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
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
Performance performance is crucial for
Metrics companies that rely on
delivered IT services.
• Cost savings come from
Managing from multiple vendors.
Relationships • Successful vendor
management rests on
Performance 1. Metrics to set
2. Strong relationships
Vendor Portfolio to leverage vendor
3. Motivators to incite
the vendor to higher
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……
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Make improving vendor performance a strategic goal if you rely
on vendors to provide key IT services
service levels will fall and
your customers will
Set performance targets,
provide feedback on
performance, and act on
what motivates vendors.
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
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
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
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
Renew/ Work with the
renegotiate/ vendor to set
terminate the performance
Measure Performance Measure
Act to leverage
data with the
Determine address issues
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.
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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,
• 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
• 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.
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Management Next Section in Brief
Pillar One: Metrics
Performance • Performance metrics
Metrics 2 provide the intelligence
you need to strategically
manage the vendor
Relationships • Select metrics based on
the services or products
Performance • Choose metrics that are
meaningful to you and that
both you and the vendor
• 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)
• Defect rate
• Return rate
• Expenses % over- • Milestones (% met)
budget • Late Delivery (% • QA/testing (% • Participant experience
Project • Variable resource costs elapsed time over-run) functions working) (% satisfied)
• Subscriptions ($) per
• Average response time
active user • Availability (%) • User Satisfaction (%
• Support Incidents per
Service • Ancillary fees ($) per excluding scheduled
active user outages
• Cost-in-use ($)
• ATA (Average time to
• Avg. resolution time
Support • Cost per incident ($)
• Abandonment rate (%) • Overall resolution (%)
• 1st call resolution (%)
• Unresolved issues (%)
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).
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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.
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.
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...
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
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.
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Validate the vendor’s metrics with your own measurements to
ensure the vendor is reporting true experience
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
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.
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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.
A consistent vendor management practice will force individual vendors to accept careful management
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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
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.
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.
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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
Vendor detailed view showing performance
over the last 12 months.
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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
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.
• 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
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 ”
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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
negative have a strong, positive relationship with this customer.”
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Alter your strategy based on your size relative to the vendor’s;
focus on reputation for large vendors and price for small ones
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.
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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
disproportionate to their
High importance size.
Vendors use these
accounts to power their
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.
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Communicate issues up-front and early to give a small vendor
the opportunity to resolve performance issues
High-importance accounts Case Study
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
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
Do not expect differentiated services as the small customer of a
large vendor; accept standard services or walk away
Low-importance accounts Case Study
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. ”
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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.
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!
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Make the implicit explicit, especially when trust and respect
from a longstanding relationship is missing
• 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.
• 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.
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Understand the vendor’s profitability model and negotiate fairly
instead of exploiting perceived loopholes
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 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.
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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.
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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
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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.
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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
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
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
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.
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.
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.
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Identify key decision-makers for your account & understand
what matters to them to influence the results you need
Role Goals Motivators Case Study
• Bottom line
company profits An IT consulting provider has a gain-sharing
• Improve agreement with its customers. It provides the
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
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
“ 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
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
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.
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
“ … 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
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
Invite vendors to
Meet with the Visit vendor site to
What it participate in
account manager to evaluate potential
Involves discuss performance areas of
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
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
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
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
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
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-
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
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
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:
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
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!
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.
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.
Score vendor performance Record-keeping
Manages vendor scoring and monitoring of Maintains IT vendor information and contact list.
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
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
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.
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
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
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
Examples include such products as CobbleStone’s ContractInsight, or Contract
Assistant from Blueridge Software.
2. Utilize available contract management components in the organization’s
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.
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
• Cultivate vendor
Managing • Leverage motivators to
Relationships incite the vendor to
• 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
from economies of scale,
Management consolidation, and focus.
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.
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