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					Practical IT Research that Drives Measurable Results

   Maximize Vendor Performance
                                Maximizing Vendor Performance
Organizations are increasingly dependent on external vendors and suppliers to enable the effective
delivery of IT services. However, most companies don’t manage vendor performance, resulting in
service degradation over time. The relationship between your organization and its IT vendors plays
a key role in ensuring overall enterprise success. Increasing the level of performance from your
suppliers through effective vendor management extends your capabilities and has a positive impact
on your organization’s bottom line.
• This solution set provides practical guidance to mid and large-sized organizations for managing the portfolio of
  vendors to achieve maximum performance from suppliers of products, projects, services, and support.

• IT leaders and managers in small organizations who are responsible for dealing directly with vendors will learn
  the nuances of managing vendor relationships and how to motivate vendors to higher levels of performance.

• The advice in this solution set will enable you to manage your vendor portfolio and maximize
  vendor performance through:

           Establishing                          Managing the                     Motivating for Better
       Performance Metrics                       Relationship                        Performance

 You will take away:
  Recommended metrics for measuring vendor performance.
  Lessons learned from actual case studies supplied by your peers (names withheld to protect relationships).
  Tactics for cultivating the vendor relationship and motivating the vendor to provide exceptional service.
  Practical survey and dashboard tools for assessing the level of delivered services and targeting problem
  Advice and job descriptions for staffing a Vendor Management Office.
     Info-Tech Research Group
                                         Executive Summary
Vendor Management      1      Organizations today rely heavily on IT services delivered by external suppliers. Without
Principles                    effective performance measurement, relationship management, and motivation, vendor
                              performance will degrade, resulting in a negative impact on you and your customers.
                              Active management increases vendor level of performance, lowers costs, improves service,
                              and delivers higher customer satisfaction.

Performance                   Vendor performance metrics provide a common understanding between you and the
                       2      vendor delivering the products/services. Measuring progress against metrics allows you to
                              set targets for higher performance or address a vendor’s substandard performance before
                              it becomes a larger problem.

                              Your organization’s size relative to your vendor’s and the role of your assigned client-facing
Managing               3      representative dictate how you manage the relationship. Cultivate vendor management
Relationships                 relationships to leverage negotiations and nurture the client-facing worker who will go
                              above and beyond for you.

Performance            4      Without sufficient motivation, vendors will generally only meet the agreed upon
Motivators                    expectations. Leverage the drivers of vendor profitability, reputation, and partnership to
                              motivate a vendor to higher performance.

                              The time, effort, and money spent on managing the vendor relationships as a portfolio will
Vendor Portfolio        5     result in a consolidated view of performance highlights and issues, higher customer
Management                    satisfaction, lower costs, higher quality, and superior vendor service.

                               Establish metrics to measure vendor performance.
                               Cultivate vendor relationships.
Summary                        Leverage motivators to incite the vendor to exceptional service.
Recommendations         6      Use survey and dashboard tools to assess vendor performance and fix problem areas.
                               Manage vendors as a portfolio to achieve benefits from economies of scale,    3
   Info-Tech Research Group     consolidation, and focus.
Management         1       Next Section in Brief
                       •   Managing vendors to
                           motivate higher
Performance                performance is crucial for
Metrics                    companies that rely on
                           delivered IT services.
                       •   Cost savings come from
                           consolidating experience
Managing                   from multiple vendors.
Relationships          •   Successful vendor
                           management rests on
                           three principles:
Performance                  1. Metrics to set
Motivators                       performance
                             2. Strong relationships
Vendor Portfolio                 to leverage vendor
Management                       goodwill.
                             3. Motivators to incite
                                 the vendor to higher
Summary                          performance.
                      Two things you need to know about
                       maximizing vendor performance
    Why do I need to worry about it?
    • Unless actively managed, many vendors allow performance levels to drop, hoping that
      reduced service levels won’t be noticed. Poor service to your organization means
      poor service to your customers and impacts the bottom line through
      downtime, excessive project costs, high defect rates, and late deliveries.
    • Other vendors, while maintaining service levels, will go above and beyond if given the
      right motivation. Better service to your organization means better service to
      your customers through quick problem resolution, higher quality, value
      add features, and faster delivery.

    How do I do it?
    • Vendor performance management is the process of measuring, communicating,
      and improving the services your vendors provide.
        - Work with the vendor to set performance targets.
        - Measure performance, provide feedback, and escalate issues.
        - Cultivate personal relationships with vendor management (your escalation
        - Make frontline workers feel like part of your organization (they will reward you
           with exceptional service).
        - Meet regularly with vendors and find out what motivates them; use those
           motivators strategically to improve performance.
        - Read on……
Info-Tech Research Group                                                                       5
Make improving vendor performance a strategic goal if you rely
            on vendors to provide key IT services
                                                                                  Without active
                                                                               management, vendor
                                                                             service levels will fall and
                                                                                your customers will
  Set performance targets,
    provide feedback on
  performance, and act on
  what motivates vendors.

                                                                       Adopt vendor
                               Maximize the                            performance
                             quality of vendor                         management
                             services through                       processes and tools
                               measurement,                         to understand and
                               relationships,                           improve the
                             and motivators to                      performance of the
                                  improve                            vendor extended
                             performance and                             enterprise

                                               Info-Tech’s tools and
                                              advice will help you get
                                             better service and higher
                                              performance from your
 Info-Tech Research Group                                                                                   6
Not all improvements are measurable in dollars; offset vendor
 performance management costs through qualitative benefits
                Benefits                                         Costs
Provides a catalog of known and approved
                                              Recruiting, training, and salary for dedicated
vendors with a history of delivering good
                                                   vendor management resource(s).
Streamlines the vendor selection process to
ensure that IT spending is appropriate and    Analyzing vendor performance metrics and
              not duplicated.                      taking actions for correction or
   Eliminates the ability of suppliers to                  1 hour per week
 influence individual pockets of IT users.      Cultivating vendor relationships. Regular
                                              status meetings & vendor satisfaction survey
    Establishes consistent metrics and                          analysis.
expectations for all vendors and encourages                 3 hours per month
         exceptional performance.
                                                Licensing costs for vendor management
Improves enforcement of controls and risk     software (for organizations managing larger
management policy to ensure compliance &                   vendor portfolios).
        reduce reputational risk.              Open Source: $0; Off-the-Shelf: $5000+
    Provides a holistic view of vendor
                                               Time spent providing feedback on vendor
 experience, enabling real-time delivery of
                                                  performance (meetings/surveys).
   information to senior management.
                                                         5 hours per quarter

  Info-Tech Research Group                                                              7
 The key to effective vendor performance management is a
 process that leverages metrics, relationships & motivators

                                               Select the
                                              vendor best
                                               suited to
                                              deliver the
                              Renew/                           Work with the
                            renegotiate/                       vendor to set
                           terminate the                       performance
                            relationship                         metrics

                           Measure           Performance           Measure
                           Act to leverage
                           motivators for
                                                                data with the
                                                                 vendor to
                                               Determine       address issues
                                             motivators that
                                                drive the
                                               vendor to
Info-Tech Research Group                                                        8
Overcome the challenges of vendor performance management
through active dialogue, expectation setting, and use of tools
                                                > Cultivating vendor relationships and identifying motivators
                                                  to maintain or improve vendor performance levels.
                                                > Managing multiple vendor contracts and communications
                                                > Reconciling disparate internal and vendor stakeholders and
                                                  objectives to achieve maximum value.
                                                > Consolidating and analyzing sometimes conflicting data
                 CHALLENGES                       between internal and vendor reported performance metrics.
                                                > Managing the vendor’s expertise and retaining control of the
                                                  project or strategic capability.

