7MI Series – This article is first of a 9-part series as we introduce the 7 Economics and Market Intelligence Essentials for Public Procurement. Each part will also include videos, resources, and other materials. We will also be launching the 7MI Challenge as part of this series.
When it comes to effectively matching buyers and suppliers in any market, there are two economics principles that are key for a good market transaction to occur:
- All parties, meaning all buyers and sellers, have equal information so no party holds an undue advantage due to “information asymmetries”
- Low barriers to entry exist so the most qualified suppliers can come into the market transaction and compete effectively
Based on over 20 years of experience researching and working in work with and research into government markets, unfortunately, neither one of these conditions holds when governments around the world go out to procure goods and services.
First, significant information asymmetries exist in public procurement leading to poor outcomes and frustrated parties on one side or another. This may mean the government stakeholders or buyers don’t have sufficient understanding of a market, the suppliers and their capabilities, pricing, and business models, key market trends, etc. At the same time, suppliers may not have sufficient understanding of government requirements and are limited by cultural barriers in communicating to understand the needs.
Second, the barriers to entry in government markets are so significant that many qualified suppliers either can not compete, or refuse to due to the high cost of doing business with the government and low probability of winning. The burdensome processes, regulations, and requirements are too costly and not worth the cost of doing business with the government.
The end result of these two conditions: requirements are often not aligned with the market, the best and most qualified suppliers do not bid, pricing and costs are higher due to misalignment, and most importantly, outcomes are not delivered or are delivered at a higher cost and with a longer timeline.
To address these issues and improve government program and procurement officials work suppliers, we are introducing “7MI – 7 Economics and Market Intelligence Essentials for Public Procurement.” The framework, highlighted towards the end of this article, is based on over 20 years of work across private, public, and non-profit sectors as well as extensive research and engagement with experts.
Market Intelligence can better align buyers and suppliers in government markets, by greatly enhancing market transparency and highlighting barriers faced by suppliers
The importance of market understanding is not lost on stakeholders within government procurement. The picture below, based on input provided by global public procurement leaders from across the world on various Public Spend Forum studies, clearly shows:
- Market intelligence is one of the most critical activities in public procurement
- However, a significant gap exists in the ability of government to do market intelligence right
Based on the experience of our team working with global fortune companies, public procurement, and academia over the past 20 years, we would agree.
MARKET INTELLIGENCE, especially when it integrates key principles of symmetric information and low barriers to entry, can be the SINGLE MOST IMPORTANT ACTIVITY government professionals can undertake to drive better outcomes.
What are the issues with the way market intelligence is done today in government?
Although we do see a trend where more government agencies are doing true market intelligence, the number remains small and mostly in the context of strategic sourcing. Unfortunately, even in those cases, the approach is somewhat tactical and too focused on “leveraging buying power.” For the most part, instead of market intelligence, “market research” (as prescribed by policy) is performed as a tactical activity to identify potential suppliers and compete for a requirement among them.
In the table below, we have noted a few key differences between “market research” as it is commonly performed today versus “market intelligence” where the key market and economics principles are incorporated.
(as prescribed by policy and performed commonly today)
(with key economics principles and market engagement integrated)
|Tactical, focused on identifying suppliers, relies on market to respond||Actionable and strategic, focused on understanding market dynamics and suppliers|
|Reactive and relies on market/suppliers to provide data, leading to biased market information||Proactive where government proactively collects data (3rd party data and from suppliers) to objectively understand market and supplier capabilities|
|One-sided dialogue where government relays needs||Two-way collaborative dialogue between government and suppliers|
|Market research conducted AFTER requirements are defined||Suppliers engaged early and requirements defined with proactive input from market|
|Solution pre-determined prior to market research – goal is to identify suppliers who can perform the requirement||Open-minded and objective approach to solution and requirements|
Why is market intelligence not done well?
The problem starts with how market intelligence is taught. Sometimes we hear that government professionals don’t have the skill sets to do market intelligence. We don’t fully agree with this. In our experience, there are many government professionals that have the potential to learn true market intelligence. However, the problem starts with a lack of understanding of what that looks like and how it is taught currently. Much of what is taught is tactical market research focused on understanding existing suppliers, researching existing government data sources, with no real focus on market dynamics, competition, or supplier economics.
We have also identified four other issues, as highlighted in the picture below.
Lack of Time – Government program and contracting professionals seldom have the time to do true market intelligence, given the enormous amounts of bureaucratic paperwork that they must attend to.
Fast-Changing Markets – Even if they had the time, no one can possibly keep up with the pace of change in markets. Knowing which suppliers are coming in and out of the market, how technology is changing and the impact on supplier business models all require time and attention.
Fragmented, Incomplete Data – While we’re living in the age of “open data”, the fact is that quality and comprehensive data is still difficult to come by. Existing government data sources provide incomplete information on suppliers and an incomplete look into the full set of suppliers within an industry.
Effectiveness in Engaging Suppliers – Engagement of suppliers in government procurement is late, lacks collaboration, and mostly ineffective. Instead, what is needed is an approach that engages suppliers early and collaboratively to help inform requirements and bring the best thinking to the table.
Introducing 7MI™ Framework
To truly engage suppliers and align with the market, we are excited to introduce 7MI, a framework based on our 20 years working with leaders such as Dave Nelson of Honda of America, Dr. Tim Laseter of UVA, and Professor Joe Sandor of Michigan State University.
The 7 Economics and Market Intelligence Essentials for Public Procurement, as depicted in the picture below, can be best described as follows:
- Incorporate fundamentals of how markets work and basics of economics
- Designed to be fact-based and analytical as opposed to “hunches”
- Collaborative and two way with an emphasis on early on supplier engagement
Our ultimate goal is to ensure, 7MI leads to:
- Requirements aligned with market
- Increased market transparency and lower information asymmetries
- Lower barriers for suppliers
- Best suppliers participate in the opportunity
Understanding 7MI through this series
As part of the introduction to 7MI, we will be:
- Discussing each essential through a blog and/or video/webinar
- Providing resources and tools to implement each essential
- Hold learning sessions so we can start getting the entire public procurement on its way to becoming MI gurus
The 7MI Challenge
We are also announcing the 7MI Challenge – a unique opportunity for 25 government professionals to learn each of the 7MI essentials through live discussions led by our founder Raj Sharma, Ben McMartin, Ash Bedi, and Frank McNally along with professors and practitioners including Professor Rob Handfield of NC State University, Dr. Tim Laseter of UVA, and other special guests. Please apply for this unique opportunity below:
Links to other articles/resources in series: