I recently presented a concept of why using an RFP can be a risky approach to evaluating a new technology or implementing a next generation enterprise software solution. Request for Proposals typically are prepared to address a “known” challenge, so are worded to ask questions of a traditional solution. The problem is that when a next generation, or disruptive solution exists, it is unlikely to play by the “rules” of how prior solutions were implemented. New technology may mean that prior issues to evaluate are no longer relevant. Equally challenging is the fact that new challenges may need to be overcome, forcing new questions that may not exist in an existing RFP template.

In the April 2013 Harvard Business Review article “Innovation Risk: How to Make Smarter Decisions,” the author, Robert C. Merton,  points out that the risk level of an innovation is highly dependent on the choices people make about how to use it, amongst other factors. That means we must be mindful of the limitations of using a traditional evaluation process to base a decision about how to use a technology innovation. Simply put, it’s more about execution and utilization of the innovation within context of your current environment than about the actual innovation that will best determine whether the anticipated benefit is actually achieved.

According to Merton: “To minimize risk and unintended consequences, users, companies, and policy makers alike need to understand how to make informed choices when it comes to new products and services.”

Applying these concepts to the evaluation process of purchasing a next-generation Manufacturing Operations Management (MOM) solution, a traditional RFP might focus on capabilities tied to optimizing plant performance, increasing automation capabilities or downloading performance reports at the end of a shift. While these criterion may still be of interest, what might be missing are questions, such as “How well can process improvement be replicated across sites? Or, “How quickly can five sites be deployed while simultaneously performing process improvements to any site at any time?” Using Merton’s terms, these are examples of “incompleteness” vs. “incorrectness” as part of an RFP evaluation process.

Merton recommends five rules of thumb for making informed decisions when evaluating the choice to implement an innovation or modern technology:

1. Recognize That You Need a Model: Whether it is your own mental model or a computer model, the more factors it incorporates, the better your assessment will be of the risks you incur in deciding how to adopt a particular innovation. The key challenge to recognize is that your existing RFP model might now require new, additional factors as part of your evaluation process.
2. Acknowledge Your Model’s Limitations: It is critical to understand the difference between an incorrect model and an incomplete one.
3. Expect the Unexpected: Even with the best effort, some factors that could go into a model will be overlooked. Be open to including new factors based on feedback and discussion in your RFP process.
4. Understand the Use and the User: Assuming you built an RFP model that is fundamentally correct, there is still no guarantee that it will work well for you. Much depends on who is using it and what they are using it for. A matter of perspective is key to consider – is there a bias by some stakeholders to choose a “preferred” vendor so as to receive future perks, such that the decision process is flawed?
5. Check the Infrastructure: When considering the consequences of innovation, we need to recognize that its benefits and risks are determined not only by the choices people make about how to use it, but by the infrastructure into which it is introduced. It’s like introducing a high speed passenger train on an old railway network that can’t tolerate the speeds. Selecting a global solution may be the right decision, however, if the culture of the organization is that of autonomous activities at the plant level, then a culture “re-alignment” is best addressed first before trying to change behaviors to be more collaborative across an organization.

Ultimately, just as we evolve our business and our technology to accommodate new customer and market dynamics, we must also adjust the manner and method by which we evaluate the introduction of new applications into the organization. So, gather the troops. The time has come to figure out a new model for evaluating innovative product procurement!

Gordon can be found on Google+.