 > Conduct regular open discussions with vendors to discuss
  what’s working and what isn’t. Conduct satisfaction surveys
  with them to identify motivators for better performance.
 > Manage small vendor portfolios with spreadsheets. For larger
  portfolios, purchase commercial vendor management                           TACTICS
 > Ensure requirements of all stakeholders are considered and
  the right vendor is engaged by centralizing vendor
  management to one person or team.
 > Determine the metrics that matter to your organization and
  ensure the vendor is accurately reporting the same metrics.
 > Take ownership of the contract; ensure that the vendor is
  respecting the contract terms, deadlines, and commitments.
 Info-Tech Research Group                                                                                        9
Measure successful vendor performance based on three pillars:
             Metrics, Relationships & Motivators
                            • To manage performance, define your expectations and how you will
                              measure vendor performance precisely.
                            • Use objective, numerical indicators to form the basis of your
                              performance measurement and communicate these to the vendor.
     Metrics                • Add in qualitative metrics when you cannot quantify.
                            • Measure performance across four categories: Cost, Time, Quality,
                              and Opinion.
                            • Your relationship with the vendor governs your ability to use
                              metrics and financial motivators.
                            • Incorporate the human factor into your vendor strategy by
   Relationship               understanding the nature of your vendor relationship.
   Management               • The nature of the relationship will depend on the relative sizes of
                              the vendor and customer organizations.
                            • Avoid creating resentment by following the norms that govern your
                              particular situation.
                            • Drive vendor behavior using an array of incentives and penalties:
                              -Offers of more business
   Performance                -Threats to discontinue business
    Motivators                -Offer of a positive referral or public recognition
                            • Ultimately, all incentives advance the vendor’s desire for more
                              business and greater profit, in different ways.

 Info-Tech Research Group                                                                         10
Management                Next Section in Brief

                       Pillar One: Metrics
Performance            • Performance metrics
Metrics            2       provide the intelligence
                           you need to strategically
                           manage the vendor
Managing                   engagement.
Relationships          • Select metrics based on
                           the services or products
                           being provided.
Performance            • Choose metrics that are
                           meaningful to you and that
                           both you and the vendor
                           can independently
Vendor Portfolio
                       • Use metrics to maintain a
Management                 sense of the vendor’s
                           profitability in the
 Focus on price, timeliness & defects for product metrics; for
 service metrics, focus on availability, response & satisfaction
                  Cost Metrics               Time Metrics              Quality Metrics            Opinion Metrics
                                                                     • DOA (% of units
                                          • Average delivery
                                                                       returned or replaced
              • Price stability (%          turnaround (in days)                                 • End-user satisfaction
 Product        change year-over-year)    • Average backorder time
                                                                       within 30 days)
                                                                                                   (% satisfied)
                                                                     • Defect rate
                                            (in days)
                                                                     • Return rate
              • Expenses % over-          • Milestones (% met)
                budget                    • Late Delivery (%         • QA/testing (%             • Participant experience
 Project      • Variable resource costs     elapsed time over-run)     functions working)          (% satisfied)
                % over-budget
              • Subscriptions ($) per
                                                                     • Average response time
                active user               • Availability (%)                                     • User Satisfaction (%
                                                                     • Support Incidents per
 Service      • Ancillary fees ($) per      excluding scheduled
                                                                       active user
                active user                 outages
              • Cost-in-use ($)
                                                                     • ATA (Average time to
                                                                       answer) (days)
                                          • Avg. resolution time
Support       • Cost per incident ($)
                                                                     • Abandonment rate (%)      • Overall resolution (%)
                                                                     • 1st call resolution (%)
                                                                     • Unresolved issues (%)

     Info-Tech Insight:
It’s best to focus on a small number of metrics for each vendor, making it easier to negotiate SLAs, track
results, and manage outcomes. Each type of vendor has an obvious choice, such as availability % for
Software- as-a-Service (SaaS).
  Info-Tech Research Group                                                                                           12
              Help the vendor help you; insist on metrics that
                 reflect your business model and strategy
Measure what matters                                                        Case Study
•     Metrics should reflect the requirements of your   The Situation
      business model and your current strategy.
                                                        A SaaS vendor provides 24x7 end-user Help Desk
•     Relevant metrics allow the vendor to determine    support. The customer (a long-term care facility)
      necessary adjustments to its own processes and    and vendor established SLA metrics up-front
      practices.                                        involving types of incidents to be covered at Levels
•     The most effective Service Level Agreements       1, 2, and 3. The vendor routinely escalated Level 1
      (SLAs) are created with vendor metrics that       type issues to Level 2, making the customer less
      evolve from Strategy, to Critical Success         efficient. Financial penalties in the SLA caused the
      Factors, to Key Performance Indicators.           vendor’s management team to get involved because
                                                        they had to rebate 15% of the customer’s fees.
                                                        The Problem
          Critical Success Factors
                                                        It was determined that the Level 1 Help Desk team
             Key Performance Indicators                 was undertrained.
               Vendor Metrics                           The Solution

                  Service Level Agreements              The SLA had clear metrics that defined a Level 1
                                                        Help Desk call, which drove escalation and
                                                        financial penalties. The vendor improved its Level 1
                                                        training and escalation metrics return to normal.
       Info-Tech Insight:
Good metrics will alert the vendor to areas where its level of service impacts your profitability. Spend
about 1 hour per week analyzing vendor metrics to find areas where performance should be improved.
    Info-Tech Research Group                                                                           13
       Understand what drives the vendor’s profitability &
                  leverage it in negotiations
You may never know how much the vendor                               Case Study
 makes on your business, but...
                                                  The Situation
Ask the vendor for its assumption of the
                                                  A software vendor discounted its product to get
 revenue and expense you will drive.
                                                  an order, assuming that they would profit in
Where possible, establish metrics related to     years 2 and 3 through additional sales to other
 those assumptions.                               departments. The customer, a large government
                                                  agency, negotiated hard for the discount, but
                                                  they also understood the vendor’s motivation
             A software example:                  (i.e. more sales in future years).

