Withdraw or lose? – The challenge for 4 of the 5 vendors in Danish EMR mega project

 In Building Successful Partner Channels, Industry News
7
IT Zealand

When the Capital Region of Denmark, which includes the municipalities of Copenhagen, Bornholm and Frederiksberg and the Administrative Region of Zealand (RH/RS) pick the winner for their c. DKK 1 billion (€135M) investment in a new IT-healthcare platform there will be four losers.

At this stage, RH/RS is reviewing the first proposals from the five long-listed vendors. Ten moving boxes with proposal documentation were delivered to the steering committee on Monday, March 11th of this year.  The steering committee’s objective is to reduce the five vendors to three by the end of April 2013. The following vendors are longlisted:

  • Epic
  • IBM (with Systematic as the software vendor)
  • Cerner
  • Cambio
  • Siemens

In our article “How Danish healthcare authorities will create the short list for final software vendor selection” we analyzed the current situation and predicted that Systematic, Epic, Cerner and Siemens would lose and that Cambio would be the winner.

Table

However, you don’t have to change the weighting and the rating very much to reach a completely different outcome. If you increase the weight of Staff Perks, Decrease the Political Preference and upgrade the External Integration rating for Cerner, Siemens and Epic from 1 to 3, then Epic comes out as the winner with Cambio and Cerner on a shared 2nd place.

The ramifications of losing

The cost to each vendor for participating in a public procurement like this has been guesstimated to around €1M. We estimate that 25% has already been consumed. Being shortlisted for the final round will incur an additional €0,75M in sales expenses for each vendor. RH/RS will compensate the losers with €67K each, which is less than 1% of the actual cost.

Withdrawing is better than losing.

Epic, Cerner and Siemens can afford to lose. They have deep pockets and €1M in sales cost can easily be absorbed in their P&L. They also have big installed bases and ongoing projects elsewhere, which will compensate on the top line. Denmark is a small and remote market and they can easily find justification for not winning. We don’t believe the big players will suffer much by losing this tender.

Systematic and Cambio, however, will suffer severe blows if they lose this home game. A sales cost of €1M is a heavy toll on their respective P&L, and they do not have solid pipelines of other healthcare projects which can compensate for a project of this magnitude. They will also have a difficult time explaining why their Scandinavian home markets rejected their solutions. Provided IBM is not picking up the “cost of sales” bill for the Systematic bid. As IBM is fronting the bid we must assume they also decide the strategy and tactics plus pay most of the sales cost. Both Systematic and Cambio can afford to spend €1M on a public tender, but losing will obviously hurt a small company more than a big company.

Withdrawing is not losing (and you can still fight again another day)

Withdrawing from a tender is a standard option for any vendor. Each vendor must continuously consider three major elements:

  1. Can we deliver a successful implementation?
  2. Can we win the project?
  3. How do we stack up on 1) and 2) compared to our competitors?

Successful implementation

The successful implementation is the most important element. None of the vendors can afford to win the project and then fail on delivery and implementation. Failing projects of this magnitude are fatal and can drain the P&L as well as damage the reputation considerably.

We are certain that all vendors are considering this issue carefully. Their ability to deliver hasn’t been seriously challenged yet. As we get closer to the final decision, RH/RS will become much more specific and demanding.

The issue for the vendors is to assess how their delivery capability will stack up against the other vendors. If they consider that other vendors have stronger positions (perceived or real), they are better off withdrawing as early as possible.

Winning

The final decision will be a compromise between multiple interests and concerns. The vendors need to assess if they have sufficient support from the influencers in the decision-making process. Again it is the assessment vis-á-vis the other vendors that provide the foundation for deciding to stay or withdraw.

In the current situation where all the vendors have teamed up with subcontractors, the assessment and the decision becomes increasingly difficult.

Two winners

We consider the probability that RH and RS will make a split decision to be low, but not zero. Especially the smaller vendors need to monitor this scenario very closely. A split decision will double the probability of winning for all vendors and be most favourable for the smaller vendors..

Stalemate

Although we also consider the probability that RH and RS will reach a stalemate situation and cancel the current procurement to be very slim, it is still larger than zero.

Only the fool fights to the last man

Going all the way and losing when the odds are low makes no sense. It is much better to withdraw than to lose. It is obviously a very difficult assessment and a very difficult decision to make. However, any professional vendor will constantly make this assessment and withdraw when the odds are dropping below a pre-defined threshold level.

Other articles in this series:

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