As customer demographics change and technology access becomes more democratized, every business will need to have technology as its core. Enterprises with traditional business models often struggle in this new landscape, especially where they are reliant on external technology partners to maintain their core systems. For this reason, enterprises are starting to institute a formal procurement capability to source technology partners who won’t leave them in that situation.
Traditional procurement efforts are constrained by measures and metrics that have remained impervious to the changing landscape and needs. The outcome expected from a formal procurement process is often biased towards getting the best deal, typically centered around costs. It stems from the annual budgeting cycle that most enterprises follow. It becomes a cycle of misaligned incentives and antiquated processes that prevent organisations from finding a true partner.
Bidding suppliers are incentivised to answer everything in affirmative, demonstrate deep experience and capabilities. This, however, flies in the face of the changing problem space as new technologies, new business models and new use cases emerge. A genuine vendor will highlight this uncertainty, which may not be a palatable option for many.
With an improved procurement process, clients get the opportunity to witness what vendors can do and kick the proverbial tyres. An example of this is how the Forcefield Open Development Competition (ODC) was run. Now known as VAKT, it is a consortium of energy companies, trading houses and banks formed to solve industry challenges in the commodities market.
VAKT was building the world’s first enterprise-grade blockchain solution in energy markets. Despite being around for 10 years, blockchain is a relatively new technology to the commercial market and is still evolving. The application and support tools’ maturity is at the lower end of the spectrum. A traditional procurement process would not have delivered for a nascent technology, with an uncertain business model and a large set of stakeholders.
VAKT needed to maintain first-mover advantage in the market and therefore, tried a novel procurement approach. 50 companies submitted proposals, 20 were asked to present, and nine were invited to compete in an Open Development Challenge (ODC). Participants were given a functional overview of the post-trade operations, access to subject matter experts, a dedicated coach and two weeks to build a blockchain solution. They were also given a full use case to implement, as well as business and technical challenges. The entire process was gamified with anonymised daily scoring, where everyone tried to reach the top of the leaderboard. The scoring was based on a number of factors including quality of code, completion of features, completion of specific tech and business challenges, participation in discussions, flexibility of approach, etc. Scores were also awarded for the final presentation and any additional innovative delivery that went above and beyond the ask.
In that 2 week period, VAKT was able to assess the vendor technology skills and their critical business thinking. With tight timeframes, they were able to judge how teams carried out value based prioritisation. They got a deeper understanding of the quality ethos of the participating vendors e.g. Some set up a CI/CD pipeline and TDD based approach even for a 2 week hackathon. They were also able to judge the vendors’ ability to innovate and think beyond the obvious e.g. some teams presented tokenisation approaches for the industry. The ODC showcased product thinking and custom software development working hand in hand. They also assessed the learning capability of the vendors over the 2 week period on the domain and the specific challenges.
This process delivered the following benefits to both enterprises and tech partners:
Offset the risk of empty promises from those applying for the work
Actual users were involved in validating the quality and value of the output of each company
Identified the problem solving skills their technology partner possesses – done by observing the utilisation of SMEs and challenges to the underlying assumptions of the product.
Highlighted that a technology partner must also be a business partner. They mitigated the risk that the technology and business would grow in opposite directions.
Developed a good understanding of how they would work with their tech partner
For tech companies:
Trust based approach laid down the foundation for longer term engagements that go beyond writing software, heralding disruption to businesses and industries.
Allowed for tech companies (with the capability) to break into new industries and technologies without experience related barriers to entry.
Lean and agile approaches work best in this time sensitive environment - allows for the disruption of traditional tech giants.
In conclusion, this is a really great approach for enterprises, who are able to commit time and resources in the selection.
From a software development company perspective, there is an increase in costs and commitment required, which inadvertently favours large consultancies. However, the increased risk brings rewarding opportunities for technology companies.
Businesses need to adapt to the changing landscape and seek expert help to mitigate the disruption risk. Innovative ways to evaluate the right fit partners for this journey is an important first step.
Disclaimer: The statements and opinions expressed in this article are those of the author(s) and do not necessarily reflect the positions of Thoughtworks.