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Clarity from complexity

Resolving complex supplier negotiations and delivering rapid savings at a leading world bank

 

As part of an ambitious in-year cost reduction program, the Group CIO management of one of the world’s leading banks needed to resolve a long-standing and highly complex issue with a key strategic vendor. Despite repeated attempts over a long period, they had been unable to reach agreement. 

Resolving the issue was key to helping achieve the wider savings target, and the Bank sought help to move forward. Efficio had already been engaged to rapidly identify significant savings opportunities and following that success, they were asked to run an execution phase.

The high complexity of the issue with the vendor meant both parties could not agree on the cause and therefore a resolution. Efficio used its analytical capabilities and expertise to bring both sides to a clear understanding of the underlying causes, and a negotiated agreement, in just six weeks. This delivered significant and immediate in-year savings for the Bank and set the foundation for a robust ongoing relationship with a key vendor.

In 2018,the Bank’s Group CIO management set a €50 million in-year cost reduction challenge on €2 billion of spend across four areas: IT vendor resources, licensed software, IT hardware and IT services. Efficio were engaged to support the wider team with the challenge. 

Background

Following a 6-week discovery phase Efficio used its methodology, extensive IT expertise and intellectual property to identify €43 million in annualized savings, and develop an approach and execution plan to achieve them.

However, given that execution was due to start in late August, delivering the savings in–year was challenging. The Bank established a list of priority projects, which included a complex commercial issue with one of their largest strategic vendors. 

The vendor was providing a managed service to support more than 400 applications across the bank and had signed a new 10-year contract in 2014. The first two years were intended to be fixed price, during which a consumption-based model would be agreed. However this was put on hold as the model was unable to be agreed and the 400 applications were subsequently charged on commercial terms, with no transparency in pricing per application. In addition, at the start of 2018, pricing inadvertently reverted to the 2014 commercials, which had resulted in a €1.5 million overcharge (and growing). Attempts to address this with the vendor had failed, with no acknowledgement of the overcharge. With no agreed way forward, the Bank engaged Efficio to negotiate a resolution.

Approach

The vendor was providing a managed service to support more than 400 applications across the bank and had signed a new 10-year contract in 2014. The first two years were intended to be fixed price, during which a consumption-based model would be agreed. However this was put on hold as the model was unable to be agreed and the 400 applications were subsequently charged on commercial terms, with no transparency in pricing per application. In addition, at the start of 2018, pricing inadvertently reverted to the 2014 commercials, which had resulted in a €1.5 million overcharge (and growing). Attempts to address this with the vendor had failed, with no acknowledgement of the overcharge. With no agreed way forward, the Bank engaged Efficio to negotiate a resolution.
 
In just three weeks, Efficio was able to translate a vast set of operational data and the existing contractual position into a highly credible negotiation strategy. 
 
The first step involved combining their specialist experience within the IT services sector and complex data analysis expertise to develop an in-depth understanding of the root causes and current situation. This provided much needed clarity to all stakeholders, which ultimately included the vendor. Following this, Efficio established a working group and detailed negotiation plan. This was reviewed in a series of discussions with the business to validate the strategy and target outcomes. 
 
During the next three weeks, Efficio led several productive negotiations that resulted in both the Bank and the vendor:
 
  • Sharing the same understanding of the underlying issue
  • Agreeing on the modelled assumptions
  • Agreeing to backdate pricing to January 2018 (when the 2014 commercials had been inadvertently reinstated)
  • Agreeing on a robust commercial and operational framework going forward that provided transparency on actual price per application

Results

In December 2018, the project concluded following a period of dialogue between the respective legal teams to finalize terms, which delivered significant benefits to the Bank:
 
  • A €2.3 million credit that covered backdated pricing from the start of the year
  • A €2.5 million reduction in spend was agreed – giving the bank a significant push towards achieving their cost reduction targets in the fast-approaching new year.
  • It laid the foundation for a further €1.1 million cost reduction in 2019 
Given the previous inability to progress the issue, and the difficulty in securing in-year savings so late in the year, these outcomes exceeded expectations and were seen as a major success by the Bank. They also helped to significantly enhance the credibility of the procurement team within the business.
 
Longer term, the new commercial arrangement also set a strong foundation for the future relationship between the Bank and one of their most important strategic partners.
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