are based on an internal perspective of a problem or opportunity that can’t be solved internally. Here’s the first issue. If the team that’s writing the scope of the RFP has already defined the problem or the opportunity space, what room is there for an agency or management consultancy to address a root cause analysis and provide recommendations for a solution? Over the years, I’ve worked on RFP responses where we had to essentially “guess” at the issue based on such limited insight or, in fact, rewrite the RFP based on prior category experience and understanding of the competitive landscape and customer needs through research and outcomes.

Most RFPs fall into two categories. The first: loosely defined requirements without enough detail to identify the issue or the desired outcome. Second: an overly prescriptive request with little room for any alternative approaches to solve for the issue, regardless of experience or capability. The rarity is a well formulated RFP that provides a balance of detail with the desire to obtain unique approaches and recommendations to solve for the challenge / opportunity. Whether developed internally or through a collaboration with search consultancies such as AAR Partners, Select Resources International, Bedford Group or ID Comms, the quality of the RFP is predicated on the clients participating in the crafting.

Here’s where this gets interesting. Agencies and management consultancies (firms) separate a bit here. Agencies are competing across a wide spectrum with service offerings ranging from media buying, audience research, CX, broadcast production, digital, social, PR, etc. with varying sizes. Agencies compete regardless of size — meaning, a RFP might be sent to the large holding company agencies such as Ogilvy, J. Walter Thompson, Huge, Saatchi, Razorfish, or the smaller holding company agencies such as Crispin Porter owned by MDC Partners. The reality is that the same RFP may also be sent to tiny boutique agencies. The competitive landscape can be overwhelming. Large RFPs may be sent out to all of the major agency holding companies with multiple agencies within each participating in the pitch.

On the management consulting side of the equation, RFPs have a tendency to be more focused and aligned to areas of practice (e.g. core banking systems, digital transformation, ERP, etc.). Clearly, there are issues here as well, and the RFP process itself can be as convoluted if not more so.

What’s It Take to Deliver a Pitch?

For anyone that’s worked on a large pitch, you’ll commiserate. It’s hell. Let me repeat that. It’s hell. Among the challenges:

• Vetting — The Go / No Go process can be incredibly challenging. Most agencies / management consultancies have a rigorous process for score carding opportunities. OK, that’s an over statement. Some have a process… if you want to call it that. Candidly, management consultancies are much better at this step than agencies. The RFP vetting process is a score carding exercise comprised of items such as: a. How many competitors received the RFP; b. Are they an existing client? c. Does anyone have a relationship with the company, and what career level / authority is the economic buyer?; d. What are they attempting to address (i.e. what services do they want)? e. How much money are they looking to invest / spend over what period of time and how does it align to specific areas of specialty? f. What’s the period of performance? When do they want to start and how long is the engagement? There’s more, but these are just a few. Just getting the approval to pitch can be a serious challenge. The number of times I’ve witnessed and participated in the venerable drop down drag out fights over the “Do we or Don’t we?” question is countless.
• Access to colleagues / talent — How do you pull billable talent from existing work to non-billable pitch work? Leadership by functional area hates this issue. It’s a conundrum of mass proportion. Pitching means taking time from existing clients. It also means reducing billable hours in a period. Finance has metrics (i.e. chargeability, utilization, margin, etc.). Pitches kill these metrics; but gaps in existing revenue or stretch growth goals require pitching to support the pre-defined goals of the business. Working with “Resource” Management to source a pitch can make a person lose their %^&*! in a hurry. The company wants you to win the pitch but doesn’t want to staff it properly because of cost. The client that issued the RFP expects the company will staff the pitch with the best, most seasoned talent to demonstrate their capabilities and their commitment to winning and supporting the new business. The conflict is mind numbing. Did I say how much I love pitching and loathe it at the same time?
• Cross Functional Skills — When a RFP arrives, the scope has to be quickly aligned to a functional area of ownership. If it’s an agency of record (AOR) or large scale strategic engagement, it can quickly become a Lord of the Flies experience. Once the lead is established, the staffing process for the pitch team begins. As much as a collective commitment to a pitch exists, it still comes down to who’s available within each functional area of skill, what’s the quality of the relationship with the department leads, and what pressure are they under to deliver on existing financial commitments. The quality of the assigned pitch team is always predicated on Finance + Quality of Skills + Politics.
• Investment — This is where the biggest issue arises. Here’s where the bulk of the argument exists. Clients run a RFP with the objective of hiring the most talented / capable partner at the most affordable cost to return on investment. Well, we hope this is the case. The reality is typically a bit different. There’s almost always an incumbent or a firm that has a leg up on the competition through a past working relationship; someone who absolutely believes in the process from a specific firm, or past work product that members of the selection team / committee admire, etc. Whether run directly by a client or through a search consultancy, the scale of the opportunity should drive the investment, but it doesn’t. Here’s why: 1. It depends on how badly a firm wants the business. It’s that simple. It’s also a bit complex. 2. Is there a gap in the firm’s revenue forecast? 3. Does the work represent a showcase that can be leveraged for future pitches? 4. Is the brand one that’s a trophy to be hoisted on the shoulders of the triumphant? Let’s do a bit of math. If a RFP represents $5MM in fee, the firm will typically spend 7–12% pitching the business. In some instances, I’ve seen this figure approach 20%. Taking this into consideration, we’re looking at an out of pocket (OOP) cost of $350K — $600K to pitch the work. With an average close ratio of 30%, the total cost of non-recoupable investments is significant. It’s this cost to return (pitch to win ratio) that has such an outsized bearing on costs, which equates to firm rates and total cost to services rendered ratios. Essentially, how much can we do with the loaded rates the client will accept? This is effectively being caught between juxtaposed positions. On one hand the client wants the lowest rate structure for the most senior / capable resources, (by the way, I absolutely hate the term resource), while also contributing the cost issue by going to market with a RFP. Let’s get back to the math. If 15 firms receive the RFP, which typically is the second step in the process — the first being a RFI from which they whittle down the prospective list, the “industry” cost is exorbitant. With discreet rounds of RFP, companies will reduce the participants on a phased basis using some type of score card / selection criteria. If a firm is requested to participate in subsequent rounds of pitches with refinement and in-person presentations, the cost escalation resembles a hockey stick. For the sake of the calculation, let’s say 10 of the 15 firms elect to pitch the RFP and spent $100K in the original response. After cutting down this list to 5 firms, the next investment entailed $200K, and then the client requests 3 firms to address in-person pitches, which now entail another $100K in investment. From here, Sourcing requests 2 final negotiated bids for pricing comparison, which entails another $30K in investment. The total aggregate cost across the firms requested to pitch equals $2,660,000 for a $5,000,000 piece of business. But wait, like the “As Seen on TV” promotions say, there are additional costs. First, the client teams incur the expense of developing the RFP and managing the process. If this is addressed as an internal process, this is the fixed cost. If the firm elects to bring in a search consultancy, this can add anywhere from $50K — $250K to the investment. For firms that win and those that lose — as Judith Viorst wrote “It has been a terrible, horrible, no good, very bad day.

