Cloud and multi-sourcing brings a focus on vendor relationships

While enterprise IT is being bombarded with disruptive changes like cloud, BYOD, mobility and big data the traditional challenges also remain, such as replacing or remediating scores of ageing legacy systems that have become deeply embedded within the engine room of the organisation.

As enterprise IT is being pulled in every direction many will wisely pursue expanded sourcing strategies that include cloud, to help cope with the rapid rate of change.
As enterprises move deeper into diverse multi-sourcing scenarios, a heightened dependency follows on being able to effectively manage these relationships to deliver against key business objectives and contribute towards a stronger competitive differentiation.

Much of the current market research shows that the majority of the region’s top tier organisations intend to expand their overall sourcing strategies, particularly when it comes to their infrastructure and applications and the impending wholesale shift to cloud-based delivery.

The research also validates the view that these multi-sourcing strategies will only increase the dependency that organisations have on effectively managing the supplier relationship for achieving desired business outcomes.
Through my own research it is clear that many organisations are asking the question about what vendor management capabilities they need to establish or enhance in order to manage the multi-sourced environment
With many of the cloud and multi-sourcing projects that I have worked on it is increasingly obvious that a procurement-centric approach to the sourcing decision is no longer adequate and a more enhanced vendor relationship management capability is needed that has a clear business focus of:-

  • Establishing the goals of the organisation around service, quality, cost, and satisfaction.
  • Selecting, managing and focussing the third party suppliers to consistently meet these goals

Early adopters of a specialist vendor relationship management approaches have typically been large companies such as CBA, Westpac, AMP, Citi, Cisco Systems, who were often dissatisfied with the services provided by their purchasing organisations when implementing multi-sourcing scenarios.

Traditional procurement approaches prove ineffective in a multi-sourcing environment

Typically, purchasing organisations provide less contribution to the vendor relationship discipline if they continue to focus on what they traditionally have done best: getting the lowest possible price, placing orders and approving payments.
Vendor relationship however has become more about providing business advice, guidance, and expertise to manage the sourcing of strategic business investments in services and technology.
The goal of a capable vendor relationship function is to be an enabler and facilitator, not an obstacle or another layer of bureaucracy that suppliers, stakeholders and clients are forced to deal with.
A key objective of vendor relationship is to ensure that there is a co-ordinated alignment of supplier efforts towards the achievement of organisational objectives.

A VMO: to be or not to be?
Given that the discipline of vendor relationship management has become increasingly strategic, I have observed that some enterprises are forming specific business units to manage the vendor relationship in a centralised business model. Global analyst firm Forrester reported a year or two back that half of companies have a centralised vendor relationship management function or Vendor management Office (VMO) with an additional 11% planning for one in the following year.
However it could be argued that if an organisation has the right IT operating model then vendor service portfolio management and vendor relationship management should inhabit the entire end-to-end service management and be embedded into the capability of the organisation and the service delivery process. Therefore instead of centralising the VMO it could be an active component of the demand/supply management functions of the IT organisation and be an active component of the processes that links the business (demand) to the IT delivery (supply).
If this is the case then the target operating model of the organisation would need to consider the functions, roles and responsibilities for:

  • Demand and forecast management.
  • Opportunity and Initiative management.
  • Service level and Contract management.
  • Process and Change management.

Some things to ponder:

  1. Organisations expanding their outsourcing strategies including cloud need to assess their ability to effectively deliver on the vendor relationship management discipline as it will become a clear criteria for success.
  2. A procurement-centric approach should be carefully questioned because managing vendor relations through a traditional procurement office is sometimes akin to managing customers through the debt and collections office.
  3. Enterprises need to place the same value on their vendor relations as they do on their customer relations.
  4. In multi-sourcing scenarios an effective vendor relationship capability will maximise the business value from the vendor relationship and ensure the vendors are collectively focussed on the delivery of business value and competitive differentiation.
  5. The shift to cloud service providers changes the traditional dynamic of vendor relationships as some cloud platform providers are not themselves geared to servicing customers beyond a rigid service standard, some don’t even talk to their self-serviced customers at all. The vendor relationship function needs to understand the segmentation of the cloud service provider market and be able to adapt to dealing with all the different flavours in these multi-sourced scenarios.


Twitter @CIOmatters

Leave a Reply