I’ve been thinking a lot lately about “the vendor problem” in IT and how every time I want to elicit a grimace from a room full of CIOs, I just have to say the word, “Consultant.”
In fact, I was talking recently with Margot Sharapova, CIO of the Americas at AECOM, the $8B professional technical and management services company, and she brought up “the vendor paradox.” She wondered why I haven’t spent more time on it.
“But what is the vendor paradox?” I asked her. Her response was so rich, that I had to write it as a blog.
The IT Vendor Paradox
According to Sharapova, we can break down the IT vendor paradox into a few parts.1. Vendor capability as sold is not the same as vendor capability as delivered.
“Vendors will tell us, ‘No problem. We can have resources with a depth of capability in SAP on the ground in the UK on this date,’” says Sharapova. “But then the vendor has no idea how to get the visas necessary to send resources to the UK. So they ask us if we would consider sub-optimal resources that they can get approved. So, you have to make a tradeoff: less capability, but at least they’re approved and can be on the ground sooner.”
Sharapova recounted a story about a vendor who told her they would supply her with a program manager to lead a major implementation for them. But in the first week, her IT team realized that the person did not even know how to create a project plan. They had to replace the program manager twice, which set the project back by quite a bit. “This situation is not unique,” says Sharapova. “It is embedded into the fabric of vendor relationships; you have to build these scenarios into your time line.” Sharapova likens vendor relationships to a marriage that is doomed from the start. “It’s like you are planning to get divorced before you’ve even exchanged rings,” she says.2. Fear of transition costs outweighs your ability to address major issues.
In some situations, says Sharapova, you find that the replacement project manager is as unqualified as the one he replaced, so you wind up making the most out of sub-par talent. “I’m paying for the vendor to PM, but I’m paying my PM to PM their PM, who can’t PM,” she says.
Once you’ve invested significant time in the vendor project manager, you’ve diminished the advantage of switching him out. The cost of knowledge transfer is too high. “Once you’re married, you have to stay together for the sake of the children,” says Sharapova.3. Our expectations of vendor capability does not align to our approved budget.
As CIO, you work hard to create a project budget that will get approved. “But then you are in a position of trying to strong arm your vendor to that they can retrofit the project to your budget,” says Sharapova. But the vendor is trying to make a margin, too. So, how do they make up the delta? “They erode the caliber of resources so that their costs go down and they can maintain their margins,” Sharapova says. “That’s why they bring in the big senior consultants to bait us, and then they switch those people out with junior people who actually do the work.”
What do to?
This vendor paradox is a tough one, and it’s expensive. Sharapova has some suggestions for how to mitigate its impact.
1. Have one of your own employees be the program manager. “In many ways, project management is an art,” says Sharapova. “It’s too tough to manage in an outsourced relationship. The minute you have ‘contractor’ on your email signature, you have limited ability to lead. ‘Contract program manager’ is an oxymoron.”
To Sharapova, ‘turnkey engagements’ are a miss whether they are on or offshore; you cannot outsource accountability for that critical role. “You end up doing the project management yourself anyway,” she says. “So you are paying twice.”
2. Don’t hesitate to make a change. When you see that the resources a vendor assigns to your project are not qualified, you need to intervene at the highest level, and you need to do it quickly. “The key is in your ability to navigate the talent base of your partners,” says Sharapova. “If you can find an ‘A’ player in the vendor organization, your probability for success goes up.”
3. Understand your vendor’s employee incentives. What are the metrics that motivate the vendor’s staff? What is driving their behavior? “It is very important that you understand how are your vendor’s bonuses are set up,” says Sharapova. “You understand the metrics-based drivers of your own team; just because you outsource a role doesn’t mean you don’t have to have the same level of understanding of what drives the person doing it.”
According to Sharapova, the fact that customers and vendors don’t work better together reflects poorly on us on a profession. “I don’t have the perfect remedy,” she says. “But we should aspire for something better.”
About Margot Sharapova and AECOM
Margot Sharapova is the VP & CIO for AECOM Americas. In this role, Margot is responsible for driving information management strategy and execution to support fundamental business processes and growth. Margot started her career at GE Plastics in their information management training program and rapidly rose to CIO roles at GE Energy and GE Healthcare. Prior to GE, Margot worked in retail banking and education. Margot holds a BA in Russian Area Studies from Dartmouth College
AECOM is a global provider of professional technical and management support services to a broad range of markets, including transportation, facilities, environmental, energy, water and government. With approximately 45,000 employees around the world, AECOM is a leader in all of the key markets that it serves. AECOM provides a blend of global reach, local knowledge, innovation and technical excellence in delivering solutions that create, enhance and sustain the world's built, natural, and social environments. A Fortune 500 company, AECOM serves clients in more than 140 countries and had revenue of $8.2 billion during the 12 months ended Sept. 30, 2013. More information on AECOM and its services can be found at www.aecom.com.