As companies continue to increase their strategic reliance on vendors, outsourced services, and collaborative alliances, so too do business leaders need to rethink their approach to vendor management.
In fact, the sheer number of vendors engaged in organizations of all sizes is projected to grow substantially, making it more difficult for traditional procurement organizations to manage. Thus, it should be a strategic imperative to establish a vendor management discipline through a best-in-class vendor management office (VMO).
High-performing VMO’s are increasingly demonstrating their value in Fortune 100 companies, as well as in smaller organizations. Each is scaled following the organization’s objectives and needs, but the results increasingly visible by the day. But what do these top VMOs have that the average VMOs don’t?
The answer lies in their best practices. Four, in particular, stand out:
1. Innovate for new business models
The best VMOs adopt a partner-centric mindset and cross-share business strategy. They work closely on innovation initiatives such as beta projects and new products. They’re constantly looking to invest in new technologies (e.g., automation) that will create new revenue streams and grow the business.
2. Drive speed and efficiency
Top VMOs continually segment and optimize their vendor mix to ensure the best results. Resources are prioritized. For instance, giving strategic vendors more attention, while taking a low-touch approach with commodity service providers. They proactively engage with the business and have a structured plan to accelerate time-to-value.
3. Align success with business value
Best-in-class VMOs have integrated SLAs and OLAs that are tied to outcomes, not transactions. They rely on value-based contracts, as well as gainsharing models to ensure that the interests of vendors and the business are aligned. This also means implementing incentives, not penalties. When value is delivered, the VMO finds itself sought after by business leaders, not avoided.
4. Save costs to fuel digital transformation
With greater efficiency comes higher savings. Leading VMOs have programs to eliminate technical debt, usually by working with vendors to make modernization business as usual. They also initiate co-development and beta programs to drive lower pricing and capitalize on bundling/volume opportunities.
Achieving a successful VMO implementation requires a comprehensive approach and methodology. One that can seamlessly weave the multiple processes, responsibilities, policies, tools, and technologies together in every vendor relationship.
Best-in-class VMOs are tightly aligned with the company’s strategic and tactical business objectives. They drive significant value from vendor relationships and serve a vital role in the execution of business objectives, driving organizations towards achieving targeted business outcomes over the long term.
Learn more about WGroup’s vendor management advisory services here.
Domenic leads the firm’s research, marketing, and communications function as WGroup’s CMO. He is a skilled strategic advisor, a thought leader on IT transformation, and a subject matter expert on a broad range of topics including M&A and Run Optimization. He works closely with WGroup’s consultants, and helps clients drive their businesses forward by optimizing business performance, creating value, and achieving cost savings.