Sr.VP Business Development
May 12, 2014 | 3:55 PM ET
Recently, I came across an interesting comment in an article:“Managing vendor relations through a procurement office is sometimes akin to managing customers through the debt and collections office.” There may be some debate about the comment, but it definitely causes us to ask, “Where does IT vendor management belong? IT or Procurement or elsewhere?”
Large companies and government agencies possessing large, complex, multi-vendor environments are debating and re-evaluating their IT vendor management because managing vendors has become much more complex than traditional Procurement of the past. Additionally, when it comes to IT vendor management, IT and Procurement appear to have conflicting, competing priorities.
In dealing with technology vendors, Procurement seeks to mitigate risk and get the lowest price possible, often by reducing rates on contracts whenever and wherever possible. While procurement has the greatest experience in talking with vendors, there is a distinct chance that Procurement professionals do not necessarily understand the technologies they are evaluating. Also, the cost cutting efforts driven by Procurement may have an unintended consequence of compromising the business needs of the vendor and undermining the relationship with the very organization who could be one of your company’s greatest strategic allies. The best vendor relationships are mutually beneficial, and operate for the long term, and there is a lot to vendor management that goes well beyond procurement.
On the other hand, when IT vendor management is owned by IT, Procurement and Legal professionals report that the result creates more risk, greater cost, and a stronger tactical focus. These issues, when coupled with the fact that more and more IT professionals are swamped with emerging, disruptive technologies and all the challenges they represent, the CIO may find it too time consuming to manage bids, negotiations, and demos with vendors along with the managing performance metrics, issue resolution, and change management.
Effective goals for vendor management balance the priorities of IT and Procurement and include:
- Developing sound working relationships with vendors so that your company can focus on core activities.
- Getting away from a short-term, transactional mindset and develop a more strategic vision. A strategic, innovative approach asks, “How can our organization(s) design effective vendor relationships that can propel the organization forward in achieving its long term strategy?” How you relate to vendors may help you achieve innovation and a competitive edge.
- Developing a clear sense of costs, identifying the real costs of IT for your organization (understanding there may be “rogue” IT operations that have popped up through the organization) and creating a sound long term strategy for managing them without losing the vendor or losing out on innovative opportunities the vendor can provide (depending on how you negotiate the contact). Developing a true understanding of IT spend is vital in organizations that are facing a mountainous IT asset management challenge, with aging tools, servers, and systems.
Your organization needs to find the best way to come to consensus on balancing the competing priorities between IT and Procurement, understanding that the dis-equilibrium between the two mindsets is not necessarily a bad thing.
Many of our clients have gained control of the situation in various ways, sometimes by developing independent vendor management offices (VMOs), and sometimes with less formal structures. For those with VMOs, the Office is often are populated with IT, Procurement, and Legal personnel. Some organizations address the challenge with less formal solutions using other cross-functional alignments.
Whether your organization pursues a formal structure or not, it should consider constructing a vendor management framework that helps get vendor management under control, balances IT and Procurement priorities, meets strategic goals, and explores innovative, long-term strategies for your organization.
For more information on this topic see our white paper
Establishing a Framework for Improving IT Vendor Management. Need more information about Vendor Management or other services contact us at TBI or call 201.573.0400.