Vendor Management: Overcoming a Major Obstacle to Outsourcing Success

Ideally, we all want a responsive service provider we can rely on in times of need and who suggests innovative ideas for improving processes. The reality, too often, is dissatisfied internal clients, a resentful internal staff and upper management disappointment over performance levels.

The missing piece is vendor relationship management skills. The fact is, the knowledge required to manage vendor relationships is different from what's required to manage employees. It's also different from contract management. Managing service providers who work side-by-side with your own staff -- and provide direct service to clients and customers -- presents complexities beyond those encountered when purchasing a product.

Without these skills and knowledge, it will be difficult to realize the true benefits available from a service provider. Indeed, the ability to effectively manage the providers of services can be a competitive advantage.

Here are a few tips for starting - and staying - on the right foot with your service providers.

Start from the real beginning.

A good vendor relationship doesn't start with the contract; it begins even before you've selected the outsourcing vendor. There are actually seven different phases that determine relationship quality: process evaluation, deciding what should be insourced vs. outsourced, vendor selection, contract development/ negotiations, implemention of the working relationship, management of the relationship and evaluation of the results.

Know what you're outsourcing.

When evaluating which processes to outsource, it's crucial to understand the end-to-end costs and to have metrics in place that are balanced and prevent dysfunctional behavior. Without a good handle on the numbers, it's easy to be fooled by vendor promises to lower costs.

Look for cultural alignment.

Vendor selection needs to be based on more than cost- reduction. Often overlooked is the vendor's internal culture and how well it meshes with your own. For instance, is the vendor's culture entrepreneurial or process-driven? Hierarchical or collaborative? These differences need to be recognized and dealt with, or they will cause intractable problems with the working relationship down the road.

Don't develop contracts in isolation.

Too often, contracts are signed by purchasing and legal executives and then "thrown over the wall" to the managers who will be involved with the vendor day-to-day. The fact is, operational staff and process owners should be involved early on, not after the contract is signed. This level of employee can provide valuable input to creating true ways of measuring performance that are conducive to a partnership, not a legalistic arrangement.

Think "collaborator," not "provider."

Like IT itself, service providers should be incented to support the strategy of the business. But to create that type of relationship, the vendor needs to be educated on business drivers and long- and short-term strategies. Face-to- face meetings with IT staff, the vendor and even internal clients in attendance can go a long way toward getting everyone on the same page and communicating.

Prepare the way

Too often, clients and internal IT are unclear on why work has been outsourced, why this particular vendor has been chosen, what the expectations are and what their role is. It's important to spend time educating the staff on the changes taking place.

Think "relationship," not "contract," management.

Managing employees is very different from managing vendors. With the former, you're focused on coaching a team of people who have the same objectives as you do. With the latter, you need to concentrate on monitoring processes, tracking metrics, capturing results, measuring performance and providing feedback to a team answering to a different agenda than your own. You have less direct control over these workers, so you also need to increase your negotiation and influencing skills, not to mention interpersonal and communication capabilities.

Let's face it, when we sign on the dotted line, we want a partner that operates like a long-term solution provider - not just a vendor of products and services at a particular price. With the right skill set, we can develop the kinds of partnerships we want with service providers and realize the full set of benefits we expect.

Ken Emery, a former CIO and executive of Shared Services, is a senior O&A consultant and the developer of O&A's newest workshop offering titled "Managing Vendor Partnerships."

Here's what folks are saying about our new workshop:

"Good course for developing and improving good supplier relations regardless of phase (supplier selection to wind down)."

"Provided good atmosphere to think through how you can improve your current situation in managing existing vendor partnerships."

"Good for any colleagues who have responsibilities in dealing with vendor contracts. Informative from discussions and experiences of others shared in class."

"Well worth the time to attend."