The biggest problem in procurement is the existence of silos.
Siloed data means that teams draft and issue RFPs with a subset of the information they require to write a comprehensive document soliciting supplier proposals. The buyer’s team lacks a full sense of the problem the firm wants to solve with the procurement or its importance. They may not know the full spectrum of suppliers who can address their requirements.
Siloed people means that not every stakeholder who should be part of the procurement gets to join. This includes some of the end users or others who will be affected by the purchase, as well as people who have domain expertise regarding the space.
Siloed opportunities means that the RFP process limits the number of organizations collaborating on a problem. For example, if both marketing and finance need a similar software, they may end up running separate procurement events instead of a joint one. Companies or government agencies purchasing the same solution might benefit from issuing a single RFP but are prevented from doing so by policy restrictions or, more likely, an inability to discover like-minded partners.
Silos can be thought of as fractal; they look the same at different scales. Procurement silos can appear similar at the department level, at the firm level, and at the level of multiple companies. Divisions within a department fail to collaborate effectively, just as departments within a firm disappoint. There can be significant obstacles to joint procurement that spans multiple buying entities, e.g., cities in different states or provinces.
All of these things contribute to sub-optimal outcomes. What does that look like practically? An optimal procurement outcome is one in which the buying entity buys the right solution, from the right supplier, at the right price.
These silos emerge for many reasons including politics, organizational design, compliance policies, fear, or an inefficient approach to data. People use different language to describe the same problem, making it difficult to communicate what they want.
These silos emerge organically because they exist within the context of both internal markets for information and power, as well as external markets for goods and services.
Conceiving of these dynamics as market-based is the first step towards resolving the frictions that stand between the buyer and value-for money, between the supplier and a long-term valuable customer relationship.
MIT’s Andrew Lo has written extensively about what he calls the adaptive markets hypothesis:
“The adaptive market hypothesis, as proposed by Andrew Lo, is an attempt to reconcile economic theories based on the efficient market hypothesis (which implies that markets are efficient) with behavioral economics, by applying the principles of evolution to financial interactions: competition, adaptation, and natural selection. This view is part of a larger school of thought known as Evolutionary Economics.”
It is a radical departure from the prior way of thinking about markets as machines that process information instantaneously to reflect the correct, rational view in the price of a security.
Adaptive markets mean that markets are more like biological ecosystems that may or may not be efficient at any given point in time in the ways that they process information. Under some conditions, at some points in time, they can be very good at processing information and allocating resources; in other circumstances, they can be wildly off the mark.
Adaptive markets are made up of individuals and organizations that are themselves flawed and irrational. People are overconfident. People exhibit loss aversion. People can be lazy. People have a difficult time seeing things with a systemic perspective. People use heuristics and rules of thumb to proceed. The relative impact of different types of investor can change over time, shifting the market’s underlying structure. Strategies like value that worked twenty years ago stop working in a zero-interest rate environment disrupted by significant technological change in the economy. Ten years ago, individuals didn’t influence options markets; now they dominate them.
Things work until they don’t.
Lo’s thesis is a way to synthesize the original mechanistic models of financial markets with the subsequent rise in behavioral economics developed by researchers like Daniel Kahneman.
The efficient markets hypothesis cannot contemplate meme stocks or bubbles; adaptive markets can.
Markets exist within a broader framework in which everything is part of the complex adaptive system that is our social, corporate, and economic life.
To succeed in a biological environment, one needs flexibility; the conditions change constantly.
One needs to evolve.
This is true of procurement, too. The problems that firms try to fix with purchases are in flux. The people and suppliers who are involved in these decisions shift constantly. New technologies like AI emerge to change the landscape. Geopolitics interferes.
Buyers in markets for goods and services, just like investors in financial markets need a clear, complete picture of the chess board.
Silos are problematic in a stable environment. Silos are damaging in a dynamic environment. Silos are devastating in a disruptive environment.
