by Patrick Connaughton

How to Measure Your IT Vendor Management Office

Mar 25, 2010
IT Strategy

It's nearly impossible to govern vendors effectively if you haven't included the appropriate terms and requirements into selection and contracting, says Forrester's Patrick Connaughton. Here, he shares the key points that your vendor management experts should be delivering on to the business.

Over the past few years, many companies have taken the first steps in setting up an IT Vendor Management Office (VMO), but many are still very much in the early stages of refining what exactly the role of the VMO is within the organization. And the definition of a VMO can vary widely across companies — ranging from a broad marketing term used to describe the process or a specific term used to refer to a dedicated group of staff who oversee and manage suppliers.

The Vendor Management Bible

The scope of the dedicated team’s responsibilities also varies. In organizations where sourcing and purchasing teams are not actively involved throughout the life cycle or where there is a low level of process maturity, the VMO can take on a more holistic role. The VMO’s responsibilities can span from RFP creation, vendor evaluation, negotiation, contract management, vendor relationship, to ongoing performance management.

When this is the case, Forrester’s research has found that the VMO does not necessarily own the pre-contract steps but is a driving force behind promoting best practices, providing contract and negotiation templates, facilitating communication, and helping define the vendor key performance metrics. This is becoming particularly prevalent as companies realize it’s nearly impossible to govern vendors effectively if they haven’t included the appropriate terms and requirements into the selection and contracting — pushing VMOs to participate actively in these steps early on.

CIOs and other sourcing professionals charged with measuring the efficacy of their companies VMO offices should do the following:

Provide guidance during the RFP creation project. One of the most important services a VMO can provide is high-quality guidance during RFP creation. By getting involved early on, the VMO can not only provide templates and best practices but also help bridge the requirements silos between multiple business units. Look to gather stakeholder feedback specifically on how well the VMO helps ensure consistency and transparency throughout the process, performs vendor risk assessment, brings industry research to bear to identify competitive candidates, identifies existing vendor relationship to leverage — all while not adding unnecessary cycle time to the sourcing event.

Develop a more structured approach to negotiations. Companies that might have previously treated vendor negotiations as more of an art than a science are starting to appreciate the value a formal negotiation methodology can bring. And many of these companies are looking to the VMO for help. Have stakeholders assess how well the VMO enables a more formalized negotiation approach, leverages existing performance metrics for renegotiations, collaborates across finance and legal to put the right set of SLAs in place, and ultimately realizes vendor concessions that would not otherwise have been achieved.

Help put better contracts in place. VMOs can also play a significant role in contract review and ongoing management. Initially, the VMO should be a source of templates that have been vetted and are written in favor of your company. Survey stakeholders on how effective but also flexible these contract templates are, as well as the VMO’s contract review methodology itself. Once the contract is in place, look to gather feedback on how well the VMO is effectively monitoring key contracts for compliance issues and resolving conflicts with the vendors — again, while not adding unnecessary cycle time to the contract review and management process.

Regularly evaluate relationship and performance management. By having a VMO own the negotiation and contract management process, business managers can report that their day-to-day working relationships with the vendors improves. Look to measure your own business leaders’ perspectives on this, as well as how effective the VMO is on reporting potential performance issues in a consistent and transparent way, responding quickly to vendor questions, and ultimately driving out higher quality at a lower cost from suppliers. VMOs should also be measured on how well they improve key vendor relationships with initiatives like vendor recognition programs.

Solicit feedback on VMO performance. To better understand stakeholder perception and actively solicit feedback during and after each sourcing event, Forrester recently assembled a 40-question survey (registration required) to measure the level of internal user satisfaction. Companies can use the entire survey if the VMO is involved throughout the sourcing life cycle or scale it back to include only post-contract activities as needed. Similarly, this survey can be used to gauge the performance of a broader sourcing group that has responsibility for the full life cycle. The key is the set of responsibilities, not the title of the group. In the early stages of VMO development look to roll out frequent feedback surveys and interviews. As the VMO matures, quarterly or even yearly should be sufficient.

Patrick Connaughton is a Senior Analyst at Forrester Research, where he serves Sourcing & Vendor Management professionals. To download a copy of the survey mentioned above, please visit