What CIOs don't know about vendor relationship management can hurt

CIOs are adept at managing vendor contracts. What they tend to have trouble with is vendor relationship management. Find out why.

Michael Saitow doesn't need a lesson in vendor relationship management. The CIO of M.S. Walker Inc., a wholesale

wine and spirits distributor based in Somerville, Mass., meets at least monthly with his core systems vendors. "We talk about what to pull the trigger on next and about new initiatives," Saitow said.

When a new customer relationship management (CRM) system is brought in next week, for example, Saitow said he plans to be around during the configuration and meet with his vendor over dinner that evening to review the project plan.

It is so important that you just don't deal with the vendor if something is broken or just during contract negotiations.

Tim Osbeck, who oversees infrastructure and operations at Grand Rapids, Mich.-based supermarket chain Miejer Inc., also has running conversations with key vendors such as IBM and Cisco Systems Inc. They discuss where their services are adding value and where their technology is falling short. "It is so important that you just don't deal with the vendor if something is broken or just during contract negotiations. You have to be interacting with your strategic vendors all the time," he said.

Saitow and Osbeck, however, may be exceptions, according to William Snyder, who covers vendor management at Stamford, Conn.-based Gartner Inc. Most CIOs practice what Snyder calls "event-based vendor relationships."

In a crisis situation -- a system failure -- these CIOs are running down halls trying to figure out what happened. Before sales calls, they consult with key managers about the vendor's performance. The problem with this event-based approach is that people tend to base their opinions on what happened recently, good or bad. And objective measures such as service-level agreements (SLAs) can be just as misleading, painting a distorted picture of the value of a vendor to the organization.

"You can have a vendor that hits all its service levels and you want nothing more than to throw them out. And you can have another vendor that doesn’t quite hit those levels, but on the whole delivers more than what you need," Snyder said.

With most crisis events, the CIO is walking in with incomplete data, while the vendor is loaded for bear. Ten minutes after being called on the carpet for a system failure, the vendor has a project plan to set things right and is already selling the CIO on the extra services he told him to buy in the first place. And the CIO has broken the cardinal rule in vendor relationship management, Snyder said. "What you as CIO want to do is turn this into a conversation that is important to you, not one that is important to the vendor."

That is not so easy to do, because vendors tend to know much more about a CIO's organization than CIOs knows about their vendors, said Snyder. The relationship suffers, as he puts it, from a dissymmetry of knowledge.

CIOs are schooled in many aspects of technology sourcing, Snyder said.  Gartner client surveys, for example, show that CIOs manage vendor contracts well: they ride herd on SLAs and they're good at tracking costs. At a time when many IT organizations are being pressured to deliver more services for the same dollar, however, managing to the contract is not sufficient. Your strategic vendors need to add value. It is the CIO's job to cultivate vendor relationships that blossom and bear fruit.

Develop a vendor scorecard and executive summary sheet

To develop a more objective view, Snyder suggest two tools: a lightweight vendor scorecard that tracks how vendors are performing in your organization over time, and an executive summary that provides an analysis of the vendor in the marketplace. For the scorecard, find 10 staff people to rate the vendor and poll them regularly over a period of time, so you have a trend line. The data turns a subjective measure -- how your staff views the vendor -- into an objective measure that you can point to in vendor meetings. Many times a vendor will make promises that fall outside the contract. The scorecard can help capture if the vendor kept the promises that didn't get into the written contract.

Part of the CIO's job in managing the vendor relationship is to assess risk. Many CIOs have procurement staffs that consult business services like Hoover’s Inc. and Dun & Bradstreet Inc. to get a read on a vendor's standing in the marketplace. This information is useful but won’t give CIOs the information they need to level the playing field in vendor relationships. The executive summary -- or dossier on the vendor -- should also include information about "little things" that seem off, such as a churn in the sales force, poor product quality, headlines that seem off kilter.

"Taken alone, each may mean nothing, but it can paint a picture of a vendor in duress,” Snyder said. "If you're not thinking about this, you will be caught by surprise by a Satyam or a Nortel because you won't see it coming."

Part 2: Who gets rewarded and who should be ignored in vendor relationship management.

Let us know what you think about the story; email Linda Tucci, Senior News Writer.

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