The rebirth of Web 1.0

About time for a tech post, esp. now I’ve finally got Web 2.0. I have to admit, I was pretty cynical but that was probably because of all the Enterprise 2.0 stuff going around which strikes me as little more than another buzzword. Still I’ve now got my blog, obviously and I’m looking at implementing a Wiki at my firm, which is what Web 2.0 is all about, right?

The thing that excites me most about Web 2.0 is that it harks back to the heady days of Web 1.0. Back then all you needed to create an impact was a bit of (very basic) HTML and a lot of imagination.

 Then along came Javascript, JSP, ASP, J2EE, PHP, .NET etc etc and all of a sudden you needed a degree in something tech before you could hope to create anything credible on the web.

And now with Web 2.0 we’re back again to a time when what is exciting on the web is the content that is in wikipedia and the stuff that the technorati A-list are writing about. Nothing about the technology (unless you’re going to argue the toss over TWiki vs MediaWiki or TypePad vs WordPress or RSS aggregators etc etc). Cool technology in the blog world seems to be about how to get images onto your page.

The big difference now is that more people have got a fast internet connection, the time and the inclination to get surfing. So the potential conversation is a lot larger than it was in the mid 90s. It will sure be fun while it lasts.

Some common questions about eAuctions

I often deliver talks and workshops about eAuctions: when to use English, Japanese, Weighted, Multi-Attribute eAuctions, when not to use them, why Dutch eAuctions are rarely a better idea than sealed bids, what is effective eAuction design etc.

The following questions come up time and time again:

  1. How do I know if the lowest price is a sustainable price?
  2. How do I know that the lowest priced supplier is bidding for exactly the same items as the more expensive suppliers?
  3. What if the lowest price supplier is not as good quality as the more expensive suppliers?
  4. What if my preferred supplier/incumbent/etc turns out not to be competitive?
  5. What do I do if the incumbent offers to match the leading price after the auction?

It is interesting to me that these are all often treated as “auction questions” when, apart from question 5, all the questions are about sourcing decisions in general. Whether you negotiate via a sealed bid, via an online auction, or by locking yourself and your supplier in a darkened room …. the issues are all the same. Perhaps eAuctions have the dubious distinction of bringing these issues more out into the open, but they have to be addressed nonetheless.

Seasoned pros will have different advice on the general questions, so I’ll leave a detailed analysis up to them, but simply put it boils down to Specifications and Decision Criteria. Specifications need to be clear so that suppliers know exactly what you want; and Decision Criteria need to be clear so that you have some justification for your final decision (single source, dual source, switching costs, preferred suppliers etc). If your Specifications and Decision Criteria are hazy then you will have trouble sourcing, whether you use an auction or not. If they are clear then you will probably get some benefit from introducing a kind of auction into your process.

As for question 5 – this one brings into play a host of ethical dilemmas and the short answer is that the short-term fix (accepting the incumbent’s offer) is storing up problems for the long term. The short-term solution saves you money immediately, of course, but there are two problems, the first one tactical, the second one more long-term:

  • you are not giving the other suppliers a chance to respond to the incumbent’s offer
  • other suppliers will get wise that you are using the eAuction just to beat down the incumbent and so will be unwilling to compete next time

The ethical approach is to be absolutely clear in the auction rules that there is no price negotiation outside of the auction. The good news is that the ethical approach is also best for competition in the longer-term.

Don’t you love it when idealism makes commercial sense?

EU Bureaucrats in sourcing innovation shock

So there I was last week having an email conversation with a client about the algorithm needed to relected the split of 70% price/30% non-price they were applying in their sourcing decision for IT hardware, and how this split would be reflected in their e-auction.

This was all being driven thanks to the EU Directive on Public Procurement, written into English law as the Public Contracts Regulations 2006. They state that, if non-price elements are to be used in the decision-making process then a precise weighting (i.e. a number) must be assigned to those elements. No room for fuzzy subjectivity – a sourcing decision under these regulations has to be fully transparent and objective.

This is particularly relevant where e-auctions are concerned because the final contract award decision should be made immediately after the e-auction, with the supplier who comes first in the e-auction being the supplier to whom the contract is awarded. So supplier bids may need to be modified to take into account different quality/ethical/delivery etc attributes amongst bidders.

It’s great news for competition because it means that all suppliers are bidding on a level playing field – coming first in the auction is a prize worth competing for, and coming first means you have the best overall offer (as distinct from having the lowest price).

It does mean buyers have to become more sophisticated than perhaps they were in the past, to be able to make decisions like the 70/30 split this post started with – this will come as good news to some and bad news to other. Though the expectation is that once they get over the initial learning curve, buyers will see that this kind of approach to an e-auction is no more and no less than best practice in procurement.

So far indications are that suppliers prefer e-auctions that take into account non-price factors – see an article I wrote for Industrial Distribution about multi attribute auctions earlier this year. I’ll post more about experiences with these kinds of auctions, but in the meantime let’s raise a glass to those unlikely innovators and implementors of best procurement practice: the suits in Brussels!