You receive an email one day with an opportunity for your firm to submit a proposal for a new piece of business. It’s a good fit for your practice, and the proposal evaluation criteria and submission requirements seem reasonable. So you recommend responding, knowing that yours would be a competitive proposal – but your partners are sure that you’ll fall victim to the incumbent (dis)advantage.
“They’ve been working with another firm for four years now and we all know that it’s impossible to knock off an incumbent” says one, summing up the thoughts of the others.
Are your partners right? Is it impossible to win a piece of business from an incumbent?
As is the case with every business scenario, the correct answer always depends on the unique variables of the situation.
There is no doubt, that in most cases the incumbent should have an advantage for a lot of reasons.
So we agree that the incumbent should have an advantage but we know that is not always the case.
There are six primary scenarios in which the incumbent will be at some degree of disadvantage. If your situation falls into any of these then it may make sense to participate in the competition.
This is the obvious one. The incumbent recently goofed up, promised results have not been realized, a personality conflict has evolved, etc. There’s a million and one reasons why a client might want to get rid of an incumbent and one way to do that is through a competition.
No client is ever going to publicize this as the reason for a competition so you have to do some digging to find out what that relationship is like.
New CEO, COO, CFO, supply chain manager, new trend in the industry – you get the picture.
While this is similar to the first scenario it differs in that the client is just uncertain about the incumbent and not actively dismissing them. It’s not unusual for a new leader to want establish their place in the pack by owning the choice of the vendor on any key projects. They can do this by calling for a new competition.
To find out more about this ask the question “So what’s changed since you hired the incumbent?” and then let the potential client talk.
If a potential client tells you this is why they have initiated a competition it can be interpreted in one of two ways.
If it is true then it tells you how the organization works and you should be aware of that requirement when signing a contract if you are the winner. At that point you may want to attempt to negotiate around that requirement and extend your contract.
But they may also be words of convenience to avoid stating the real reason which is that they want to get rid of their incumbent.
Ask if this is a hard-line policy that is never broken or if there is some discretion in how it is applied.
There is nothing like a good old front page scandal (especially one involving procurement of any form of consulting services) to make everyone take a good hard look at tightening up their tendering processes, often initiating a new competition as a defensive mechanism against internal or external allegations of impropriety.
If a competition is initiated in what seems to be a move toward adhering to more rigorous selection standards, the implication (accurate or not) is that the incumbent may have been inappropriately awarded the original contract. In a close competition, that could push it the wrong way for an incumbent.
Your advantage here is that you don’t bring any of that baggage to the table.
In the advice business, the longer you work with a client, the less valuable you become simply because at some point a lot of your knowledge has transferred to the client. While you may remain valuable as part of the execution of your advice, that is different (and often compensated at a different level) than the strategic value your advice brought in the first place.
At some point in certain types of projects, consultants need to recognize it is time to ease away as their contribution dwindles. Note that I said to ease away from the project and not necessarily the client – unfortunately many don’t leave, instead continuing to send routine invoices while the client starts to doubt their value.
If price is at all a factor in the client’s decision making then because of their project and client familiarity an incumbent may have a higher price in their bid simply because they know the true costs associated with working with the project and the client. Although the opposite is usually thought to be true and therefore provide an advantage to an incumbent it can also work this other way.
Newcomers may not be able to see some of the cost drivers and therefore come in with an obliviously low bid. Change orders are then used to address the cost drivers not revealed by the client during the competition. And that’s fair – if it wasn’t in the RFP, it wasn’t priced in the proposal. If after the award, new information appears that changes the project then so should the pricing change.
In this case change orders protect the newcomer while the incumbent may not be able to realistically claim plausible deniability given their familiarity with the project and client and therefore they may not be able to credibly seek the protection of change orders.
This one is almost impossible for you to determine unless a threadbare RFP documents raises this possibility.
The sales and marketing industry has many clichés like “it takes “x” touches before a client will buy”, “selling is all about relationships”, or “you can never win against an incumbent”.
When we take a more scientific approach like the 2013 research presented by Huthwaite, an international sales consulting firm, we see that if the incumbent does not influence the competition they will win 41% of the time – meaning 59% of the time a non-incumbent wins.
However, if the incumbent does influence the competition, Huthwaite’s research indicates the win rate goes to 100% for the incumbent.
The lesson here is to rise above the clichés and use the framework above to do a more realistic assessment of your odds against an embedded competitor.
In most cases your assessment will continue to reveal that the incumbent does have an advantage, but you just might find a few opportunities that you didn’t see before.
Author’s Note of March 16, 2015: After publishing this article on LinkedIn a comment was posted by Bill Mocsan, Vice-President, Knowles Canada. It’s great post and so I am sharing his comment here.
“Hi Cal. Interesting article on the advantages and disadvantages of being an incumbent in a procurement. We work almost entirely in the public sector as Fairness Commissioners. One of our major tasks is to minimize any potential advantage an incumbent may have in the procurement process. As a result, many of the items listed in your article are concerns that we are aware of and work towards preventing. For example, allowing an incumbent to have input into the RFP or the procurement process is absolutely forbidden. Another measure an organization can take is to identify areas where the incumbent does have an advantage and minimize the value or weighting of those areas in the evaluation process.
It is also worth noting that if the incumbent competed for the original work assignment some argue that any advantage they have has been earned and you should not take it way from them.
Our view is we do not encourage the buying organization to take steps against the incumbent but rather take steps to try and bring the other (new entrant) bidders up to speed on background information, existing processes, resourcing needs, business requirements, etc.
I did want to comment on the 6th item on your list – Knowing Too Much. We call it the ‘Incumbent Curse’. I would say 40% of procurements that we work on where an incumbent is involved results in a new service provider because of the reasons you identified in your article. They know too much; they know the real costs; and they know the level of effort required. As a result, they usually win the technical portion of the evaluation but they lose on price. In many cases, their price is significantly higher and that results in a new entrant bidder winning the competition.”
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"This should be required reading for consultants AND their clients - especially the part about RFPs." - Blair Enns, Win Without Pitching