Today, as companies seek to both consolidate their vendor relationships and multisource, they tend to engage with a small number (typically \n\ntwo to nine) of preferred, very large IT services vendors that can be centrally governed. The strategic objectives of consolidation are important: \n\nServices clients can prequalify a few preferred suppliers that all users of IT services can easily and safely engage with. However, given the rapid \n\npace of technology change, the need for agility, the new business stakeholders, and the rise of cloud services, a company's IT and innovation \n\nrequirements are often best met by multiple best-of-breed suppliers. Vetting privately held vendors can be a big challenge -- so much so that some Forrester clients are required to use publicly traded vendors \n\nonly for critical services. However, in this technology environment, that approach will preclude you from accessing some of the best innovations. \n\nInstead, companies need a structured yet flexible approach that evaluates the vendor's stability as well as its service, solution, or delivery \n\ncapability. Sourcing and vendor management (SVM) professionals who are thinking about a services initiative should consider several factors \n\nwhen evaluating their needs versus the needs of the marketplace:Start with Financial Stability -- It's Just that ImportantWhile different types of services relationships require different types of evaluation criteria, all prospective services vendors must be \n\nevaluated for financial and legal stability. The last thing you need is for your IT strategy, data, and resources to be tied up with a vendor that's \n\nheading south. A vendor that has problems in any of these categories should be taken off the evaluation list. Don't overlook the importance of investigating the prospective vendor's track record and talking with references. Companies must be \n\nprepared with meaningful questions related to the references' positive and negative experiences with the vendor. Clients should also endeavor \n\nto find other clients of the services provider rather than just the vendor-supplied references, since the vendor-supplied references are likely to \n\nbe the most satisfied clients.Now it's Time to Evaluate the People -- Human Capital ManagementBecause services businesses are so people-dependent, it is essential to understand the vendor's human capital management approach and \n\nthe quality of its people. While this action may be unnecessary for the large cloud-based solution providers (e.g., Google and Amazon.com), it \n\napplies to virtually every company you plan to have a personal connection with. Be sure to evaluate the quality of technical personnel, internal \n\ntraining programs, and quality of account management personnel. Customers should also seek to determine how and under what circumstances \n\na supplier will subcontract, and they need to ensure that they approve of all subcontracting activity. The Supplier Passed the Analysis, But is it the Right Fit for Your Firm?\n\nOnce financial and human capital elements are addressed, clients need to consider alignment with their own needs. To maintain a successful \n\nrelationship, firms and suppliers should be on the same page regarding:\n\n\u2022 Methodology\/Knowledge Management: Companies should look at methodology as a library of best practices that can be used \n\nto provide consistent training for services providers' own internal consultants and as a means of achieving high productivity, consistency, and \n\nquality on client engagements. In best cases, consulting firms require and\/or compensate consultants for depositing lessons learned into the \n\ncompany methodology or knowledge management system. This practice ensures that the methodology is living and constantly being refined. \n\n\u2022 The Ability to Coach and Transfer Knowledge: The ability to transfer competency (e.g., improved development processes) to \n\nclients is an important source of value in integration\/outsourcing relationships. In the modern world of Agile and software-as-a-service (SaaS), for \n\nexample, knowledge transfer is still important, if not more so. Many corporate development shops, moving to more Agile-like methodologies, will \n\nrequire coaching to make the engagement work and to prepare internal staff to use a new approach to software development. On the SaaS or \n\nplatform-as-a-service (PaaS) front, companies have similar requirements since they need to learn how to integrate these services and platforms \n\ninto their existing IT organization. Make sure that you understand how your vendors achieve the required knowledge transfer and seek \n\nreferences on their knowledge transfer capability.\n\n\u2022 Functional Breadth\/Depth: Integrators and outsourcers have varying degrees of expertise in their functional offerings. \n\nFunctional offerings include horizontal capabilities, such as data center outsourcing and desktop asset management. The breadth of functional \n\nofferings is significant in large-scale engagements, like full-service outsourcing. In more cases today, the depth of the functional expertise will be \n\na primary consideration. For example, you may be using a vendor such as ThoughtWorks for Agile application development. In this case, you \n\nwould only care about the depth of its capability in this area and not about its breadth of offerings across the IT stack.\n\n\u2022 Vertical Breadth\/Depth: Deep vertical business expertise and technology capability is required to help clients optimize or \n\ninnovate. Customers should evaluate a vendor's vertical capability not just by looking at revenue per vertical segment but by also looking at the \n\ncredentials of the vendor's vertical consultants\/experts and the customer references.\n\n\u2022 Scalability: Companies must make sure that a prospective vendor is sufficiently large (or small) to accommodate their project. If \n\nthe largest similar project the vendor has dealt with before is significantly smaller than the one you are considering, you need reassurance that \n\nthe vendor can step up in terms of staff, infrastructure, and process. Conversely, if your project is much smaller than the vendor's norm, this is \n\nalso a risk. Clients that fall into the "small fish in a large pond" category rarely receive sufficient management attention.\n\nRemember that some criteria will matter more to your internal IT and business contacts. \n\nWhile methodology may not seem as important as it relates to cloud providers or even very niche services providers, it is still very important \n\nto your internal customers. These customers will need to understand how to implement and integrate their cloud solution, and they will need to \n\nensure that their niche services providers have the ability to consistently deliver on their promises.\n\nStephanie Moore is a Vice President and Principal Analyst at \n\nForrester Research, serving Sourcing & Vendor Management professionals. She will be speaking on the services innovation mandate onstage at \n\nForrester's upcoming Sourcing & Vendor Management Forum, May 24-25, in Las Vegas, NV.