Vendor assumptions                                The Problem
                           Potential metrics
about your company
                                                  The vendor was aggressively pushing its
Support costs will not     • Help Desk calls      software into other departments at a higher
exceed 15% of revenue.       per user             price than the original sale, causing friction in
                                                  the purchasing department.
Your organization will                            The Solution
continue to pay a 22%      • User satisfaction
maintenance fee for at       with new features    The customer measured and tracked % of
least five years.                                 licenses used within each month. This helped to
                                                  determine that the software was adding value.
New sales will drive a
                           • % of licenses used   They agreed to a higher price for the new sales,
30% annual growth
                             per month            in exchange for a long-term price guarantee.

Info-Tech Research Group                                                                              14
Validate the vendor’s metrics with your own measurements to
         ensure the vendor is reporting true experience
                                                                     Case Study
The vendor’s metrics may not tell the whole
 story.                                           The Situation
Look for ways to improve the meaning of          A vendor offers a SaaS solution with a 100% up-
 vendor metrics with your own.                    time guarantee (excluding scheduled
                                                  maintenance). Rebates, available for any
Ensure SLAs reflect metrics that you can
                                                  unscheduled outage, had to be claimed by the
                                                  The Problem
Activity                    Rough time estimate
                            (per vendor)          The customer, a telecommunications company,
Establishing metrics        One time:             received anecdotal reports of the service being
                            20 hrs/metric * 5     unavailable when the vendor did not report it.
                            metrics = 100 hrs     The vendor was tracking server availability, but
                                                  not reporting outages to its own network.
Monitoring metrics          Monthly:
                            10 hrs/month          The Solution

                                                  The customer employed a third-party
        Info-Tech Insight:                        monitoring service to gather its own availability
100% up-time guarantees are like mail-in          metrics and send real-time downtime alerts to
rebates. In many cases, the vendor will make      itself and the vendor. For two months, the
it difficult to report outages and claim the      customer received substantial rebates due to
rebate, hoping to achieve a low claim rate.       outages. In the third month, the vendor
                                                  improved its availability to avoid the penalties.

 Info-Tech Research Group                                                                         15
                     Employ metrics best practices
             to level the playing field for all your vendors
   Manage and measure your vendors as a portfolio, with a consistent practice.

                                          Identify the sponsor

   Based on the expected results and the customer of the metric, identify a sponsor for each metric.

                              Ensure your metrics are reliable and trusted

                Current, understandable metrics need to be readily available at all times.

                                  Conduct reviews on a monthly basis

    The review itself is key, whether you’re thanking the vendor or asking for improvements ASAP.

                                  Escalate if the results don’t improve
       When metrics indicate substandard performance, demand action plans for improvement.

     Info-Tech Insight:
A consistent vendor management practice will force individual vendors to accept careful management
by metrics.

Info-Tech Research Group                                                                               16
  Escalate performance problems if the vendor fails to take
   specific corrective steps, or if the steps aren’t working
 Agree on performance metrics and
  escalation points at the outset.                           Escalation involves:
 When the vendor fails to meet
                                                              Bringing the issue to a higher-
  performance objectives for a particular
  metric, ask your contact to explain the                       level vendor decision-maker.
  specific steps that will rectify the issue.                 Invoking your senior
                                                                management’s relationship with
Escalate if:                                                    vendor management.
The vendor contact fails to provide steps with
                                                              Making explicit the array of
a clear rationale for why they will work.                       penalties and rewards at your
                                                                disposal to motivate timely
The vendor fails to take the steps that your
contact identified.
                                                              See the Performance Motivators
The vendor takes the steps but they fail to
produce the intended result, and the contact                    section for an explanation of
cannot explain why other measures might                         which incentives are most
work better.                                                    effective and how to use them.

     Info-Tech Insight:
Review metrics frequently in order to identify performance issues early. Escalate critical issues
within your organization as well as the vendor’s to ensure timely resolution.

Info-Tech Research Group                                                                            17
        Use the vendor performance management dashboard
                   to pinpoint problem vendors
•     Use Info-Tech’s Vendor Performance
      Management Dashboard to track the
      performance of up to 20 vendors. The
      tool will recommend metrics based on
      the vendor type. It also displays a heat
      map showing problem vendors in red,
      allowing you to focus your efforts.
    How to use it

    Enter the vendor name and type for each of
    up to 20 vendors.
    Select the desired metrics and add up to five
    additional metrics of your own.
    Every month, enter the current metric
    performance for each vendor.
    Portfolio view showing performance by
    vendor and metric type.
    Metric heat map showing problem spots for
    immediate investigation.
    Vendor detailed view showing performance
    over the last 12 months.
Info-Tech Research Group                                  18
Management                Next Section in Brief

                       Pillar Two: Relationships
Performance            • Establishing a strong,
Metrics                    positive relationship has
                           two important benefits:
                             1. Improves quality
Managing                     2. Reduces price
Relationships      3   • Leverage the relationship
                           based on the size of the
                           vendor relative to your
Performance                organization.
Motivators             • Separate your relationship
                           with vendor management
                           from your relationship with
Vendor Portfolio           vendor frontline staff.
Management             • Use incentives to directly
                           motivate desired behavior.
                       • Build a personal
                           relationship to add
Summary                    stability while improving
Recommendations            quality and reducing price.
Encourage vendor involvement in setting goals and targets; with
 something to lose, they will focus on quality and performance

                                                                         Vendors with strong relationships are less
   •    Foster a strong, positive vendor                                    likely to sacrifice quality when the
        relationship to increase the             Likely to                         customer isn’t looking
        vendor’s commitment to quality           sacrifice

        of service, without the need to
        increase costs or negotiate.

                                                     Sacrifice Quality
   •    A strong, positive relationship
        will establish a norm of good
        behavior that a resentful vendor
        will not feel.
   •    Follow the advice on slides 24-
        28 to establish a strong, positive       Unlikely
        relationship with your vendor.              to      Weak,                    Relationship with Customer   Strong,
                                                 sacrifice negative                                               positive
                                                                                               N = 38

        Info-Tech Insight:
  Establish a partnership with your vendors.
  Being partners in success will make a vendor
                                                 “   … ultimately it revolves around
                                                     partnership and trust, as no contract or
                                                     SLA will protect you if the vendor is not
  more committed to superior quality and
  service.                                           aligned to your goals.
                                                     -IT Customer                               ”
  Info-Tech Research Group                                                                                         20
         Take advantage of a strong vendor relationship to apply
            downward pressure on price, but negotiate fairly

Maintaining a strong vendor                                                           Customers know that vendors want
relationship does not mean giving up                                                  stable relationships: they lower the
on price negotiations. Both vendors                                                   vendor’s demand risk. This benefit to
and customers report that customers                                                   the vendor gives the customer
negotiate harder on price in stronger                                                 additional leverage, allowing the
vendor relationships.                                                                 customer to force a price decrease.

