Should you outsource vendor management?

Vendor management is nothing new for most IT organizations. Progressive IT functions have built up their vendor governance capabilities for years. But the vendor management function today is being asked to oversee a host of new IT services, wrangle niche and nascent suppliers, and meet increasing performance expectations, with little increase — or worse, a decline — in funding. As a result, many are struggling to keep up.

One solution is outsourcing vendor management. CIO.com talked to Dan McMahon, director at outsourcing consultancy Pace Harmon about the situations in which bringing in a third-party may have value, the typical benefits targeted, the pros and cons of outsourcing IT vendor governance, and how to make the transition.

CIO.com: Why is vendor governance more difficult for some IT organizations to oversee on their own?

Dan McMahon, director, Pace Harmon:IT vendor governance is increasingly becoming more complex as more services and vendors are added to a firm’s vendor portfolio. Ensuring these vendors’ efforts and performance are aligned collectively with overall business expectations can be extremely challenging. As businesses rely on the collective performance of the portfolio of vendors providing outsourced services, the importance of delivering on expectations becomes essential. Many of today’s internal vendor management functions have not been designed or equipped to handle this sort of change or complexity.

CIO.com: When is outsourcing vendor management a good option? What are the drawbacks?

McMahon: In many cases, outsourcing vendor governance is proving to be a viable and practical option for businesses. Successful outsourcing of the vendor governance function has generally followed one of two patterns.

[Some enterprises employ] a staff augmentation model to secure key resources in the short term. In many cases, these resources have been close to the transaction and possess a deep understanding of the commercial agreement, performance expectations, and retained and outsourced responsibilities. These resources frequently provide support for 90 to 120 days and bring operational expertise, vendor interaction guidance, and transitional support to the permanent internal staff.

The second approach is typically longer in duration, frequently 180 days plus, and fulfills a larger role in elevating vendor governance performance. This is often a transformational role and the resources are expected to provide vendor governance experience, lead practices that can be deployed, vendor management techniques, and—in some cases—offer specific knowledge on how best to work with a specific vendor.

CIO.com: So vendor management outsourcing is usually part of a larger transformation effort?

McMahon: In many situations, outsourcing vendor governance is part of a larger transformation effort. However, in the last few years we are also seeing organizations complement their legacy vendor governance function on a short-term basis. Often a key resource leaves or is [moved] to a new internal role, and the business cannot wait to find a suitable replacement. In cases where internal resources may not be prepared to step into a key and visible role, outsourcing specific vendor governance roles has become an increasingly attractive short-term option. Often this approach has the added benefit of introducing vendor governance process refinements that eventually become part of steady state operations.

CIO.com: What are the typical benefits targeted and how are these outsourcing relationships measured?

McMahon: In situations where the outsourcing of vendor governance takes the form of a longer relationship, companies should expect both objective as well as subjective benefits.

From an objective perspective, this may include an increased number of vendors or spend managed per governance full-time employee—or perhaps comparatively fewer dollars [spent no] change orders per vendor. Additionally, there may be an increase in the number of vendor performance metrics that align with desired business outcomes, which is made possible through an increased level of managed services (as opposed to staff augmentation services) from outsourced partners.

From a qualitative perspective, benefits may include increased stakeholder satisfaction or increased proactive innovation and transformation opportunities identified by the outsourcer.

CIO.com: What questions will help an IT group determine if outsourcing vendor governance is a good idea?

McMahon: Outsourcing vendor governance may be a wise option if the outsourcing environment is evolving faster than the vendor governance can manage, the business does not have adequate time for vendor governance to catch up, and the organization recognizes the need to relinquish short-term control of vendor governance. Organizations can ask several important questions to independently gauge the potential fit of an outsourced vendor governance option. The more ‘yes’ answers to the following questions, the more likely a business would benefit from considering outsourcing vendor governance:

• Does the current outsourcing environment complexity or pace of change exceed the existing vendor governance’s resource levels?
• Is the organization ready to share or relinquish short-term control to achieve a higher level of performance?
• Would the organization be better off if some or all of the existing vendor governance resources were deployed elsewhere?
• Have the business needs outgrown the capabilities of legacy vendor governance functions?
• Does the business require selective support or is a wholesale change required to support the growing demands of the business?
• Is an evolutionary development timeline for vendor governance function constraining service vendor performance?

CIO.com: If IT leaders answers yes to most of those questions, what steps should they take next?

McMahon:If outsourcing vendor governance appears to be a good fit, three steps can help a business begin to define the type of support they may need:

• Develop an initial understanding of the type of support the business needs. Is a short-term staff augmentation support model needed as a bridge or would the business benefit from transformational support?
• Develop an initial understanding of the outcomes needed. Does the business need day-to-day support, or do its needs require a shift in overall performance?
• Contact industry leaders, and qualify their capabilities. Business leaders will want to thoroughly vet providers and secure the actual capabilities that will help deliver the intended results.