by Rob Enderle

6 Things to Know About Choosing a New IT Vendor

Aug 15, 20148 mins
AnalyticsBudgetingEnterprise Applications

No one should sign a contract with an IT vendor without fully evaluating who they are and what they do. Asking vendors these six questions might throw them for a bit of a loop, but their (honest) answers will help you determine if they are the right fit for your company.

We tend to approach new vendors based on the products they sell and choose vendors largely based on what we believe the products do. Unfortunately, this leads us to buy solutions that we often never fully deploy or that often fail to meet our expectations. What’s more, we rarely conduct a causal analysis of the problems.

I’ve covered enough failed projects over the years to be able to group most problems into several areas that you can (and should) explore before taking in a new vendor or even continuing with an old one. I’ve identified 6 things you likely aren’t asking vendors before you make your selection.

Do They Eat Their Own Dog Food?

Does the vendor use the product itself? This is more than a “Yes” or “No” question, too; you want to find out how successfully the vendor uses it and if you can independently measure the impact on the vendor’s own financial performance.

Most large-scale solutions are sold on the promise that they will decrease costs and increase productivity. This should show up in the financial reports of the firms that have deployed the product — and if the vendor decided to eat its own dog food, it will have deployed first and (should have) done it best, the positive results should be measurable in its financial results. Vendor CIOs are good people to interview about this, as because they typically don’t lie well. You can get a sense of whether the vendor’s sales team is just making things up. If it is, avoid the product.

[ Related: Learning From 4 Lessons in Choosing a IT Vendor ]

I worked for one CEO who argued that he was being customer-focused by driving his greatest products into the market but refusing to deploy them himself. I was in the audit department at the time and knew the real reason was because our own CIOs, at cost, couldn’t justify the expense. If the vendor can’t justify using the product, you certainly can’t.  

Do They Use Forced Ranking to Measure Employee Performance?

Most vendors are purging themselves of forced ranking, but it isn’t going out easily. An unfortunate present from Jack Welch at GE, it’s been suggested that forced ranking is at the core of Microsoft’s slide, as it pits employees against each other and makes common goals nearly impossible to accomplish.

Forced ranking also shifts focus from creating the best products and best services to internal political fights over turf, creating silos in organizations that work against their peers and lower the firm’s effectiveness.

A few years ago, you didn’t have a choice; virtually all of tech used this unfortunate method to measure employee performance. Now you do have a choice.

There are two reasons to avoid firms that use forced ranking. First, it’s the right thing to do for the people working at that firm (and may help you to eliminate the practice from you own firm). Second, firms that use this practice focus on internal politics, not their customers.  

Do They Use A Lock-in Strategy?

One of my most memorable moments while working for a large technology company was asking my vice president of marketing why we were implementing an unethical practice. We were telling government accounts we were going to build something we had defunded. I thought the repercussions would be dire. “What you don’t understand, Rob, is that we sell air,” he said. “They have to buy what we sell and they have to pay what we charge for it.” I thought then, as I do now, that this was a going-out-of-business strategy. Sure enough, the firm went into sharp decline around the time of that conversation.

Vendors can use one of two strategies when building their products: Interoperability, where the vendor works to assure that its stuff works in heterogeneous environments, and lock-in, where the vendor assures its stuff just works great with its own things in a homogenous environment.

[ Feature: CIOs Bemoan Lock-in and the ‘False Flexibility’ of the Cloud ]

While there can be advantages to a homogenous shop, there’s also an obvious problem: The vendor knows you’ll pay whatever it charges and focuses all its efforts on customer acquisition, not retention, since you’re locked in. Eventually, you’re screwed – and so is the vendor, because those customers eventually escape.

An interoperability strategy forces a vendor to make its customers happy to reduce churn costs. You choose to have a homogenous shop to get the benefits of simplicity. It’s your choice, not the vendor’s.  

An interesting side comment: Until early last decade, Microsoft used a lock-in strategy and latterly hit a wall with their enterprise efforts. The European Union forced the firm to shift to an interoperability strategy – and, as a result, its enterprise efforts have become far more successful.

Do They Provide a Great Place to Work?

The reason for this question is employee and executive churn. The more stable a vendor’s workforce, the better it can communicate accurate strategies and road maps. Just as important is the fact that the technicians and salespeople learn about your firm, which makes them more valuable to you. A vendor constantly doing layoffs or otherwise experiencing for churn can’t tell the truth about its future because that future is in too much flux.

[ From ComputerWorld: 100 Best Places to Work in IT in 2014 ]

It may take years to realize the full value for large solutions, but if the vendor constantly changes direction and provides inconsistent support, you’ll probably never see that value. More important, you won’t be able to trust what the vendor says is coming, because there’s no way anyone will actually know.

To answer this question, look at sites such as Glassdoor (and you’ll find out things about the vendor you probably never knew). Or simply ask the folks who come to present to you how long they’ve been at the firm. (For more honesty, ask them over drinks.) This is how I found out years ago that Digital Equipment was failing; I started chatting with folks after an impressive presentation, and they started pushing resumes at me. Suddenly, I knew the firm was toast.

Do They Use Analytics to Make Decisions?

This is especially important for firms that sell analytics products, but I covered that in the first point. Analytics are the new secret sauce for making more measured, fact-based decisions. More-informed executives tend to make better decisions – but, in any company, executives can be so far behind the technology curve they’re effectively obsolete. These executives tend to avoid new tools like the plague – it’s simply too big a jump for them to make decisions using a new tool. The end result: The company enters a death spiral but simply doesn’t know it yet.

The most important place you want to see this is for customer care, as this analytics lets the vendor understand your problems. Years ago, when Steve Ballmer was still talking to people like me, he pointed out that Microsoft had so many customers that he couldn’t understand any of them individually.

[ More: Forget Big Data, the Value Is in ‘Big Answers’ ]

Analytics can fix problems such as this. You want a firm that has the capability of understanding and responding to your unique needs; without analytics, big firms just can’t do this. Since companies tend to grow after they increase their customer base, using analytics even in the midrange is still important.

Do They Measure Executives Using NPS?

The Net Promoter Score is a method of measuring true customer satisfaction. Most customer satisfaction efforts are pretty worthless, since they measure in a vacuum and tend to focus more on getting a high score than on creating true satisfaction. NPS is harder to game. However, since it measures how actively customers advocate the products and company, it’s easier to see when folks are artificially inflating their scores.

This measurement focuses executives to create advocates out of customers, which means they do care what you think and what your experience will be. Having executives measured as much on how ecstatic you are as they are on how much money they get from you should be a requirement of any vendor you select. Money is their benefit, but satisfaction is yours.  

Making the World Better, One Vendor at a Time

Services such as Ombud can help institutionalize practices that focus on the strategic parts of vendor selection, not just on product features and capabilities. (Editor’s note: Enderle is a co-founder of Ombud and serves on the advisory board.)

Within every vendor you’ll find people fighting the good fight, trying to make their firm more responsive. It’s in your best interest that those people win over those who just want to wring as much money out of you as they can.

If you adopt the criteria outline here, you’ll do your part to not only make IT vendors stronger. You’ll also make your own company a better, more successful place to work as your own executives see that these practices are the best path for their own careers. Let’s call this our effort to make the world a better place, one vendor at a time.