My guess is that there were a number of buying and non-buying reasons this joint venture program ended up becoming the chosen strategy to reduce costs. On the most basic level, it extends the partnership of both firms. And procurement, despite what I hope nearly all readers of this blog believe, is a relatively low risk place to do it, at least as CFOs and management teams look at the function. Unlike finance/treasury, HR, IT or another area of the business, I'd wager that a procurement merger was more palatable than the alternatives. It's likely that some close to the early strategies that went into the joint venture felt -- wrongly, I would argue -- that the potential fallout from a less-than-stellar execution would not create material adverse harm to the business.
From a procurement angle, it's likely that the procurement, finance and executive management of both organizations believed their spend in the designated areas (IT and network equipment) to be unique enough that a BPO with deep category experience in other areas would be unlikely to apply category knowledge in these specific areas. In other words, a BPO would be learning on each organization's dime, rather than applying what it had already done elsewhere, including lessons learned. And compared to a shared services environment alone (without the pooling of spend), it's highly likely that the management of both organizations believes that a combination of demand aggregation, SKU rationalization, enhanced processes and technology platform leverage will contribute to savings success.
Regardless of how the venture turns out, it will be fascinating to watch the implementation and execution of the effort. Given all the risks involved, I would hope that other CPOs of large, global firms learn from the initiative rather than diving in head-first and pursuing similar ones of their own before the JV procurement verdict is out.
Jason Busch
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