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An immoral offer

The deal is simple, the temptation great, and there are - apparently - only winners. When it comes to renewing sourcing contracts, providers often promise special conditions to those who don't want to go through the time-consuming tendering process. The customer can save twice, they argue. In reality, however, it is the provider who saves.
Branimir Brodnik, Microfin
August 5, 2013
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This text has been automatically translated from German to English.

Does a provider without official Tender a sourcing order, it is not in a competitive situation. This means that he can Price and contractual conditions in his favor and secure follow-up business without much effort. Potential losers, on the other hand, are those responsible in the company, because the approach Compliance-guidelines and can lead to the personal liability of managers - and the company as a whole does not fare as well as it would in a proper competitive process.

For four years the SAPInfrastructureOutsourcing-In short, the outsourcing model worked as expected and is to be continued even after the contract expires. Now, when it comes to a follow-up contract, the provider has a (not entirely) unexpected suggestion: both parties could save the effort of a Tender save, it is said. In return, the provider offers favorable special conditions that make price negotiations superfluous. In other words, it's a win-win situation that providers are increasingly using not only to retain existing customers, but also to target top management as part of a loss-leader offer.

Of course, such a business seems to be especially difficult in the case of widespread, partly generic Services like just for example SAPInfrastructureOutsourcing attractive - at first glance as well as at second. Because it obviously suits all sides. The Client receives favorable conditions and saves the Costs for evaluation and Tender. The responsible Manager saves his nerves and working time and keeps a known and predictable Service provider - no matter how good or bad it is. The provider does not have to pass on any acquisition costs to the contract and can therefore offer supposedly attractive prices. Unfortunately, this assumption is wrong for all three parties involved. Because there are three factors that thwart the nice calculation: Compliance, costs and innovation.

First keyword: Compliance

Nowadays, board members and IT managers are subject to strict rules of conduct. In addition to legal requirements that must be complied with, many companies have now introduced internal guidelines. The focus is on avoiding corruption and cartel agreements as well as complying with data protection requirements. Last but not least, decision-makers must be personally accountable; so-called manager liability has been introduced in the GmbH and the German Stock Corporation Act and the German Act on Corporate Integrity and Modernization of the Right of Avoidance (UMAG). In plain language: If something goes wrong when the contract is signed or afterwards, those responsible quickly slip into personal liability. A tendering process is certainly the lesser of two evils.

Second keyword: cost

Sure - the provider's special offer seems cheap at first glance. But without Tender the customer also has no comparison and hardly any chances to Price to negotiate. Especially for sourcings around SAPoffered by many providers, this is a money-saving disadvantage. Because the fact is: The conditions offered at a bargain are almost always also negotiated as part of a clean Allocation to achieve - and then you also have the security that the payable Price corresponds to the market price. This is also where other important factors come into play. After all, in a competitive situation, not only are prices renegotiated, but to a large extent new services are also integrated and framework contractual agreements are also improved. Finally, some Client made concessions in the original deal that later lapsed - or worked with false premises due to lack of experience.

Third keyword: technological innovation

Sourcing is primarily about finding the right solution, not the cheapest one. Anyone who concludes contracts without comparing the content of offers runs the risk of losing an overview of the various solution approaches. Different providers have different concepts and service principles, which the customer should also be aware of. When it comes to renewing a contract, the same applies: don't continue to use what has proven itself without hesitation - it's quite possible that technological developments have produced more effective solutions in the meantime.

Therefore, there can only be one clear recommendation: Especially with the Allocation from Outsourcing-contracts, which generally have a long term, is a Tender not a necessary evil, but a sensible investment. The bottom line is that a professionally set up tender process may cost time, but otherwise it has only advantages: The customer remains compliant, the solution fits, the total costs over the entire life cycle are optimized, and the company's own negotiating position with regard to contractual regulations is significantly improved. For this, it is also worthwhile to seek advice from specialists.

Reputable consultants have a success-based remuneration model that easily compensates for the consulting costs. The provider also benefits from comparison with the competition by using the customer's feedback as "lessons learned" to improve its own position. A Tender is always also a piece of technology competition, and in the long run, only those who regularly compare themselves with their competitors and continue to develop can win. And last but not least, the sourcing manager can sleep better. The certainty that they have done everything right for their company and that the Compliance Being able to look an officer in the eye is immensely reassuring - and easily outweighs the appeal of an immoral offer.

Branimir Brodnik is the founder and managing partner of Microfin Unternehmensberatung. The computer scientist, who studied medicine as a minor, has over 20 years of professional experience in the fields of financial services and consulting. His competencies are mainly in the areas of IT sourcing, IT cost optimization as well as Project Management. As a certified project manager and management coach, Branimir Brodnik not only advised numerous companies and Managerbut also passed on his knowledge and experience in many publications.



Branimir Brodnik, Microfin

Branimir Brodnik works at microfin Unternehmensberatung GmbH

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