The Insanity of it All

Over the past 2 decades, the shift in control within corporate America has been significant. Today, client-side buyers aren’t necessarily in control of the process. In some instances they are, but the majority of the time it’s either a collaboration with Sourcing or Sourcing controls the final selection process based on factors that are outside of the capability of the firm to deliver the services (i.e. rates and total cost). While Sourcing drives negotiation of service rates down, the level of complexity and expectations for pitches increases. The two are juxtaposed and the result is an unfortunate confluence with only one winner that’s almost invariably the client. The reality is stark. Firms know that they have little leverage in the process despite having the IP that’s needed by the client. The result of decades of devolving RFP processes is an insane willingness on the part of both parties to participate in a game that’s not to the benefit of either party. For the company issuing the RFP, they typically get to own every strategic thought, framework, creative, CX, etc. deliverable from each pitching firm as their own through the contractual commitment to pitch.

In the end, after financial negotiations are complete, the winning firm will inevitably have to scale back from either a quality or quantity of resources provided as well as deliverable fidelity in order to achieve their firm’s Finance dept. objectives for client margin.

At some point, I’ll pen an article on the implications after a contract is awarded.

There is a Way Forward

So, how do we solve for the issue of RFPs? There is a framework that can work and could become the industry standard for best practices. Of course, this is a biased perspective, but follow the logic. First, change the RFI to reflect a request for capabilities based on a specific need, past experience solving for a similar challenge / opportunity, detailed overview of the firm’s process and the background and experience of the team or representative team to be provided. Eliminate the two step process of RFI to RFP by providing visibility into the scope of the “ask.” This first step will reduce the variability and provide context for a quick reduction in the number of firms requested to participate in the next step within the process. By the way, stop sending out the RFI to 15 firms. Firms need to do their own due diligence and narrow down the short list more efficiently. The burden needs to lie with the requesting firm not the wide brush approach across an industry. The requesting firm also needs to provide the one item that’s almost universally missing — the investment plan (aka the budget).

Second, narrow the number of recipients down to a short list. With this list complete, firms should provide a contextualized version of the challenge / opportunity. What do I mean by that? Provide a project or a sub-task within the larger ask. This project should be provided to the short list with a very clear “ask.” The requirement for the ask is to conduct a sprint or workshop using whatever methodology the firm utilizes. This could be a Google Design Thinking process, a proprietary methodology, waterfall — seriously don’t do this, etc. The takeaways:

• The company will know how the firms methodology works and how it aligns culturally to the company and the specific ask.
• The firm will gain an understanding of the culture, dynamics and ability of the client to coalesce around a solution to the ask.
• The company will have visibility into how “tight” the process is and how well adopted it is across the functions of the firm.
• The insights and recommendations will provide clarity regarding how the firm breaks down the challenge / opportunity and resolves to answers.
• The company and firm will both have an understanding of how each entity works including clarity regarding alignment, agreement on issues, politics between functions and ability to achieve objectives including timelines, approvals and desired outcomes. This one is among the most important as these insights will inform how to produce a final estimate. If a company is disorganized, misaligned, challenged to make decisions, lacks understanding or their internal challenges, highly political, etc., this cost has to be baked into the estimate in order to ensure a “fair and equitable” alignment of both parties.

Once a company has an understanding of how various firms methodologies and processes would solve for the challenge / opportunity, along with insights into the roles and the people who would fill those positions, the client should be able to clearly understand which firm meets their objectives.

In the end, this process addresses:

1. “All hat and no cattle.” Exposure of great pitch teams that are separate from the actual delivery teams assigned.
2. Exposure of weaknesses before rather than after contracting.
3. Cultural fit that transcends the platitude phase of traditional RFP pitches.
4. Reduces costs. Preparing for a 1 day exercise includes a. Review of the ask. b. Assembly of the team. c. Preparation. and d. travel expenses or in today’s pandemic driven world, Zoom. * A caveat here. This is an excellent approach to determining which firms can work efficiently without being able to work collaboratively from a physical building or at the client site through the pandemic.

The current “addiction” to a legacy RFP process has to change in order to create an equitable value for both parties. It’s easy to recognize the questionable

Share your thoughts. I’m confident if you’ve read to the end that you have experience with RFPs and have great perspectives you can add.

You can also reach me on Twitter — @digitalquotient