France Telecom & Deutsche Telekom to set up shared procurement ops; doomed to fail?

Last week saw this announcement.

Deutsche Telekom AG and France Telecom-Orange have agreed to combine their procurement activities of customer equipment, network equipment, service platforms and - starting with four pilot-projects - IT-Infrastructure in a 50/50 joint venture.

This suggested all sorts of ideas for humorous writing involving national stereotypes, much of it in very dubious taste - who knows, perhaps we'll come back to that. But being serious for today, my first thought was, “this is going to be a spectacular failure”.

That is even if it gets regulatory clearance, which I would have thought is in some doubt. It hardly seems likely to stimulate competition in what is already a pretty shallow market. And even if it goes through, I do struggle to see what real benefits can possibly arise.

The joint purchasing volume of both companies in these areas is about 13 billion euros a year, and they are looking to obtain "1.3 billion Euros combined savings of annual run-rate after three years of implementation for both groups due to technology harmonization and economies of scale".

But surely both of these firms must already be giant buyers in the markets where they are coming together.  Do they really expect greater economies of scale (which we have our doubts about at the best of times)? And how easy is this 'technology harmonization' really going to be?

How will they cope when a particular sourcing solution favors one party but not the other? Are the "two operational units in Bonn and Paris" going to be essentially the current staff or will they be mixed up?  (I'm not sure which of those options I would prefer – if you don't mix, you are likely to keep two 'competing' teams forever. If you do, you're going to have considerable cultural and operational issues).

Do the two firms run the same sourcing process or technology? How much information can they share before they do get into anti-trust areas? How will stakeholders be managed across the new venture; it's fine procurement working together, but if other stakeholder functions aren't...

The two firms do at least have some wider strategy of co-operation so procurement is not the sole trailblazer here. And if it does happen, I have no doubt some numbers will be concocted to show the planned benefits are being delivered. (I'd have more faith in the numbers if  they said they were going to use Sievo's performance management tool to track the benefits.)

It's a fascinating experiment anyway – we'll try and talk to someone about it if it does go ahead. But I remember the great eProcurement boom (first time round) and all the wonderful industry collaborations like Covisint - most of them were spectacular failures. We'll see how this one works out, although I'm afraid I start at this point from a position of great scepticism.

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Voices (2)

  1. Final Furlong:

    Spot on Peter.

    The business case would be a fascinating read. Taking aside the motor industry attempt, I recall the Investment Banks and their attempt at setting up their own marketplace. Fell at the first hurdle. While everyone agreed upon the obvious leverage that could be obtained (especially with the ‘volume’ suppliers) the horse hesitated at the starting gate for over a year while everyone argued over who should be the first to ride it. Needless to say, it became lame, and one aggressive high profile bank (which has since met its own demise) promptly shot it.

    Perhaps this one has got legs.

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