MERX: An Evolution to a Broader Market (MERX Profile)

“Regardless of the moniker, the majority of government initiative elemental roots can be traced back to the New Public Management (NPM) ideology in which efficiency, accountability, decentralisation and marketisation are the main components or drivers (J.E. Lane, Public Sector Reform: Only deregulation, privatization and marketisation, Public Sector Reform, 1997).

Since the early 80s the NPM “philosophy” has been viewed as the vehicle for “redefining managerial and governance practices in the public sector,” so that said practices would be more “in line with objectives typical of market economies” (D. Osborne and T. Gaebler, Reinventing Government: How the entrepreneurial spirit is transforming the public sector, 1992).”

From NPM’s guiding principles for creating a “Slim” State, Procurement Insights (October 2007)

 

The concept of applying private sector principles to public sector practice is not a new concept.  Nor is it unique to the North American public sector as illustrated by a 1995 article by Dr. Ronald D. Utt titled, “Privatize the General Services Administration through an employee buyout.”  (Note: the link to this article is listed under the Web Resources section at the conclusion of this post.)  

The premise behind the move to “privatize” public sector practice (either figuratively or literally) is based on the misconception that private sector practice is somehow superior to public sector process.

And this is precisely what is interesting about the MERX move to broaden or extend its market to include the private sector.  Specifically, and given the fact that the MERX model’s elemental roots are within the public sector, this recent expansion is indicative of a possible reversal of the NPM trend which assumed that private sector programs were ultimately the key to public sector efficiency.

What is the MERX model?

Referred to as Canada’s electronic tendering service through which propsective suppliers to the government can gain “easy access to finding government contracts,” MERX was orginally owned by the Bank of Montreal (BMO). 

Under a contract signed in 1997 and extended in April 2002 (when the company was purchased by Montreal-based Mediagrif Interactive Technologies Inc. (TSX:MDF)), MERX was at that time, and continues to be the leading provider of government e-tendering solutions in Canada.

In the December 11, 2002 press release announcing the Mediagrif acquisition’s closing, the organization boasted relationships with more than 2,000 government buying organizations in Canada, with more than 24,000 suppliers gaining access to the Canadian government’s billions in annual spend through its Internet-based tendering service.  The importance of this latter figure relative to suppliers is a critical building block for MERX’s future success, and one in which I will touch on in greater detail shortly.

However, and as illustrated in a recent post titled “Levelling the intangible playing field of professional services procurement” (August 19, 2008), supplier reception and response to the electronic tendering process (i.e. RFx) has been historically uneven as extensive research shows that suppliers usually fall into one of three categories; The Masses, The Strategically Displaced, and The In Crowd.  (Note: for a detailed definition of each of the above “categories,” refer to the link to the December 13, 2007 post “The Bands of Public Sector Supplier Engagement” in the Web Resources section.)

These findings, as well as the results from other studies involving both the public and private sectors indicate that any purported convenience in terms of access is offset by the perception that the lions share of the business ultimately goes to a select few or “chosen” suppliers.

And it is against this backdrop that MERX’s greatest challenge as well as its greatest strength (and therefore opportunity) exists.

Yes Virginia!

Before delving into the reasoning behind my closing statement in the previous section, I want to emphasize the fact that there are successes in the MERX world.  And that they do in reality extend beyond the realm of multinational corporate giants whose implied influence purportedly claims the lion’s share of Canadian Government contracts.

Once such example was referenced in the October 2006 MERX newsletter titled “A Vision, An Internet Connection And A Subscription To MERX Gives Way To A $10M Business.” 

In the following excerpt from that article, the founder of Adirondack Technologies Furniture clearly demonstrates that the “little guy” can win, and win big through the utilization of the MERX electronic tendering service.

“When Barry Payne founded Adirondack Technologies Furniture Inc. in 2002, he had a plan to sell his furniture to the public sector in Canada.  Barry conducted preliminary market research for his new venture.  He was not encouraged by what others were telling him.  Many told him that starting a new business was risky.  To try and start a new business focused on selling to the public sector was an impossible task.

