They say that generals always fight the last war. This means that generals fail to adapt advances in technology or changes in tactical thinking to the way that they prepare their forces for the next conflict. They don’t adjust their way of operating to reflect the enemy they will fight, readying themselves instead to re-fight the last war.
This is a human tendency.
Software developers are no different. You see this in the initial phases of a new technology roll-out.
Consider for example the early days of search online.
Companies like Yahoo!, AltaVista, and the like merely digitized the analog way we would find things. Before the Internet, if you were looking for a plumber to fix a leaky faucet, you would pull out the Yellow Pages directory and look under the letter “P.” There was a listing with a name and a telephone number and an address. Some plumbers would pay for an ad in the form of a box that might show their logo with some slogan. You had no way of distinguishing one plumber from the other based on the information in the book.
As I recall, Yahoo! had listings of links in alphabetical order. So did everyone else. You used Yahoo! because it was there and everyone else used it. I believe it even started out as something like “Jerry’s List” named after founder Jerry Yang. Advertisers would pay Yahoo! for the equivalent of the boxes in their listings. Instead of phone numbers, clicking on the name of Plumber X would take you to his website. The listings were links.
The experience had the merit of being familiar, at least.
That is until Google came along and did two things that were interesting.
One, the user interface was entirely different. Instead of a home page in which one could see listings of categories, clicking on which links would take you to another page for a specific set of goods or services or interests like Plumbing, there was just a single box under the now-familiar Google logo. It was clean. Yahoo! and the others were cluttered. With Google, you typed in the name of the thing you were searching to find in Google’s box.
Two, the results, presented on a separate page, were a listing of links, including a brief description. However, the links were in the form of on an ordered list. Google determined the ranking of each individual listing based on the number of citations for that link in other sites or the frequency with which people clicked on it. It was like the way in which academic papers are ranked based upon the number of citations. Now, there was a way to distinguish based on relevance or quality that the Yellow Pages methodology did not contemplate.
Yahoo! was a directory. Google was a search engine.
Simplicity and rank ordering won the day.
Rank ordering was so important that an entire cottage industry sprouted up of people who told you they could game the system and trick it into giving you a higher ranking than you would have obtained without their help.
The company didn’t even advertise itself in the old days. It spread by word-of-mouth. I remember when a colleague told me about Google and my shock and awe when I pulled up the site at work for the first time.
Similarly, ERP systems digitized the analog version of bookkeeping and procurement systems and HR systems and payroll systems. Where the accounting had been done manually with clerks updating paper spreadsheets based upon specific functional activities and those spreadsheets rolled up into the general ledger, now those functional activities took place in a digital interface that updated databases. The databases then provided the information for other systems to automate their aggregation into the general ledger. Productivity increased in the sense that there were fewer accounting clerks, even as there was greater IT expense for software licenses and computers and networking equipment and IT professionals. As they say, the productivity was everywhere to see but the financial statements.
Digitization meant taking a pencil-and-paper task and making it screen-based. That’s it. That’s typically all it meant. The business process didn’t change meaningfully.
Even today, there is little distinction in the way in which a Request for Proposals auction takes place between a paper process, an email-and-spreadsheet process, and a contemporary procurement technology approach. The tools may be different but the business process is the same. Perhaps there is some automation on the margin that makes the digital process easier, but maybe it’s offset by a reduction in the quality of the bid solicitation document. Maybe people spend more time focusing on the quality of the process when it’s manual. Maybe.
In anticipation of the introduction of artificial intelligence and leveraging lessons from financial markets where millions of auctions take place daily, EdgeworthBox took the first steps to change the business process.
- We added structured data regarding previous RFPs and contracts and made the data shareable across all the stakeholders in the RFP process, not just people in procurement (for the buyer) or sales operations (for the seller).
- We built a social network with messaging and profiles to help users from both sides and across organizations collaborate.
- We added rapid onboarding tools so that buyers could cast a wider net beyond the narrow ken of suppliers with which they had existing relationships.
- We enhanced the group dynamic at the level of the value chain and the internal stakeholder group.
- We enabled joint RFPs issued by multiple organizations.
- We added scoring tools to speed up and improve the quality of vendor selection.
- We wrapped everything in a cleaner user experience to simplify the process on both sides.
All of these features were designed to deliver specific functional improvements: faster RFPs, better-written RFPs, and greater competition in terms of price and solution that would lead to better problem-solution fit.
Just as Google cleaned up the user experience and added utility in terms of ranking links by quality and utility, we simplified the RFP process to remove the bureaucracy while making it much easier to surface actual intelligence.
We did it with a view to developing troves of the kind of data that we anticipated AI solutions would need. (With our background in matching buyers and sellers in financial markets, we like to think of our approach as closer to a Bloomberg terminal than Google.)
From what we can tell, many incumbent procurement technology providers have rushed their AI products to market with another layer digitizing the analog process. At least that’s my working hypothesis. The AI tools in the market have more in common with the pen-and-paper RFP auction than they do with what AI should be able to do.
Digitizing a process means it goes from pen-and-paper to a screen.
For many solution providers, converting the process to AI so far seems to be just an extension of this digitization. There’s nothing new when it comes to improving the process. At best, AI moves the process from a screen to a software robot. Maybe.
In any case, it’s still the same process.
The only thing we can say for sure is that AI is a way to generate fear-of-missing-out for some solution providers to exploit.
This is why there must be the inevitable adoption blowback, the dip in adoption. People don’t want to overpay for something that doesn’t move the needle.
What AI needs to do is to fix the RFP business process because it is broken. It is bureaucratic. It is inefficient. It is centralized. It is the opposite of nimble.
It is risk averse. It is afraid.
Here are several predictions about how AI agents and more sophisticated AI tools can change the RFP business process.
First, AI will lead to a decentralization of the process. Instead of having procurement officers supervise the process with massive bureaucratic oversight, business units will execute their own RFPs. For example, the CTO will execute his own reverse auction to decide which cloud services to purchase. Procurement will have full transparency into the process and will trust the agents to execute the workflow the organization is comfortable letting the agents use. But the business users will run the process, not procurement. This means it needs to be simple and it needs to be functionally efficient.
Second, procurement staff will focus more on more strategic functions like contract enforcement and vendor performance evaluations, helping the firm ensure that they get the value they paid to obtain.
Third, suppliers will have their own AI agents. We may see a fully decentralized process in which buyer agents deal with supplier agents.
Fourth, the process will be much faster and much less expensive.
Fifth, it may be the case that firms replace the use of catalogs managed by expensive middlemen with hasty RFP auctions.
Sixth, the combination of collaborative transparency and AI agents may make procurement-as-a-service a much more attractive option, especially for smaller organizations. It will be cheaper to execute. It will be more efficient.
These are the things we’re working on for the next iteration of EdgeworthBox. We love to talk. Give us a shout.