                                Customers negotiate harder on price in
                                 stronger, more positive relationships            Info-Tech Insight:
negotiation                                                                    Mutual respect opens the doors to tough but
                                                                               fair negotiations. Respect the vendor’s bottom
                                                                               line, and he’ll respect yours.
        Negotiate Lower Price

                                                                               Customers report (N=122)

                                                                               Vendors report (N=39)

    Weak                                                                            Hard negotiation is defined as agreement with: “This
  negotiation                                                                            customer will always try to negotiate a lower price.”
                                         Relationship with Vendor   Strong,         Strong, positive relationship is defined as agreement with: “I
          Weak,                                                     positive
         negative                                                                        have a strong, positive relationship with this customer.”

   Info-Tech Research Group                                                                                                                21
Alter your strategy based on your size relative to the vendor’s;
focus on reputation for large vendors and price for small ones

                          Small                                             Large
                        customer                                          customer

            A small vendor will expect a small                  Many small vendors consider large
            customer to communicate issues and           customers important to their business. The
            express frustrations. The customer should        customer, possessing leverage, should
 Small      have open communication with the vendor                offer public recognition for over-
vendor      and expect prompt service. Communicate            performance. Communicate issues in
            issues in advance to prevent nasty            advance and give the small vendor time to
            surprises for the vendor.                                              correct problems.

                                             Advice for the

            A large vendor will have an established           The customer should offer a strategic
            process for serving large numbers of small         partnership to a large vendor. Pay a
            customers. Customers should not pursue            premium price to receive exceptional
 Large      service exceptions. However, the customer        service from the vendor. Pursue some
vendor      can expect high quality. Promptly            degree of customization, but only push the
            discontinue service if the vendor does not    vendor to perform in areas where it has a
            deliver.                                                               latent capability.

 Info-Tech Research Group                                                                               22
              Your influence with the vendor is a function
                   of your importance to the vendor
  Relative size is a major factor in determining                      Also important is the
   importance of the customer to the vendor.                         brand recognition and
                                                                        reputation of the
 See the next two slides for how this should play                           customer.
      in your vendor management strategy.

                                                                   For example, hot start-ups
                                                                    and political parties can
                                                                        have importance
                                                                    disproportionate to their
                              High importance                                 size.

  Low importance
                                                                       Vendors use these
                                                                     accounts to power their
                                                                          own brands.

     Info-Tech Insight:
For a vendor relationship to work, both parties have to understand the significance of their
behavior to the other side. The more influence the customer has over the vendor, the more they need
to give the vendor a chance to succeed. Win-win is essential to a good personal relationship.

Info-Tech Research Group                                                                              23
Communicate issues up-front and early to give a small vendor
     the opportunity to resolve performance issues
      High-importance accounts                                    Case Study
                                                 The Situation
      The vendor will expect a greater level
      of communication and openness from         An important customer has a strong
      the customer in exchange for an            relationship with a small networking supply
      enhanced service level or reduced          vendor. The customer’s importance stems
      pricing.                                   from its reputational power, which is
                                                 disproportionate to its size. The vendor
      Give the vendor an opportunity to          provides discounts and exceptional service.
      improve any deficiencies that you
      perceive in the service.                   The Problem
                                                 The vendor makes a significant error in its
                                                 bid, leading to a cost overage. Being small,
                                                 the vendor cannot afford to absorb the
                                                 excess cost.
                                                 The Solution
       Large customers dealing with a small      Understanding the vendor’s situation, the
       vendor can accomplish this by             customer allows the cost overage. Over time,
       instituting a formal rating system and    the vendor compensates the customer with
       providing the criteria to the vendor      improved performance, higher
       up-front.                                 customization, and better prices.

“   Those that aren’t successful … they’re being worked with very closely with a six month
    period for them to close the gap.
    -Head of Supply Management Program at a large purchaser
 Info-Tech Research Group
                                                              ”                                 24
Do not expect differentiated services as the small customer of a
     large vendor; accept standard services or walk away
        Low-importance accounts                                        Case Study
                                                      The Situation
        Large vendors will only rarely
        consider the small customer’s                 A customer in the IT services industry has
        individual needs: don’t take it               strong personal relationships with a variety
        personally.                                   of vendors that he leverages to his advantage
                                                      for a higher tier of service.
        Resentment can lead to irrational
        behavior meant to punish the other            The Problem
        party for a perceived personal slight.        A larger IT equipment vendor considers
                                                      their relationship as business only. One day
                                                      the customer has a need for prompt service
                                                      that the vendor refuses to accommodate. The
                                                      customer feels the vendor has broken trust
                                                      with him and refuses to do business with the
                                                      vendor representative for two years.
       At the beginning of the relationship,
       sit down and ask the vendor directly:          The Resolution
       “how important are we to you?”                 The vendor offers a special deal as
                                                      reparation for the customer’s
                                                      disappointment. The customer adjusts its
                                                      expectations for the vendor going forward.

“   I won’t necessarily say it was a well thought out vendor strategy but what he basically
    did was refuse to deal with them … for what I would say was at least two years.
    -Systems Administrator at IT service company discussing break in relationship with a large vendor.   ”
    Info-Tech Research Group                                                                             25
 Convert your expectations into explicit agreements with the
          vendor to avoid costly misunderstandings
      Vendor relationships depend on both parties                        Case Study
              conforming to agreements                  The Situation
   Implicit Agreement          Explicit Agreement       A small customer has an on-going supply
                                                        relationship with a large computer
 Risky:                     Safe:                       manufacturer.
 • Expectations are         • Expectations are clear.
                                                        The Problem
 unclear.                   • Desired behaviors are
 • Misunderstandings are    understood.                 The computers have a high failure rate. The
 the norm.                  • Easy to keep.             vendor mistakenly believes that prompt ,
 • Frequently broken.                                   free service on the defective computers will
                                                        keep the customer happy. The customer
                                                        expects the computers to work, without the
                                                        need for service.
            Make implicit agreements explicit           The Resolution
            to avoid misunderstandings that             After investing extensively in this vendor
             can destabilize a relationship.            relationship, the customer prepares to walk
                                                        away. An explicit agreement about the defect
                                                        rate at the outset could have saved both the
   Info-Tech Insight:                                   vendor and customer from investing in a
Document expected performance. Service Level            relationship that failed.
Agreements clearly communicate expectations and
avoid costly performance lapses!

