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IT vendor governance expands to business functions

In the first of this two-part tip on IT vendor governance, Pace Harmon Director Dan McMahon lays out how vendor governance responsibilities are changing at leading companies.

Editor's note: The world's embrace of digital technologies is pushing businesses to change their business models...

and the technologies that enable them. It shouldn't be surprising that IT vendor governance strategies also must evolve to keep up with enterprise digitization, but old habits die hard. In the first part of this two-part tip, sourcing veteran Dan McMahon, a director at consulting and outsourcing advisory Pace Harmon, addresses three questions:

1.       What are leading IT vendor governance offices doing today?

2.       How is IT vendor governance evolving?

3.       Why is IT vendor governance changing now?

Vendor governance function is expanding  

We are seeing a strong trend toward a more active and involved IT vendor governance function, one that actively works with operations, finance and procurement groups to deliver improved performance from strategic vendors and execute the overall IT outsourcing strategy.

This is a change from several years ago when many vendor governance functions focused on SLA/KPI performance, invoice management, and spend management. Today's expectations for vendor governance are more robust and reflect the needs of the businesses they support.

Vendor management metrics mature and include new capabilities

The IT vendor governance function is expanding its scope of responsibility to reflect the increasing complexity of business and the expectation for vendors to consistently contribute to operational and financial performance delivery.

Capabilities provided by the vendor governance function typically included performance, relationship, contract and financial management. These capabilities have matured and are complemented with information sharing tools, analytics (operational and predictive), managerial reporting, risk management, and vendor portfolio management capabilities. These additions have risen in response to the demands of the business to produce quantifiable benefits beyond what is defined in an agreement.

Vendor service support goes global

The globalization of IT service support and new technology adoption are the main drivers for the changes to the traditional practices of the IT vendor governance function.

We are seeing a strong trend toward a more active and involved IT vendor governance function, one that actively works with operations, finance and procurement groups to deliver improved performance from strategic vendors and execute the overall IT outsourcing strategy.

The first driver, globalization of service support, has required vendor governance to manage a single vendor delivering a scope of services to multiple geographic locations, occasionally to multiple business units within those geographies, under a single agreement. The unique, dissimilar business practices among geographies or business units create unintentional delivery complexity for the vendor. This complexity may not have been envisioned during contract execution, which places additional burden on vendor governance to ensure vendors deliver a seamless service across the enterprise, despite these geographic or business unit differences.

The second driver, new technology adoption, typically manifests itself as both a change in technology skill requirements and often at an accelerated pace of change. Again, the vendor governance function has stepped in to assist IT delivery groups formulate a new business, commercial, and service solution and bring that new, innovative solution to the business.

Go to part two of McMahon's tip to learn about challenges and best practices when moving to the new vendor governance model and about where to find funding for your initiative.

About the author: A director at the management consulting and IT sourcing firm Pace Harmon, Dan McMahon helps executives in leading and implementing globalization strategies. With more than 20 years of experience in IT sourcing, he takes a pragmatic approach to strategy, vendor evaluation and contract development, with special focus on the financial and operations nuances that maximize value and vendor service delivery.

Next Steps

CIO advice from the experts at Pace Harmon:

Outsourcing contracts: Common CIO mistakes -- and fixes

How to govern your ITO provider after the deal is done

Private cloud termination contracts: Primer

This was last published in September 2016

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