The Beginner’s Guide to IT Vendor Management

When you’re running an entire enterprise, finding a single vendor to meet all your IT issues is close to impossible. That’s why most organizations rely on a network of third-party vendors and partners. The problem is, opening your enterprise up to this network could leave your data vulnerable and at risk for insecure exposure.

IT vendor management allows companies to not only curate their solutions to ensure they’ve chosen the right systems, but also lock down the best costs and mitigate risk across the company. Yet, these are only the core functions of IT vendor management. Today, it’s not just about comparing prices. It’s about building vendor relationships that will ultimately benefit both organizations.

 

What Is IT Vendor Management?

 

Vendor management is a process that allows organizations to control costs, strengthen service, and reduce risk throughout the process of outsourcing to vendors while extracting the most value from the investment. In IT, this translates to implementing technologies, processes, policies, and procedures that support the needs of the business.

Vendor management addresses four key areas:

• Contracts. Managing the intricacies of IT procurement.
• Performance. Eliminating disruptions in customer service and internal operations, while ensuring the highest level of quality.
• Relationships. Assessing the value of the entire partnership.
• Risk. Evaluating and mitigating risk of potential impact.

According to a 2016 study by the CIO Executive Council, 71% of IT leaders say they spend up to half of their total budget on external IT/service providers. This landscape is transforming the function of corporate IT to one that is heavily focused on vendor management and requires a deep understanding of contracts, technology, and finance.

 

The vendor management process typically includes six key steps:

1. Develop a vendor management strategy.

Begin with a plan that pairs well with your organization’s needs to save you time, energy, and frustration in the long-run. Determine your end goal and work backwards to identify budget, user requirements, and other considerations before the outset.

2. Identify your selection criteria.

As with any large purchase, identify what must-haves you’re unwilling to compromise on, a timeline for making your selections, and how you and your vendors will work together long-term. Not only does identifying your criteria up front reduce bias, but it also ensures you seek out vendors that pair well with your company’s values and organizational strategy (i.e., speed, security) before you’re forced into a quick decision.

3. Write a bid document.

Formalize and document the process with a written RFQ, RFI, or RFP to properly summarize your company’s needs, ask the right questions of potential vendor candidates, and get the most accurate information back to help you make your decision.

4. Evaluate and select suppliers.

Look back at your original vendor management strategy to help you make the best, most unbiased decision that accounts for all your selection criteria instead of just one (i.e., cost). Don’t forget to consider potential legal issues in new countries to ensure compliance before you make your decision.

5. Negotiate the contract.

After you’ve selected a vendor that meets your needs, to pursue, work with them to negotiate the terms of your agreement. While a potentially lengthy process, getting the contract right early on will ensure long-term success throughout your vendor partnership.  

6. Manage the relationship.

Despite the already lengthy process, continuing to engage with your vendors is crucial to getting the most out of your relationship. It’s important to treat your vendors more like partners than third parties, communicating regularly, involving them in strategy, and reciprocating the attention to better understand their business as well. Doing so will ensure long-term benefits like trust and familiarity instead of regularly switching vendors for short-term gains that will end up costing you more money in the long run.

 

The Challenges of IT Vendor Management

 

Despite high potential gains, the failure rate of outsourcing remains high. This is mainly due to the ever-evolving nature of IT needs and requirements throughout the business, as well as lack of complete buy-in on the part of either the client or the vendor. Yet, sourcing and vendor management (SVM) leaders still face more challenges in managing vendor relationships across the enterprise:

• Evolving business and IT requirements. As IT becomes more focused on aligning with strategic initiatives across the business, so too are the company’s technology needs rapidly changing. At the same time, IT must balance evolving business requirements with meeting the latest security standards. With so much red tape to cut through, focusing on innovation and collaborating with vendors becomes less of a priority.
• Contract processes. Even SVMs with extensive IT contract knowledge (which is rare) can face procurement challenges when the process is managed by a completely different team (usually in the finance department). This division may lead to discrepancies and inefficiencies in the drawing up of contracts, causing the SVMs heartburn down the road. When combined with pre-existing contracts that don’t meet the fast-paced nature of IT, companies may end up stuck in long-term agreements that force them to use outdated technologies.
• Implementation. According to Gartner, “through 2019, every dollar invested in innovation across the business will require an additional $7 in IT execution, which SVM leaders will have to manage.”* Implementation becomes especially difficult when you must manage contract terms and expiration dates along with the ever-evolving needs of the business in a fast-paced IT environment.

 

In Order to Best Manage Vendors, Involve Them

 

As the number of vendors your enterprise requires increases, it becomes exponentially difficult to manage the procurement requirements, contract details, and owners throughout the company. And as you expand your network globally, you’ll begin to encounter problems you never knew existed. Vendor management allows CIOs and IT leaders to streamline the vendor procurement and relationship upkeep process with clear, consistent policies. Plus, the ability to view your firm’s vendor ecosystem holistically allows for consolidated processes and lower costs, allowing more time for innovation and collaboration. In an era when 57% of consumers say it’s very important for companies they purchase from to be innovative, making time for IT innovation is crucial. The key to winning at vendor management? Get help. Diversify your approach to invite as much collaboration and input as possible to keep partner innovation alive and relationships healthy.

To learn how the role of IT is changing in a customer-driven era, get exclusive research in the “State of IT” report.

* Gartner, Smarter with Gartner, 4 Challenges Facing IT Sourcing and Vendor Management Leaders, April 2017, https://www.gartner.com/smarterwithgartner/4-challenges-facing-it-sourcing-and-vendor-management-leaders/