 Info-Tech Research Group                                                                         26
Make the implicit explicit, especially when trust and respect
        from a longstanding relationship is missing
                                               Case Study
The Situation
• A small independent IT consulting vendor provides IT services for small to large-sized organizations.
• A new mid-sized customer in the publishing industry, with aggressive project timelines, is looking for
  expertise it doesn’t have in-house.
• Goal: the consultant will complete the work and provide knowledge transfer to the project team.
The Problem
• An initial meeting resulted in a general statement of work defining the high level project objectives
  and vendor payment schedule.
• Vendor Performance: no interim deliverables for quality reviews, the final product was late,
  specifications were not met, project meetings were missed, no status reporting was provided, vendor
  was often unavailable.
• Attempts by the client to correct the behaviors resulted in frustration for the project team and
  animosity and resistance from the vendor because the requests were not part of the original
• Financial impact: project timeline doubled, resource costs increased by $25,000 as work was redone
  by in-house staff. Lost opportunity costs were incurred as the product delivery was delayed by 7 weeks.
The Lessons Learned
• While discussed in an introductory meeting, the vendor’s performance expectations should have been
  explicitly documented in the original statement of work, including specifications and deadlines for
  deliverables, quality metrics, project reporting, and where the work was to be completed.
• Without these implicit terms made explicit in a written agreement, the consultant was free to form his
  own interpretation and the project proceeded to go off the rails.
Info-Tech Research Group                                                                               27
Understand the vendor’s profitability model and negotiate fairly
          instead of exploiting perceived loopholes
                                                                   Case Study
     Understand the vendor          The Situation
 Understand how the vendor          • A mid-sized vendor provides a variety of products and services with
 generates revenue and respect        24x7 technical support. Product training and user orientation are
 its business model.                  offered as optional billable services, and are not supported by the
 Don’t force service exceptions       24x7 technical support desk.
 if they aren’t in the vendor’s     • One of its best customers refuses to renew its training and orientation
 service offerings or                 contract because it is “optional,” directing newer users to call the
 competencies.                        technical support operation for training. Afraid to lose the customer,
                                      the technical support desk takes the training calls.
                                    The Problem
                                    • The vendor’s 24x7 technical support is upset because they have no
             Play fair                tools or mandate to take the training calls, the account management
 Do not use loopholes in the          team is upset about losing commissions, and the client is frustrated
 vendor contract to achieve           with inadequate training.
 your aims: this will destabilize   • Financial impact: increased costs for technical support and lost
 the relationship.                    revenue for training and orientation is 2.5 times more than the
 The vendor will almost               training revenues would have been.
 certainly find a way to make       The Resolution
 you regret such behavior.
                                    • The vendor becomes more explicit: training is optional, but free
                                      training is not optional.
                                    • The customer restores its training budget and regains its satisfaction
                                      with the quality of training.
  Info-Tech Research Group                                                                             28
 Earn the loyalty of frontline vendor staff; they’ll go the extra
mile if respected, made comfortable, and treated like your own
    Treat vendor staff like your own employees:                 Vendor workers go beyond contractual
    Value your relationship with them, provide                 obligations more often for customers who
    notice of service issues, and communicate                       provide quality work conditions
    Treating vendor staff well can improve
    performance much more cheaply than
    providing incentives to vendor management.

        Remember: Be gracious to vendor
        frontline workers. Provide
        consideration, respect, and
        comfortable work conditions.

“   Companies spend time trying to manage a
    vendor… when they cannot manage people.
    When [the vendor] didn’t deliver it was
    always a human breakdown … Treat the
    resources that come in the door as human.
    -former IT Director                            ”                                 Info-Tech Insight:
     Don’t forget vendor senior management. Cultivate that relationship to ensure an effective escalation
     path when things go wrong, and maintain cordial relations for negotiation time. Spend about 3
     hours per month meeting with vendors, providing feedback, and building relationships.
     Info-Tech Research Group                                                                           29
Get vendor feedback to find out what matters, the value of the
       relationship & how to incite better performance

• Ask the vendor what is important to them and what will help them do a better job. Is it
  understanding your business better? Having more contact with their clients? Getting regular
  feedback from you?

 The more you can do to meet the vendor’s needs, the better they will be
                          able to meet yours.

• Conduct surveys or have regular feedback meetings with the vendor. Depending on the nature of
  the service provided, this may be weekly, monthly, or quarterly.
• In a meeting, discuss:
      • Performance issues and plans for resolution.
      • Vendor needs and how to meet them.
• In a survey query:
      • What kind of feedback the vendor wants from you.
      • If there are areas of the organization or processes that are posing challenges for them.
      • What would help them service your organization better.

           Create action plans from the vendor feedback to address the
                                  identified needs.

  Info-Tech Research Group                                                                      30
Use vendor satisfaction surveys as a valuable tool to determine
  what will motivate vendors to maximize their performance
 •   Use Info-Tech’s Vendor Satisfaction
     Survey to get feedback from your
     vendors about the health of the
     relationship. Build action plans for areas
     where they identify room for
     improvement and to employ potential
     vendor performance motivators.

 How to use it

 Send the survey to all IT vendors.

 Analyze the results for areas to improve the
 relationship or where vendor performance
 can be further motivated.
 Develop and implement action plans.

 Improved vendor relationships.

 Improved vendor performance.

 Improved internal vendor management skills.

 Info-Tech Research Group                                  31
Management                Next Section in Brief

                       Pillar Three: Motivators
Performance            • Within the context of a
Metrics                    relationship, there are a
                           variety of motivators that
                           drive vendor performance.
Managing               • The promise of more
Relationships              business is more effective
                           than direct financial
                           incentives tied to
Performance                performance.
Motivators         4   • Use incentives and
                           penalties that are
                           meaningful to the
Vendor Portfolio           particular vendor.
Management             • Don’t pressure the vendor
                           to promise customized
                           services that it cannot
                           reliably provide.
Summary                • Continually compare your
Recommendations            satisfaction to vendor
Long-term incentives that focus on the relationship have more
impact than short-term financial incentives tied to one project
  Most effective
  Over 90% of vendors mention that the
  prospect of more business is an effective
  motivator to improve their performance.
  Continuing or expanding the business
  relationship has a longer term positive
  impact on the vendor’s bottom line than a
  one time financial payout.

  Least effective
  Substantially less effective are direct
  financial incentives or penalties that
  depend on the vendor’s performance.
  Financial incentives tied to performance on a
  particular project myopically ignore a
  vendor’s desire to foster a relationship with
  the customer, weakening the incentive while
  promoting shortsighted behavior.
                                                                                  Info-Tech Insight:
 Take the long view. Vendors are motivated by impacts to their overall profitability, not one time “bonus”
 payouts. Commit to continuing or expanding the contractual relationship and the vendor will be happy
 to improve performance.
 Info-Tech Research Group                                                                            33
 Identify key decision-makers for your account & understand
   what matters to them to influence the results you need
 Role            Goals            Motivators                               Case Study
                                                         The Situation
           • Increase
                               • Bottom line
             company profits                             An IT consulting provider has a gain-sharing
           • Improve                                     agreement with its customers. It provides the
                               • Strategic
CEO          reputation                                  vendor a portion of the cost savings the vendor
           • Develop                                     creates for the customer.
                               • Referrals/ public
             strategic                                   The Problem
                                                         The gain-sharing agreement creates perverse
                                                         incentives, since it motivates consultants to
                               • Renewals                produce short-term cost savings that damage
           • Earn repeat
                               • No price                the customer in the long-term. This harms the
Sales        business
                                 negotiations            vendor’s reputation in the long run.
Rep        • Earn high
                               • Develop a
             margin on sale                              The Resolution
                                                         While the vendor organization continues to
           • Earn high                                   receive a share of short-term gains,
                               • Fair and                consultants receive compensation based on
                                 respectful              other, internally-generated metrics.
IT Staff     rating
           • Eliminate need
             for customer
                               • Favorable
                                                     “ Find out what matters to me…if there isn’t
                                                     a downstream benefit for me, then why
             calls                                   would I bother?

