Six Steps to Successful Vendor Management

NASHVILLE, Tenn.—To meet the technology needs of their organizations, CIOs are increasingly turning to outside vendors, a trend that appears to have little chance of letting up. Although the ability to manage vendors effectively enhances the business perception of IT effectiveness and helps CIOs achieve success, few have actually been formally trained in managing these relationships.

In a roundtable discussion with three CIOs on Forresters Leadership Boards at the consultancys annual IT Forum here May 15, participants discussed vendor management tactics that worked—as well as those that failed—for their organizations. One thing that was nearly universally eschewed was choosing vendors by price alone.

"You talk about price for short-term relationships. If its a commodity, the only differentiator is price. But if you take a long-term view of your vendor relationship, its more than the lowest dollar that will create value," said Philip Go, CIO of Barton Malow, a Detroit-area design and construction services firm.

The CIOs acknowledged the importance of performing risk analysis—what they would do if they had to pull out as well as the odds that such a thing would happen. Performing risk analysis helps reduce the likelihood of needing to change vendors, a process that was labeled especially painful.

Resource Library:

"I have heard of a lot of bait-and-switch in outsourced relationships, where the brochure showed pictures of a state-of-the-art data warehouse, but in person the racks looked like theyd come from Cosco and the servers were ancient," said Tom Halbouty, vice president and CIO of Pioneer, an Irving, Texas, exploration, drilling and production company. "You cant be too careful. Youve got to mandate site visits, too."

A survey finds CIOs like their jobs but not their outsourcers. Click here to read more.

Death traps—including inadequate monitoring of vendor performance, poor negotiation and letting the other party take over the drivers seat in the relationship—seem to linger at every juncture of a vendor relationship.

"The true test is not when things are going well, but when things go wrong," said Go. "Its good to work with people whove seen both sides of this fence."

Three Most Common Pitfalls

The notion of standardized practices of vendor management is a relatively new one, borne of countless case studies that relied on CIOs who were early adopters of outsourcing practices.

One of the most common pitfalls these CIOs ran into was confusing vendor selection for vendor management.

"There was so much focus on the selection process and building the contract but little about how to manage the relationship that followed, from re-evaluating the selection process to figuring out the value that the vendors themselves bring," Liz Brady, senior analyst of Forrester Leadership Boards and author of the report "Six Steps to Successful Vendor Management," told eWEEK.

The second trap that CIOs fall into, according to Bradys interviews, is simply going for the lowest price.

"There was often a feeling that you should give yourself a high-five for beating the vendor down," she said. "You really want it to be a win-win relationship. They have a business to run too, and they might be able to pick up and choose other customers if their margins are not met. As the market has matured and as many of these vendors have become consolidated, stable companies, the dynamics have changed."

Finally, Forrester learned that surprisingly few of the CIOs measure the business value of their vendor relationships on business metrics.

"Increasingly, CIOs are going to have to see beyond SLAs [service-level agreements] and only whether the contract was fulfilled, but whether the exchange brought value to the business and whether they got a return on their relationship," said Brady.

Next Page: Best practices shape up.