Key Steps to Better Vendor Management

This article first appeared in the April/May edition of Government News.

By Guriq Sedha

The impact of cloud computing, increased consumer mobility, app stores, the Internet of Things and widespread use of social media are changing business models and processes in companies and government agencies alike. Business leaders want to deliver integrated services and develop flexible delivery models that can be modified to adapt to technological, social or political preferences in the future. To accomplish this, vendor management leaders must develop and maintain their ability to select, engage, manage, retain and disengage with vendors continually.

In a recent Gartner vendor management survey, “regulatory issues” and “defining vendor management program value” topped the list of challenges for people in vendor management roles. This suggests that organisations need better processes to handle these challenges.

The third most chosen challenge is “internal politics and friction,” which suggests a need to increase professional effectiveness of vendor management space or to better delineate vendor management roles within organisations. To successfully address these challenges vendor management leaders need to collaborate with key stakeholders to build processes and a shared vision. The challenges faced by different organisations vary.

Resource constraints often hamper the efforts of vendor managers to derive benefit their strategic relationships with suppliers. However, the need to have collaboration among various key stakeholders to successfully address these challenges is common.

Collaborative dynamics in vendor relationships

Contracts are designed to reinforce trust and reduce risk. Unfortunately, when they’re too detailed or rigid, or when they send mixed signals, they can exacerbate the very problems they’re supposed to prevent.

At a time when trust is already in short supply managers can’t afford to make these mistakes. Organisations that manage vendors solely though rigid contract management practices do not have collaborative relationships that are good enough to resolve ongoing challenges in terms of performance of products and services. This is particularly so in complex technology environments where multiple technologies and vendors are involved, or when resolving commercial issues related to driving value from investments. For the most part, this type of management relies on old information and requires contract managers to be experts in operational details, or department personnel to be experts in contract management.

This is because they are expected to interpret the rigid language of contracts and apply it to different situations. Frequently, in most organisations the responsibilities required of vendor managers overlap across departments and roles, or are overlooked. This is often because no one seems to have specific responsibility for individual vendors, and vendors are managed by IT, finance and other units only.

This situation allows vendors to “divide and conquer,” and reduces the negotiating power of the client organisation. In a collaborative relationship, vendor management cannot be static or guided by one set of rules. There are now many instances of organisations writing contracts that require collaborative approaches with vendors. These are written to allow for SLAs to be amended as business needs change, and to offer the flexibility needed for vendors and clients to engage and develop solutions together. This addresses the challenges of changing market dynamics for both parties. However, for this to work, client organisations must first collaborate within their organisations before engaging with vendors, to assure alignment in addressing the underlying challenges of the business.

Vendor managers should:

1.            Obtain sponsorship and launch an education program to explain the results that can be driven by stakeholder engagement models and vendor collaboration models. 2.            Engage with key stakeholders to explore how vendors can help create and maintain differentiation from the competition. Also engage with them to show how IT vendors impact the organisation’s ability to deliver world-class services.

3.            Develop a stakeholder collaborative strategy by identifying suppliers that can be leveraged through this process and key stakeholders who will be involved to manage them.

4.            Implement the stakeholder collaborative strategy by using the nine steps described below

5.            Review at regular intervals to ensure relevance and make adjustments that are needed to achieve having a strategic vendor management program. Vendor management leaders can’t rely on only one section of the department to possess all the skills and knowledge needed to manage vendors. Procurement, IT, business units and finance each have pieces of the puzzle — the knowledge and skills to manage the complexities of strategic vendors who have significant potential to impact your organisation’s ability to deliver products or services.

Without true collaboration among internal client resources, vendors will get confusing messages and goals. This will result in additional costs, less efficient vendor management and unpleasant vendor relationships. Because most organisations have limited vendor management resources, vendor managers must develop a collaborative strategy for engaging with key stakeholders.

To begin a successful internal collaboration, IT vendor managers should educate stakeholders about the complexities of relationship management with strategic vendors. Stakeholders should be aware of how collaboration will improve product and service delivery from vendors. They should also be aware of how internal and external information is used to manage vendors effectively to reduce costs, generate revenue and create value from other initiatives.

Collaboration Strategies Harness Extended Resources

Once you’ve raised awareness of the importance of collaboration across the organisation, vendor managers should use the nine steps in Figure 3 to develop and execute a collaboration strategy.

1.            Identify the strategic vendors that will part of your collaboration strategy.

2.            Identify core team members for each strategic vendor. Look for those with commercial, operational, business and financial expertise whose skills are critical for effective vendor management. In addition, look for special experts, such as Individuals who have experience working with the vendor organisation (former employees of the vendor or other direct experience) or staff from other departments who are likely to consider using this vendor.

3.            Develop a charter for each strategic vendor relationship on an annual basis that allocates responsibilities based on the expertise and collaboration required to drive results. Use a workshop or similar platform to engage the team and leverage their expertise. Determine the current relationship with the vendor, discuss the role of the vendor in the value chain in your organisation and identify the goals for the vendor relationship — in terms of cost reduction or management, risk containment and value enhancement — through process efficiencies or collaborative initiatives. Choose individuals with specific skills, experience and personal attributes to lead your key initiatives.

4.            Share goals with the vendor contacts once agreed internally and encourage them to find individuals in their organisation to match and collaborate with the individuals/teams in your organisation. This is to drive specific goals and establish targeted collaborations between you and the vendor.

5.            Ensure vendor management becomes an integrated part of the jobs of the individuals on your teams, rather than just an added task of lesser importance. Also ensure that contributions are acknowledged and rewarded by managers and leaders.

6.            Build an identity through branding for these extended teams and promote collaboration through wider communication, appreciation and rewards for excellence. Use existing HR policies to develop a reward methodology within your organisation. A simple signature tag line to be used on email signatures is a good starting point. This could be: “Member SVM — driving value though collaborative vendor management for [your organisation].”

7.            Communicate the successes, achievements and progress to key stakeholders in the vendor management initiatives to ensure engagement and collaboration.

8.            Reward stakeholders for their collaborative approach and contributions to improve vendor management using the HR-prescribed award system, if it exists. If there are no such guidelines then work with your HR department and your leader to allocate a budget that can help achieve this objective. The awards be can “certificates of appreciation with or without cash prizes,” and promotional products such as plaques for desks that are personalised, or other items of personal use.

9.            Review on a periodic basis to ensure relevance to the business objectives and make adjustments to fine tune the program and renew stakeholder engagement. You can apply these practices to legacy, emerging and tactical vendors with a reduced number of resources, if necessary.

Implement in Phases and Review Regularly Vendor

management leaders should take a measured approach to building stakeholder confidence and securing sponsorship, and start with only a few strategic vendors. Start by developing a plan for engaging the extended organisation in strategic vendor management. The initiative should proceed in phases such as planning, approval, piloting, implementation (a few strategic vendors at each phase) and review of the implementation (at least annually).

Ensuring that key stakeholders are involved in all the phases and that sponsors are kept updated with phase results and new developments. Also, vendor managers should incorporate what is learned from each phase into the next, to establish a continuous improvement cycle.

Guriq Sedha is research director for IT Procurement and Asset Management at Gartner. Based in Sydney, he provides advice on IT procurement, strategic sourcing, asset management, vendor management and contract negotiations, as well as general procurement advice.


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