 Info-Tech Research Group
                                                     -Project Management Consultant
                                                                                         ”            34
    Evaluate the vendor’s latent capabilities and push only for
            concessions that they can actually deliver
Be careful what you ask for, you may not get it!
                                                        Warning signs that you’re pushing
 For high importance customers, the vendor will         the vendor beyond its capability
  provide whatever service exceptions it can.
                                                        The vendor accepts all of your special
 The vendor may be reluctant to inform the
                                                         requests, without question.
  customer that it cannot fulfill a special request,
  since inability to fulfill special requests may       The vendor does not provide specifics
  undermine the baseline service contract.              regarding how it will accomplish your
 This can reduce quality as the vendor stretches to
  provide services for which it does not have the       The vendor replies quickly to complicated
  capability.                                           requests that should require a lengthy
                                                        feasibility study.
 When requesting service exceptions, perform your
  own due diligence into the vendor’s capabilities.     The vendor cannot provide examples of
                                                        similar work it has done before.

                                                             Info-Tech Insight:
Request referrals and examples; ask                     The more important the account is to the
                                                        vendor, the likelier you are to win
specific questions about how the vendor                 concessions and the more you need to
plans to fulfill service exceptions.                    watch out for vendor overpromising.

   Info-Tech Research Group                                                                        35
Use positive impact on the vendor’s ongoing profitability as a
           prime motivator for better performance
    Metrics and relationships indicate if the                                                      Vendor Renegotiation Drivers
    vendor is happy with its profitability from
    your business.                                                                        Vendor not                                       Vendor
                                                                                          profiting? Expect                         making more
    Expect your vendor to cut its own costs or negotiate                                  it to reduce its                        than expected?
    for higher fees if it expected to profit more from                                    own costs or                                Negotiate a
    your contract. Ask yourself:                                                          increase fees.                             lower price,
     Do we make frivolous Help Desk calls?                                                                                         better terms,
     Do we return products that are not really broken?                                                                            or higher level

                                                           Value Added for Customer
     Do we pay our invoices late?                                                                                                     of service.
     Did we spend what the vendor expected this

    If the vendor is making more than it expected, take
    a stronger negotiating position. Ask yourself:
     Did we buy more than what was forecasted?
     Are we easy to service?                                                         Not getting value? Find value or terminate the relationship.
     Did we bring the vendor more business via                                       a.    Find a better solution
      referrals?                                                                      b.    Train the users
                                                                                      c.    Improve processes
        If you’re not getting the anticipated                                         d.    Invest in infrastructure
    value from the vendor’s products or
    services, ensure the vendor is aware.
    Interventions like training and system
    upgrades may help, otherwise, consider                                                               Vendor Profitability
     We used to squeeze our vendors as hard as possible. Now, we understand that they add more
“    value when we let them make some money. We aim for moderate profitability.
      -CIO, Health Care                                                                                                             ”
    Info-Tech Research Group                                                                                                                  36
Use business incentives to motivate vendors to a passing grade;
         get to A+ by improving the vendor’s practices

               F                                      B                          A+

                     Commitment to renew                 Improve vendor profitability
                     Threat to discontinue service       Customer sponsored training
                     Public recognition                  Information sharing
                                                          Strategic partnerships

 “   … we partner with the vendor, giving them a predictable revenue stream for the
     [improved] services that they provide us.
     -IT Customer                                     ”
 Info-Tech Research Group                                                                 37
   Invest in developing the vendor’s capabilities to grow its
                performance from good to great
     Measure your willingness to invest in vendor development based
     on these considerations:

                                         The importance of the                  The stability of the
Your size and budget
                                           vendor contract                        relationship
How much can you afford               How much will improved                Will the effects last long
to invest in developing               performance really                    enough to achieve return
vendor capabilities?                  matter?                               on the investment?

                                                                 Activity         Rough time estimate
          Info-Tech Insight:                                                      (per vendor)
Escalation of issues and use of incentives will encourage        Meeting with     Monthly:
higher levels of effort, but will not improve the vendor’s       vendor reps      3 hours per month
capabilities. Invest in vendor development and improve
their capabilities to enable them to provide better              Webinars         Quarterly:
service to you. Spend about five hours per quarter                                40+ hours per quarter
developing plans to motivate vendors to better
                                                                 Onsite           Monthly:
                                                                 consulting       100+ hours per
Info-Tech Research Group                                                                                 38
 Select the vendor development method based on your end goal
               & your size relative to the vendor’s

                   Vendor rep                                               Onsite
  Program                                        Webinars
                    meetings                                              consulting
                                                    Invite vendors to
                            Meet with the                                   Visit vendor site to
   What it                                            participate in
                         account manager to                                 evaluate potential
                                                    learning sessions
   Involves              discuss performance                                      areas of
                                                     discussing best
                         and raise any issues.                                improvement.

                             Evaluate best         Marginally improve        Understand root
                            practices. Call        vendor capabilities.      causes of vendor
    Benefit:             attention to yourself                                 limitations.
                                                    Enable vendors to
Allows you to…             as a customer in       network and compare       Markedly improve
                         danger of defecting.        best practices.       vendor performance.

                             addressing             Small customers          Large customers
                         performance issues         seeking to build        wanting specialized
  Scenario               with vendors of the       relationships with       services from small
                         same approximate          multiple vendors.              vendors.

    Info-Tech Research Group                                                              39
    Identifying and resolving vendor performance issues is key to
           motivating continued or increased performance

•     Use Info-Tech’s Vendor Issue Tracking
      Tool to record, assign, escalate, track,
      and resolve vendor performance issues.

     How to use it

     Identify escalation points for various vendor
     Record performance issues, assigning
     accountability and documenting details of the
     resolution process.
     Track all issues to resolution, escalating
     where resolution is inadequate or prolonged.
     Improved vendor accountability.

     Motivation for improved vendor
     Improved customer awareness of issues.

