When did Enterprise Software Development become a commodity?
June 27, 2009 12 Comments
I recently received a Request for Tender (RFT) from a large financial services company for the supply of specialist IT skills across a range of disciplines and technologies. In general, the RFT was fairly standard in the information being sought, although I was surprised, and somewhat perturbed, to see the following question near the end of the questionnaire:
“Would your organisation be prepared to participate in eNegotiations as part of this procurement process?”
For those not familiar with eNegotiations, a good overview can be found at http://www.tradeinterchange.com.au/leftnav_educational/reverse_auctions.htm. In essence, eNegotiations are online ‘reverse auctions’, where the purchaser seeks the lowest price for a particular commodity from the vendors participating in the auction, typically during a one-hour timeframe. During that hour, the bidders usually see the ‘current winning bid’ and have the option of become the new ‘winning bidder’ by lower their previous best price.
This process may seem to create significant economic value for the purchaser, until one asks the questions “what am I actually buying?” and “what will I actually get from the winning supplier(s)?”
One of the core tenets of reverse auctions is that the goods and services being purchased are for all intents and purposes ‘commodities’ (i.e. a physical substance … which is interchangeable with another product of the same type ). Sure, there is usually a minimum qualitative bar that organisations participating in the auction must exceed, but after that, it’s all price, price, price.
Which begs the question: is one Project Manager/ Enterprise Architect/ [insert skill set] really interchangeable with the next?
To illustrate my concern with this question, let’s just change the context to another provider of professional services – the legal profession.
Suppose you have just been wrongly accused of a traffic violation and you need a lawyer. Do you look for the cheapest lawyer you can find, or do you try to find one with a good track record of getting the charge dismissed? Sure, you don’t want to pay too much for the advice, but what is the main driver in your thought process – getting a cheap deal or getting the right outcome? I would suggest the latter is usually the main consideration in most people’s minds.
Which brings me back to the financial services organisation’s intention to use reverse auctions to get the cheapest price for specialist, professional services. As professionals (and the services they provide) do not even come close to the definition of commodities, the likely outcome is that the lowest-cost provider will prevail in the auction process, but the ‘winner’s curse’ will be that they will most likely have bought the professionals with the poorest past performance.
So given that financial services organisations usually demonstrate considerable acumen in business dealings, why would they seriously consider treating IT professionals as commodities in the procurement process?
Unfortunately, the answer is probably an indictment of the IT industry in general. With IT projects continuing to suffer from late deliveries, bloated software, project cancellations and budget blow-outs, executive management is increasingly viewing IT spend as a ‘cost of doing business’, rather than a means of creating competitive advantage. This being the case, anything that can reduce this overall cost will, by inference, increase bottom line returns.
The IT industry needs to take on the challenge of changing this mindset in the executive management community. Otherwise, the software profession will become increasingly marginalised, which will bring real costs to the wider community, in particular the potential loss of the productivity dividend that has underpinned much of the economic growth the developed world has experienced in the past few decades.
The next article in this series will present some thoughts on how the IT industry can improve it’s reputation in the executive boardroom.