Five Steps to Smarter IT Vendor Management

The IT industry is notoriously successful at fueling the hype associated with the Next Big Thing. As a result, CFOs are finding themselves increasingly hemmed in by appealing, emerging, and potentially disruptive technologies, such as cloud computing, digital wallets or 3D printing. New technologies have the potential to force your organization’s hand in developing new business and operating models in order to remain competitive and relevant. Underpinning those latest trends in the IT industry is the persistent and pervasive gravitational pull towards outsourcing core enterprise IT services to service providers that are apparently better suited to do the job than your own IT departments, and at a lower cost to boot.

While lowering IT cost is often a tipping point in the decision to move away from conventional on-premise IT in the short term, the reality is that it may just be the sideshow. Harnessing the power of disruptive and new technologies to deliver sustained value advantage should be the main game when transitioning away from conventional in-house IT. The word sustained is deliberately emphasized here. Organizations looking for the short term gain can find it relatively easily, but understanding and anticipating downstream consequences can be a challenge when it comes to new and emerging technologies.

To maintain that value over the long term, a watchful eye must be kept on the various vendors – cloud and otherwise – whose services are now responsible for keeping your IT operations running. Once the contract’s been signed, CFOs that ignore the need for ongoing and active vendor management do so at a high risk of losing control. Here are a few guidelines that may just help you avoid the risks of failure.

1. Understand what forces are at play in your vendor’s environment.

The disruptive forces at play in the vendor’s market are persistent and volatile. Understanding how these influences may have a secondary impact on your organization, and what your response should be, is prudent, proactive risk management. Regularly monitoring changes in vendor markets will help prevent your vendor’s problems from becoming your problems.

2. Link your risk appetite to the capability of the vendor.

Your tolerance for risk can change. It could be altered by new legislation, or perhaps the acquisition of a major new line of business that requires higher information security standards. How can or will your vendor respond, if at all, to meeting this change? It’s up to you to know.

3. Be wary of vendors that may be too big to fail and too big to negotiate.

The apparent security in using one of the major global vendors for your critical IT services may help you sleep well at night in the knowledge that they are unlikely to go out of business, but recognize that developing a trusted vendor-customer relationship may be a distant dream if you have no leverage or influence in the relationship. Effective vendor-customer partnerships depend on factors such as a shared vision, collaboration, and, above all, communication, all of which may be hard to come by if you’re engaging one of the global giants.

4. Be certain what your vendor contract is really worth.

Recognize the practicalities of seeking legal recourse for a failure of the vendor to meet their key obligations. Your contract may contain terms and conditions that look good on paper, but if the cost, effort, or ongoing disruption associated with seeking legal recourse is prohibitive, the contract’s effective value is diminished.

5. Agree on your divorce terms at the start.

The primary advantage of passing ownership, management, and control for your critical IT systems to your vendors is to allow you to focus on your core business, but the triggers for you to exit the contract, without penalty or prejudice, should be considered at the start. How would you respond if your vendor was acquired by a foreign corporation? Or relocated its operations overseas? Or upgraded their systems in a way that isn’t compatible with your business? Being subservient to your vendor’s changes will not always be in your best interest. Plan accordingly.

CFOs that ensure that the changing nature of IT vendor relationships is well understood, and who can effectively navigate the currents using appropriate vendor management strategies, are well on the way to surviving and thriving in this technology-rich, volatile, and disruptive environment within which we all operate.

Rob Livingstone, a former CIO, is the author of Navigating Through the Cloud. He runs an IT advisory practice and is also a Fellow at the University of Technology Sydney (UTS), Australia, where he teaches strategy and innovation in UTS’s flagship MBITM program. Visit Rob at www.rob-livingstone.com or e-mail him at [email protected].

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