If we accept the premise that a rules-based, mechanical approach is doomed to produce the sub-optimal procurement outcome, then what do we need to do for adaptive success?
- Collaboration and sharing of as much relevant data within the enterprise and across organizations as possible
- Increased participation to solicit maximum input to shape the discussion with suppliers, identifying possible solutions, and evaluating submitted proposals
- Joint RFPs within the firm and across organizations
- Standardized language that minimizes jargon to maximize the efficiency of communications
Which brings me to Figma.
Figma is the market leader in product design software. People use it to design and prototype software applications. They mockup so-called wireframes to show what the different sections of an application will look like and then they make prototypes to show the user flow within the application, usually before the developers write a single line of code. It’s not about making it look pretty (although that’s part of the outcome usually). It’s focused on simplifying the user experience and addressing edge cases in which users can arrive at dead ends when navigating the application. It is also about ensuring that the application includes all the necessary functionality, manifesting the vision of the software architect as closely as possible.
Before Figma, there was Sketch. Sketch appeared on the scene in 2010. It created the category, recognizing the explosion in app design as new ways of interacting with increasingly sophisticated software emerged. Before Sketch, designers would try to adapt existing tools such as Adobe Photoshop for the purpose, but this was difficult. Sketch was a desktop app built for the MacOS. It enabled a single designer to whip up complex wireframes quickly. It was distinguished by its functionality; it was built for this purpose.
Figma came later. It took the company years to write its code, but it disrupted the space. It had similar base functionality as Sketch, but it was built natively for the browser (not as an installed desktop application) and it added an important layer: collaboration. Here’s Stratechery’s Ben Thompson:
“Think about my brief description of this “product design and development” segment: multiple app views created by design and implemented by engineering imply at least two different people working on a project (a designer and a developer); in reality, the huge number of different views and increased functionality in apps meant that there were increasingly large teams on both sides. Sketch definitely made it easier to design an app in one place, but it did nothing to make it easier for teams to work on an app together; Figma, because it was native to the web, effectively got collaboration for “free” from the beginning.”
Figma took off. Thompson quotes Figma’s S-1 filing related to their recent blockbuster IPO:
“As more designers and their teams started using Figma, they began to understand the benefits of designing together in the browser. It was more fun working collaboratively in the same file; it was also faster and more efficient to work in a single product that brought storage, asset creation, prototyping, and other parts of the design toolchain into one place. The ability to easily share work with a URL led people to bring collaborators into their files earlier, placing more emphasis on co-creation and less on the “big reveal.” It also led Figma to spread quickly within companies and design communities globally, while giving teams something they’d never had before: a single source of truth to access the most up-to-date designs. Today, the openness and accessibility that Figma helped pioneer is no longer a novelty; it’s the expectation, a way of working that has spread across teams, tools, countries, and industries — and transformed the way products are designed and built.”
Figma was built for an adaptive market for information and influence within the organization (and across the organization if you include consultants and third parties).
Figma owns the market.
Sketch was an old-school approach, an application built for a different era which limited the number of stakeholders involved in the project. Figma recognized that their customers could build better apps (obtain better outcomes) with more collaboration and more flexibility. They made the user experience simple and accessible.
Figma also noted that it was going public, not because they perceived AI to be a threat that would put them out of business, but because they wanted to add AI as a complementary layer to their collaborative suite.
An adaptive markets approach to RFPs would do the same thing. It would explode the process in terms of enabling more data and more input from a wider array of people, supplemented with AI tools, wrapped in a simple, elegant user experience.
AI will not replace procurement; it will enhance it. It is a bicycle for the mind, in the logic of Steve Jobs.
Does this characterize the RFP tools in the market today? Were they built natively for collaboration? Are they easy to use? Do they bolt on AI as a replacement or is AI an adjunct function?
This is what we’ve built at EdgeworthBox. We’re a collaborative, adaptive suite of tools, data, and community that enables flexibility and joint procurement. Watch this space. Important new things are coming this Fall.
