Keeping track of bids, vendor performance, previous\n contract terms, alternative providers and technology\n differences was taking too much time for Bernard\n \u201cBud\u201d Mathaisel as he settled in as CIO of\n electronics manufacturer Solectron in 1999.\n MORE ON Managing Vendors\n \n 7 Ways Tech Vendors Blow the Sales Pitch\n \n Intro to Vendor Management\n \n Intro to Service Level Agreements\n Many of Solectron\u2019s vendors were also customers, which\n just complicated the job politically. Seeking a more\n disciplined approach, Mathaisel partnered with\n Solectron\u2019s assistant procurement officer, Jeff Dixon, to\n create a virtual vendor management office (VMO) staffed by IT\n and procurement employees. \u201cThe result is that the CIO\n could be a decision maker without having to run the\n process,\u201d Mathaisel says. Now CIO of manufacturing\n outsourcer Achievo, Mathaisel brought that discipline with\n him.Likewise, Dixon has brought it to Cisco Systems, where he is\n now director of enterprise software and outside services for IT\n vendor management services. \u201cWe take care of the trees\n and let the CIO focus on the forest,\u201d Dixon says.Dixon estimates a tenfold return in the staffing investments\n of a vendor management entity\u2014from better deals through\n consolidated purchasing, and from avoiding the costs of\n straightening out piecemeal or short-term deals later.\n \u201cThat doesn\u2019t even count the intangible benefits,\n such as having a flexible contract or reducing supplier\n risk,\u201d Dixon adds. Following a similar approach,\n Accenture CIO Frank Modruson calculates that his company has\n experienced significant savings.Creating a formal vendor management office is smart, says\n Marc Cecere, a VP at Forrester Research, yet many enterprises\n have not done so. A July 2006 Forrester survey showed that 47\n percent had some sort of formal vendor management\n groups\u2014but 90 percent of the rest had no intention of\n doing so. Such enterprises risk being at the mercy of savvier\n vendors, he warns.Most enterprises underestimate the need to actively manage\n their vendors, concurs Judith Hurwitz, president of consultancy\n Hurwitz & Associates. Their IT staffs often lose the\n perspective needed to ensure they\u2019re getting the best\n value from the relationship, she says, as the emotional\n connections nurtured by the vendor take hold.\n \u201cThat\u2019s why the vendors\u2019 salespeople are paid\n so much,\u201d she notes.\n\n Why Bother With a VMO?\n With a vendor management office, your goal should not be to\n create a firewall between IT and the vendor, using a\n procurement group as a proxy, but to be smart and consistent\n within the enterprise about managing multiple aspects of any\n vendor relationship. That\u2019s why a formalized approach\n that combines IT, procurement and legal people makes sense,\n says Joe Pucciarelli, program director for technology financing\n and management strategies at IDC (a sister company to\n CIO\u2019s publisher).At many enterprises, the CIO has de facto responsibility for\n managing IT vendors, but the day-to-day reality is that\n individual departments, technology platform owners and project\n offices manage vendors for their local needs, perhaps tapping\n into corporate procurement and legal staff for some of the\n tactical contracts and pricing analysis. That can work in\n smaller companies with a small number of vendors, where the CIO\n or a few IT execs can keep the information in their heads,\n Cecere says.CIO Dan Demeter doesn\u2019t want a vendor management\n organization outside the CIO\u2019s domain at talent\n management firm Korn\/Ferry International. \u201cThey tend to\n treat IT sourcing as they do buying toilet paper,\u201d\n focusing on price and not understanding the underlying\n technology issues that affect IT\u2019s ability to serve\n business needs, he says. \u201cIf you give [vendor management]\n away, you really take away a lot of the control, not just over\n prices and contract terms but over the relationship and\n support.\u201dBut Demeter says that CIOs of large organizations need\n vendor management because of their scale. \u201cIt\u2019s\n essential because of all the technical details,\u201d he says,\n citing his previous experience at Citibank.The changing nature of technology procurement\u2014from\n hardware and packaged software to provisioning of\n infrastructure, software and business processes as\n services\u2014also supports the use of a more formal vendor\n management approach that crosses departmental boundaries, says\n Rob Watkins, CIO of food management company Compass Group, The\n Americas Division. \u201cAs you have more outsourcing\n providers that cross departments, there\u2019s an opportunity\n to manage these relationships strategically,\u201d he\n says.