Quality, Consequences and the Construction Industrial Complex (part 229).
If you obtain orders via a RFP in a competitive bid situation you and your business are a commodity.
Not gonna lie, when I finally understood this it hurt. I was running a successful AEC consulting business yet it was getting harder each year to make money, we simply had no pricing power. When I came to terms with this I sold my interest in the business.
Not withstanding the need for a business to scale and have market pricing power, my real breakthrough was understanding the concept of Life Time Value (LTV) of a client. In a RFP competitive bid the LTV is zero. Each project you bid for is “ground hog day”, you start from zero. The reward for a great job is a new “Hunger Games” competition.
Go ahead, I will wait, name me an AEC firm that did a great job, got a bonus or even paid on time, then won the next project based on direct negotiation with financial recognition for their added value.
AEC projects succeed or fail because of people. The real problem in property design and construction, apart from, or because of;
- skill shortages,
- bad management,
When asked to respond to an RFQ then RFP the client is signaling there is no real relationship and no trust. The RFQ and RFP system is based on a presupposition of poor service and no real client relationship.
The RFP game rewards corner cutting, and minimum compliance whilst being blind to value. In game theory terms it is a “zero sum game” plus a “prisoners dilemma” with final bidders told that the other firm is cheaper, what can you do?
From a business strategy perspective you are what you charge, therefore:
- Commoditized services = Low value business results because it is ultimately, a zero sum game.
- Professional Services = Diminishing value due to being time based, sensitive to low cost substitutes and now starting to be automated by software.
- Experiences = High value due to being client focused, win, win outcome based and about time well spent.
The AEC industry needs to move into the “client experience economy” i.e. mutually respectful long term relationships where you compete for client time, attention and money rather than bottom line price.
IMHO this takes three forms for AEC firms:
1. The answer for large projects is competition via qualifications and an “ideas & innovation beauty contest” followed by framework agreements where competence and innovation are rewarded.
2. Firms need to offer specialist skills, IP, products and services that others do not have. This provides pricing power.
3. Be like Harvey Spector from Suits. You and your firm are so good and have specialist skills your brand message is “I am Harvey Spector”. It is a bit like the Architect Lord Norman Foster, his firms brand is that he is F*$K!ING NORMAN FOSTER!
Ideally you and your firm would develop all 3 of the above!
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