Engaging a vendor for commodity services is simple. Procurement can make a short list, vet the vendor’s capabilities and pricing, assess contractual terms, pick the cheapest option on the table, and rigorously manage the vendor to the contract. For some functions where managing costs trumps all else, this approach may be a staple of operations.
IT is not one of these functions.
As companies come to rely more and more on their technology vendors on everything from simple turnkey systems to innovative bespoke solutions, this narrow procurement approach does not fit, and will destroy more value than it creates.
Today, there needs to be a dedicated team within IT that oversees the company’s vendors to ensure that SLAs are met, and more importantly, work with vendors strategically and operationally to drive value. That team is the vendor management office (VMO).
Just as a project management office (PMO) is central to the management of a company’s projects, when done right, a VMO will be a company’s gateway to all the technologies and services in the marketplace. The VMO is the internal center of excellence, advising IT and business leaders of current best practices, vendor capabilities, and trends. It is a key player in aligning the many stakeholders within an organization towards the same goals, and it should guide the overall modernization and transformation of IT.
A best-in-class VMO should focus on three things:
Innovation—the bulk of a VMO’s resources should go into bringing new capabilities into the organization. This means collaborating closely with vendors and treating them as partners. For example, having visibility on a vendor’s R&D labs, becoming a beta customer on a new product, sharing the company’s business strategy, and investing in new and unique technologies. If a solution doesn’t exist in the market, the VMO can assist in bringing various capabilities from different vendors together to make something new.
Speed—the VMO has to be constantly worried about speed. It needs to be proactive and know what’s coming out in the marketplace and how it can contribute to the businesses’ competitive advantage. The VMO should be constantly updating its information on new solutions and be ready for advising IT when a need arises. Whether it’s a new automation solution, AI system, or analytics tool, the VMO proactively evaluates new solutions to IT, and helps ensure that they can be deployed as fast as possible. The VMO should accelerate the adoption of new technologies and services, not slow it down.
Value—VMOs should measure outcomes, not transactions or work done. The VMO asks: what value does each vendor bring to the table and are they delivering it? It’s impossible to write a contract that accounts for every eventuality, so the VMO has to figure out what’s working and what’s not and make adjustments to get the desired outcome. The VMO strives to create win-win relationships with vendors through value-based contracts and risk sharing.
Take the Next Step
Our new strategy brief has all you need to know about implementing a best-in-class VMO. Explore everything from partnerships, contract assessments, performance management, and more.
Jeffery P. Romano
Jeffrey is a managing principal and brings more than 30 years’ experience in IT management to WGroup’s consulting team. He is a sourcing expert who has been involved in multibillion-dollar engagements.
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