\n\n Integrated Vendor Management\n You don\u2019t want to make IT vendor management only an IT\n function or only a separate corporate function, says Dan\n McNicholl, chief strategy officer for General Motors\u2019 IT\n organization. \u201cYou need to balance the competing goals,\n specialty skills and the broad relationship,\u201d he\n says.Among several ways to institute a formal vendor management\n organization, the most common choice is a virtual approach:\n Here, you assign procurement and legal staff to IT vendor\n management, and use IT \u201caccount managers\u201d to\n coordinate all aspects of specific vendor relationships and IT\n \u201cscouts\u201d to assess technology and market trends\n that may change needs later.With this arrangement, you maintain the typical client\n relationships with the vendor, such as having engineers work\n with vendor support staff. \u201cThe vendor management needs\n to be ingrained at all levels,\u201d says GM\u2019s\n McNicholl, and then coordinated. Although some CIOs worry that\n procurement staff only want to squeeze the last nickel from a\n vendor, Achievo\u2019s Mathaisel believes they bring real\n value to the vendor management process. \u201cYou gain a rigor\n and a discipline that financial people naturally have,\u201d\n he says.It makes more sense to create a virtual office than to\n establish a VMO as its own department, Mathaisel says. For one\n thing, financial and legal staff can rotate through the virtual\n group as part of their career development while maintaining a\n career path in their departments, he notes. These staffers\n often end up learning new skills that help them move into\n compliance activities when they return to finance, Mathaisel\n says. IT staff often have the same concerns. But when\n it\u2019s safe to take on vendor management roles, the IT\n staffers often find new, unexpected opportunities, he says.Not every vendor or deal gets the attention of a vendor\n management office\u2014nor should it, says Gary Plotkin, CIO\n of The Hartford\u2019s financial services property and\n casualty division. The goal is not to build a bureaucracy but\n to devote management resources to those relationships that have\n the most impact or potential impact on enterprise strategy, he\n says. At The Hartford, Plotkin has a threshold of several\n hundred thousand dollars to determine what vendor relationships\n are managed through the formal vendor management process.\n There\u2019s good reason to set thresholds of spend, says\n Accenture\u2019s Modruson: \u201cThe rigor costs money, so\n you want to be proportional to the spend.\u201dThe Hartford assigns an IT manager to each vendor that\n surpasses the threshold. \u201cThat\u2019s the go-to\n person,\u201d Plotkin says. Some vendors whose business volume\n is very large get a senior vendor relationship manager, such as\n Plotkin or one of his deputies, assigned to them as well. A CIO\n or CTO can work directly with a vendor\u2019s CEO or CTO in a\n way that, say, a network operations manager can\u2019t, so\n having multiple relationship levels is important, Plotkin\n says.Achievo\u2019s Mathaisel, GM\u2019s McNicholl,\n Cisco\u2019s Dixon, Compass\u2019s Watkins and\n Accenture\u2019s Modruson follow the same basic model as The\n Hartford\u2019s Plotkin.\n\n More Benefit to Come\n Although enterprises that have a formal vendor management\n group clearly gain both monetary and strategic advantages,\n IDC\u2019s Pucciarelli believes there\u2019s still more value\n to be had\u2014from better management tools. \u201cThe\n biggest procurement analysis infrastructure in IT is\n Excel,\u201d he says. Some useful technologies in place for\n supply chain management are now being adopted for IT vendor\n management, Pucciarelli says. He expects more offerings in the\n next five years.But technology can only support your people and process, he\n adds. \u201cYou need a team that steps back and understands\n the business value,\u201d concurs consultant Hurwitz.Why haven\u2019t more enterprises formalized their vendor\n management practices? Some fear that top-down control will lead\n to excesses, such as confusing initial price savings with\n long-term value, says Forrester\u2019s Cecere. And some\n companies are too small or have too few vendors to need more\n than a CIO\u2019s focus on the issue, he says.Others don\u2019t see vendors as entities to manage\n strategically, says Achievo\u2019s Mathaisel: \u201cIf you\n want a master\/slave relationship with your vendor, this is a\n waste of time.\u201d The remaining enterprises should\n reconsider their opposition to the idea of formal vendor\n management, he says; \u201cit is very much worth the\n effort.\u201dGalen Gruman can be reached at firstname.lastname@example.org.