    Info-Tech Research Group                                  40
                           Next Section in Brief
                       •   When selecting a vendor,
Performance                consider vendor size
                           relative to your
                           organization. Costs and
                           benefits vary depending on
                           these factors.
Managing               •   In choosing a vendor, look
Relationships              for exceptional service,
                           not service exceptions.
                       •   Know when to end the
Performance                vendor engagement.
Motivators             •   Establish a vendor
                           management office to
                           provide a consolidated
Vendor Portfolio           view and streamline the
Management         5       management of vendor
                       •   Use vendor management
                           tools effectively for better
Summary                    reporting and management
Recommendations            of vendor performance.
  Assess vendor suitability based on the nature of the desired
      relationship, and your size relative to the vendor’s
                                                                          If you are a…
 The size of the vendor you partner                       Small customer           Large customer
  with will dictate how you manage
  the relationship.                       Considering Choose if you need           Choose if you want
 Small customers who need to                 a…      a personal                    highly customized
  negotiate hard on payment or            Small         relationship or if        services, cost-value,
  services provided should be             vendor        you require                    or a specialized
                                                        customized services.                    ability.
  careful to select vendors of a
  similar size. Smaller vendors are
  more likely to vary from standard
  schedules and services when                                             Customer
  requested.                                                               choices
 Customers requiring mission-
  critical services with stability and
                                                        Choose if you have a         Choose for high-
  support, where cost isn’t an issue,                   strong need for             volume contracts,
  should look for larger vendors          Large         stability and                    high support
  able to provide reliable ongoing        vendor        consistency, for              availability, and
  services.                                             mission-critical                  reliability of
                                                        services.                             services.
                   Info-Tech Insight:
      Bigger isn’t always better. Large corporations often make bad customers and bad vendors.
      Due to their size, incompetence, arrogance, and carelessness can take hold. Watch for these
      traits in your vendor relationships and take action to correct them.
  Info-Tech Research Group                                                                           42
Consider the David and Goliath effect in vendor relationships;
          size matters, so use it to your advantage
      Don’t be a loss leader for a large           Large customers need heavy hitters in
                   vendor                                      their corner
  Large vendors will take on small customers       Large customers with complex IT needs rely
  to generate revenue, however, don’t expect       on the stability, availability, and capacity of
  differentiated service.                          large vendors to keep their business running.
  Small customers have little influence over a     Small vendors, while willing to reduce price
  large vendor and must not look for               and customize services, typically don’t have
  customized service. The exchange for             the infrastructure or resources to provide
  stability and reliability is acceptance of the   long-term stability to large customers. The
  service standards offered by the vendor, or      effect will be felt in a crisis when the small
  seeking out a smaller vendor who will adapt.     vendor can’t step up to the plate.

     Beware of small vendors with large            Small customers should look for agility
                customers                                     in their vendors
  Their instability stems both from their small    Small customers with unique requirements
  customer base and a need to ensure a steady      benefit from arrangements with niche
  income stream.                                   vendors who can adapt to their needs.
  A small vendor may seek out a large              Small vendors who are easily able to re-tool
  customer contract for the high income            their services are the best fit for small
  stream, but this practice limits its customer    customers with varying needs, as their own
  base. If it loses the large customer, its        income stream ebbs and flows. Take
  profitability plummets and it may go out of      advantage of the ability to create unique
  business, putting you at risk as well.           arrangements that suit your business model.
 Info-Tech Research Group                                                                           43
         Look for exceptional service, not service exceptions

        Choose vendors who can provide the
        service your organization wants.                If you want service exceptions
        Do not expect vendors to change their           from your vendor, choose a
        offerings radically to accommodate              vendor that has the desired
        your needs.
                                                        capability in reserve.
        This is especially true of large vendors.
                                                         Investigate company history: have they
                                                          done it before?
                                                         Talk to industry experts: is it
                                                          something that can be done?
       If you are a large customer of a small            Evaluate industry context: do their
       vendor, or considered important for                competitors do it?
       another reason, you can often get
       customization, but usually at the
       expense of reliability.

“   … we’re not into custom development… We’re very much a universal tool, because we’re
    focused on the small business market.
    -Small IT Vendor                                ”
Info-Tech Research Group                                                                        44
       When making vendor selections, team quality &
   past performance are more important than price & SLAs
 Customers choose vendors based
  primarily on expected performance, as
  predicted by the quality of the team and
  the past performance of the vendor.
 These factors are the most important
  when considering a long-term
  relationship with a vendor, since they
  are harder to change.
Checklist of things to look for when choosing a vendor
 Does the relative size of the vendor match the
  level of customization and reliability you need?
 Does the vendor already offer the services you
 Does the vendor have a history of providing solid
  performance, and do you expect to receive a high-
  quality team?

              Info-Tech Insight:
Selecting vendors is an art not a science. The right blend of size, experience, price, and   ( N=123)
performance differs for every organization. The time spent on due diligence will more
than be made up with high levels of service and performance.

Info-Tech Research Group                                                                                45
 End the vendor engagement when you have exhausted all
          options for resolving outstanding issues
            Remain                                                                      Terminate
                                         Do you have the contractual
                                            option to terminate?
                                         Are you satisfied with service,
                                      relative to other available vendors?
                                      Has your contact provided specific
                                              steps to resolve?
                                       Are you an important customer?

                                Yes    Do you believe the vendor even          No
                    Yes                 has the needed capabilities?

                   Can you access senior                         Are you willing to invest in vendor
                      management?                                         development?

Info-Tech Research Group                                                                               46
Look for help from Procurement when IT vendor management
           becomes too big for IT to manage alone
 When overall vendor management is as significant to the organization
                          as it is to IT…
 Leverage the disciplines, tools, and processes of the organization’s Procurement group
  for use in IT.
 Assign staff responsibilities and select tools to support the entire vendor management
  process, not just vendor performance:


                 Sourcing               Contracting

                Info-Tech Insight:
   Leverage their capabilities, but don’t abdicate vendor performance management to Procurement.
   It is important to maintain relationships with vendor key players and let them know you are
   measuring performance directly and not through an intermediary.
 Info-Tech Research Group                                                                          47
   Establish formal vendor management responsibilities & use
specialized tools when your vendor portfolio exceeds 50 vendors
                  Price-based evaluation alone    Supplier evaluation isn't
                   is not good enough, I need     just for procurement, we
                   other metrics to effectively      have other internal
                  manage and improve vendor       functions who need to be
                          performance!                     involved!

                                                    Managing vendor information
                                                    with tools like Excel and Word
       Manually managing a large                         does not address my
       vendor portfolio is too time                  requirements for visibility,
      consuming and cumbersome!                     collaboration, and efficiency!

             I need
         dashboards and
          scorecards to
         know on which
        vendors to focus!

  Info-Tech Research Group                                                           48
     Assign a dedicated Vendor Management Office or Vendor
            Manager to handle a large vendor portfolio
Organizations assign the management of vendors to a dedicated individual or group when:
     • the number of their vendor relationships is high, or
     • the impact of vendor performance is significant to the organization.
Typical responsibilities for a Vendor Manager or Vendor Management Office are:
Manage end-to-end vendor management process           Organize meetings with vendors

Responsible for all processes involving IT vendors,   Organizes meetings between various solution
including sourcing, contracting, and ongoing          partners and internal stakeholders.
vendor management.
Apply best practices                                  Procurement

Reviews best practices for vendor management          Manages the procurement process including
and selects/implements those that should apply to     Requests for Proposal (RFP) process.
the organization.
Score vendor performance                              Record-keeping

Manages vendor scoring and monitoring of              Maintains IT vendor information and contact list.
stakeholder satisfaction.

          Info-Tech Insight:
In most larger organizations, the vendor selection and management process belongs to Procurement,
serving all units including IT. Such groups, unfamiliar with specific IT risks and issues, assign an IT
specialist within Procurement or assign an IT Vendor Manager to support the Procurement group.

