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3 Steps to Improve Strategic Vendor Management

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This systematic, three-step approach will help IT vendor management leaders get maximum value from their strategic vendors.

Before you take on a new vendor, stop and consider the impact the relationship will have on your organization — will the vendor will be engaged in your most critical initiatives, systems or business processes? Think beyond scorecards and costs. Do the service and solution strategies align with your architecture and goals? Does the vendor exhibit partnership-like traits?

Relationships with strategic vendors are increasingly key to business performance

“Relationships with strategic vendors are increasingly key to business performance, but many IT vendor management leaders struggle to compel their most important vendors to be proactive, collaborative and innovative,” says Joanne Spencer, Gartner Senior Director Analyst. “When managed badly, large strategic vendors can become complacent, slow moving and intractable.”

IT vendor management leaders can improve the way they manage these relationships by adopting a three-pronged approach focused on overall vendor analysis, vendor performance reviews and vendor action plans for continuous improvements.

Step 1: Data and insight

Begin by building a holistic picture of the vendor and what it delivers to your organization This entails the identification, collection, aggregation and presentation of the vendor profile, performance and market data. There are many tools that achieve this, but focus on four key ones:

Create vendor profiles that provide relevant market, interaction and performance data specific to each strategic vendor. Update monthly.
Build dashboards that provide near-real-time updates. They often include tactical data most relevant to understanding a strategic vendor’s performance.
Use quarterly scorecards to provide a regular update and objective analysis of the most relevant and strategic measures of a vendor relationship. These can include a 360-degree review, for which the vendor provides a customer assessment and recommended improvement actions.
Prepare vendor risk plans annually, or as often as required by policy or regulation. Plans should provide an overview of vendor risks and the relevant actions taken, or necessary, to reduce residual risks and respond to risk events.

“At this information-gathering stage, it’s vital to ensure the data gathered is reliable,” says Spencer. “Then, when you’re confident with the data and reporting mechanisms, you’re ready to analyze and look for trends that support a discussion with a vendor.”

Step 2: Reviews

The second step is to create the governance framework for how the collected data is communicated with the vendor and across the organization’s key stakeholders. Ideally, this is a schedule of review meetings that are agreed upon at the point of procurement or during the onboarding process. Typically, the schedule will contain the following reviews:

Monthly operational performance and contract reviews to report on performance against SLAs and metrics. This is also a good time to review vendor solutions to any past performance issues.
Quarterly relationship reviews to focus on evaluating the long-term strategic value of the relationship, as opposed to the tactical aspects of the monthly reviews.
Biannual risk reviews to update and refine business continuity and mitigation plans, and report on risks pertaining to the relationship.

Annual executive review to ensure alignment between the vendor and the client’s goals, as well as a time for senior executives on both sides to build trust and share ideas.

Step 3: Action plan

“Collecting sufficient information and designing processes to review it closely with the vendor have set the stage for extracting more value from the strategic relationship,” says Spencer. “But this will all be of limited value unless you can also ensure broad commitment from within your organization.”

    When the process is refined, expand it

To help build buy-in from stakeholders, build standard agendas that can be used for each review type consistently across all providers. Then pilot the process with one or two strategic vendors. Use these pilots to evaluate the best timing, deliverables and participants, which may vary between vendors and internal stakeholders.

When the process is refined, expand it across more strategic vendors. A slow expansion will demonstrate the value of the process and help you make time to communicate it to stakeholders, who should be drawn from business, IT and even the vendor side in some cases.