The same naysayers also communicated that public sector opportunities posted on MERX are not really open – it would be very difficult for Adirondack Technologies Furniture Inc. to win public sector contracts by using MERX alone to bid on tender opportunities.  It didn’t take long for Barry Payne and Adirondack Technologies Furniture Inc. to dispel this myth.

Adirondack Technologies Furniture Inc. started out as a one man business.  Four years later it has evolved into a multi-million dollar corporation based strictly on winning tenders from public buying organizations.  How did Barry Payne do it?  Simply put, he made MERX his sales and marketing organization.” 

While I will leave it up to you to learn the specifics of how Adirondack Technologies succeeded within the MERX model through the following link (http://marketing.merx.com/html/MERX_newsletter_EN_online.html), the point this illustrates is that vendors can and do prosper through the electronic tendering process.  The only questions are how widely that success is distributed across the entire supply network, and is it indicative of a sustainable model?  Enter the Commonwealth of Virginia and their highly successful eVA initiative.

For those of you who may be unfamiliar with the Yes Virginia series, my interviews with the Commonwealth’s senior managers produced what is still amongst the most popular and widely read articles I have ever written.  In fact, and due in large part to reader response, I even introduced a 90 minute seminar of the same name “Yes Virginia! There is more to e-procurement than software.” (https://procureinsights.wordpress.com/seminars-and-conferences-with-jon-hansen/)

I would of course encourage you to read the series in its entirety, but for the purposes of this article I would like to focus on a set a statistics relative to supplier response to the eVA program.

In the year prior to eVA’s launch in 2001 between 5,000 and 6,000 of the 20,000 registered suppliers received orders. By 2006, the distribution of contract awards over the entire supply base increased dramatically as 14,371 of the then registered 34,000 suppliers received orders.  According to data that was available at the time the Virginia article was published, and only 8 months into the 2007 campaign, this upward trend continued as 14,756 suppliers had already been awarded contracts.  (Note: while the final 2007 figures are not yet available, it would be safe to assume that with 4 months remaining, the business distribution percentage likely topped the 45% level.)

Based on my interview with Paul Bodnoff, Senior Director of Marketing for MERX in Ottawa, their on-line tendering service has achieved similar results to those of the Virginian programs.  And while the specific data concerning the distribution of contract awards over the entire supply base since 2001 was not readily available as the start period pre-dated Mediagrif’s purchase of the company from BMO, the number of registered suppliers has increased from 20,000 to approximately 50,000.

What is interesting to note however, is Bodnoff’s assessment that the broader distribution of contract awards is not so much linked to subscriber growth, but is instead an indirect result of expanded bid opportunities “driving the subscriber growth and therefore broader distribution of contract awards.”

Why MERX?

By now, you are probably well-versed in my disclaimer relating to my emphasis on the fact that I am not a voice piece for the sponsor – in this case MERX.  In assessing the viability of their value proposition for your organization, it will be up to you to determine how they may be of service.  In this regard, I will once again direct you to the Sponsor Presentations section of the PI Blog to invistigate the MERX value proposition in greater detail, and at your own convenience.

That said, and building on the organization’s historic success within its idegenous market, how well positioned is MERX to expand its client base within both the public sector as well as the even more demanding private sector?

If the distribution of contract awards runs parallel to the increase in the number of registered suppliers, then like eVA, the MERX model would appear to have overcome the traditional obstacles the majority of electronic tendering services face as a result of a skeptical (some would even suggest cynical) supply community.

Given that 85% of all e-procurement/supply chain initiatives fail to achieve the expected results (a healthy percentage of which is within the private sector), it is an irony that cannot be ignored as eVA and now MERX’s success directly challenges the belief that public sector operations would be more efficient if they followed a private sector model.

Web Resources:

Privatize the General Services Administration Through an Employee Buyout: http://www.heritage.org/Research/GovernmentReform/BG1036.cfm

The Bands of Public Sector Supplier Engagement: https://procureinsights.wordpress.com/2007/12/13/the-bands-of-public-sector-supplier-engagement/

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