  Info-Tech Research Group                                                                                49
   The Contract Manager works with IT managers in small
organizations when IT managers are unused to contract terms

•    Use Info-Tech’s Contract Manager
     job description to support, manage,
     and administer contracts for
     technology spending on services
     and products across the


Oversees the execution of requests for
proposals (RFPs), requests for qualification
(RFQs), and invitations to bid (ITBs). Defines
and facilitates communication between the
enterprise and its providers in order to
deliver products and services according to
plan and within budget.

 Info-Tech Research Group                               50
Hire a Vendor Portfolio Manager when there’s a large number of
               IT vendor relationships to manage

  •    Use Info-Tech’s Vendor Portfolio
       Manager job description to manage
       the IT department’s interactions
       with the portfolio of suppliers of
       services, hardware, and software.


      Provides product and service purchasing
      guidance for the entire IT department.
      Operate at arm’s length to eliminate bias and
      emotional attachment from the purchasing
      decision and ensure that IT purchases
      continue to support the organization’s
      business strategy.
      Maintain a catalog of preferred vendors for IT
      products and services, track vendor
      performance, highlighting areas for
      improvement and ensuring issues are

  Info-Tech Research Group                                51
Use Procurement for vendor management when impact of vendor
      performance is significant to the entire organization

  •   Use Info-Tech’s Procurement
      Manager job description to plan,
      execute, and finalize purchasing
      and procurement strategies across
      the organization, including
      technology spend.


  Acquires resources within budget and
  facilitates communication between the
  enterprise and its providers in order to
  deliver products and services according to
  Defines the objectives of products and
  services in order to oversee quality control
  throughout their lifecycles.

  Info-Tech Research Group                             52
      Use Vendor Performance Management (VPM) tools to
             reduce costs & improve performance
Automated monitoring and analysis of vendor performance and reliability
allows improved operational efficiencies and increased customer satisfaction.

                  Features                                  Benefits

Centralize, automate, and govern key         Consolidate vendor and contract portfolio
vendor processes.                            to focus attention where it is needed the
Proactively manage vendor contracts,         Eliminate late penalties and unnecessary
renewals, agreements, and commitments.       maintenance.

Quickly measure, monitor, and report         Move from reactive to proactive vendor
vendor performance against a large number    management to improve service delivery.
of criteria.                                 Allow monitoring of tens of metrics.
Connect vendors to services, applications,   Monitor and improve vendor performance
projects, and related assets.                to drive down overall IT spend.

Identify critical vendor and contractor      Increase business value and improve
compliance issues that represent business    competitive advantage by building strategic
risk.                                        vendor relationships.
Info-Tech Research Group                                                                 53
 Select VPM tools that are cost effective, easy to use, and
address requirements like scorecards & performance ratings
   Easy to use, minimal training requirement, user-friendly dashboards, easy data entry, user-friendly
   interfaces for search, data entry, KPI and scorecard definition, simple workflow for surveys and
   data collation.

   Configurable to address organization-specific requirements, able to map to these processes and to
   define and change KPIs and add future modifications. Configurable user-specific dashboards and
   access control.

   Addresses business problems in a simple and transparent way. Enables management, monitoring of
   supply chain. Avoid unneeded features that add cost and complexity.

   Integrates with supplier information management and ERP systems for collection and updating
   of supplier data. Look for the capabilities of other information solutions from the same vendor
   for future integration.

   SaaS vs. In-House
   SaaS: Save on hardware costs, easy to implement, smaller companies can use advanced
   applications, lower switching cost for users, enhanced access for stakeholders, upgrades delivered.
   In-House: Better customization, more robust data security.

Info-Tech Research Group                                                                                 54
When a simple spreadsheet is insufficient to track vendors,
        consider three types of software solutions
Choose wisely from a variety of Vendor Performance Management and Contract
Lifecycle Management Tools.
1. Implement inexpensive (under $5,000) or free open-source contract
   management solutions.
   Examples include such products as CobbleStone’s ContractInsight, or Contract
   Assistant from Blueridge Software.

2. Utilize available contract management components in the organization’s
   ERP system.
   For example, leverage Oracle Procurement Contracts, JD Edwards Agreement
   Management, Microsoft Dynamics SL, etc. if they have been purchased or installed.

3. Use more sophisticated Vendor Performance Management software where
   it has been implemented organization-wide. These include products from
   vendors such as Oracle, Ariba, Emptoris, Upside Software, Selectica, and Nextance.
   However, these tools are expensive and complex, and are overkill if considered just for

Info-Tech Research Group                                                                55
Maintain Vendor Dashboards to improve overall vendor selection
                    in large buying groups
                    • Use assessments of vendor performance to target areas where
                      improvement is needed, but also to guide the organization’s
                      future vendor choices, and those of related parties purchasing
                      the same products or services.

                    • In some larger buying groups such as governments, IT
                      departments contribute vendor performance evaluations to
                      improve overall vendor selection in the organization.

                                            Scoring Options
                    Score vendor performance based on a tally of positive or negative
                    ratings in a number of categories such as Commodity Delivery,
                    Service Delivery, Commodity Performance, and Service
                    Alternatively, derive the performance score from a rating (e.g.
                    does not meet to fully meets) against a number of specific criteria,
                    such as Account Management, Customer Service, Financial
                    Management, and Value and Relationship.
  Info-Tech Research Group                                                              56
Management                Next Section in Brief

                       • Establish metrics to
Performance              measure vendor
Metrics                  performance.
                       • Cultivate vendor
Managing               • Leverage motivators to
Relationships            incite the vendor to
                         exceptional service.
                       • Employ Info-Tech’s survey
Performance              and dashboard tools to
                         assess vendor performance
                         and target problem areas.
                       • Manage vendors as a
                         portfolio to achieve benefits
Vendor Portfolio
                         from economies of scale,
Management               consolidation, and focus.

Recommendations    6
Implement vendor performance management to maximize the
     value you receive from your supplier engagements
 Establish metrics to measure    • Develop metrics that are meaningful to you and your vendor.
     vendor performance          • Frequently measure vendor performance against set targets.

                                 • Nurture frontline workers as your allies in a crunch.
Cultivate vendor relationships   • Engage vendor management to ensure smooth negotiations
                                   and ensure their attention for resolving issues.

 Leverage motivators to incite   • Aid the vendor’s profitability to ensure high performance.
  the vendor to exceptional      • Develop their competencies to provide benefit to you.
                                 • Look for opportunities for strategic partnerships with vendors.

Employ survey and dashboard      • Seek vendor feedback on the relationship and act on issues.
   tools to assess vendor        • Escalate vendor performance issues and ensure resolution.
  performance and target         • Track historical trends to better identify improvement areas.
       problem areas

Manage vendors as a portfolio    • Create a role or team with a focus on vendor management.
  to achieve benefits from       • Strategically use organization size and importance in vendor
     economies of scale,         • Develop a catalog of high performing “go to” vendors.
  consolidation, and focus
 Info-Tech Research Group                                                                            58

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