Vendor Management is the key to successful outsourcing

Vendor Management is the key to successful outsourcing

Managing complex outsourced agreements to deliver the required outcomes isn’t anything new but continues to be a major challenge for IT leaders everywhere.

You’ve outsourced some of your IT to a third party with the expectation of making cost savings and taking advantage of their expertise to improve the service being provided to your business. However, the business and your customers are still not happy about the service, yet, in your regular monthly reviews, everything is supposedly fantastic, with all SLAs being reported as green. What’s the problem, and what can you do about it?

It’s not unusual for third parties to assign the ‘A’ Team to a contract in the beginning, but as the engagement progresses, and settles down, this expensive ‘A’ Team is gradually replaced by a less experienced, ‘B’, ‘C’ or ‘D’ Team. These teams won’t be familiar with the contract, what it entails, and will fall into the trap of doing things in a certain way that doesn’t reflect what’s in the contract. What’s more, they tend to focus on simply ‘turning the handle’ and not trying to improve things, despite the benefits for them in doing so. As a result, corners may get cut, and teams can get offshored and reduced in size, all with the aim of cost reduction to make the agreement more profitable.

From the experience gained working with several companies to address this challenge, we highly recommend that you assign a strong vendor and supplier management team. This team will understand the contracts, the intention of the contracts, and will act as an interface between the outsource management and the internal IT management team. Ultimately, this team will hold the outsourcer to account for the services provided and not be afraid to address things when contractual obligations aren’t met.

So, what should your priorities be to ensure that your supplier management team can manage your third-party vendors effectively?

1.    Get the contract right from the very start

The most fundamental thing is to get the contract right at the outset as it is difficult to ‘row back’ from a contract that isn’t constructed to meet your business needs. The contract needs to reflect the business / service outcomes that you’re looking for, so that these outcomes can be baselined and continually measured.

2.    Develop a Plan

It’s important to not just rely on the contents of the contract and put a plan in place for managing the on-going engagement. Make sure that there are clear roles, defined responsibilities, and interfaces established on both sides. We recommend that you develop an agreed supporting terms of reference as to how the relationship will be governed, and that this is a `living` document that is regularly reviewed and kept up to date.

3.    Meaningful Reporting

Make sure that you identify the reports required to monitor the performance of the third-party vendors on a periodic basis. It is key that reports are clearly documented, detailing what they are to be used for and how they are to be created. There must be no ambiguity, as you frequently see third parties being asked for a report, but it not being created as requested due to misunderstandings and misinterpretation. 

Also don’t just get reports for the sake of it. If reports aren’t adding any value, ask yourself whether they are needed.

4.    Carry Out Regular Audits

Don’t just rely on the information that is being provided by the third-party; make sure you are performing due diligence. Planning and scheduling regular audits will help ensure that you have clear objectives for what you are looking to achieve and that any results are objective and comparable. This allows you to draw the right conclusions rather than making decisions based on opinion and supposition. Part of this planning is to determine whether it is appropriate or necessary to audit or assess your third-party vendor by an outside party or using internal resources.

5.    Ongoing Performance Monitoring

Effective vendor management requires ongoing monitoring procedures to make sure that the vendor continues to meet expectations. It’s important to make sure that you have meaningful measures defined that you can use to monitor vendor performance.  Having methods available and in place to provide the checks and balances necessary to manage your third-party vendor are crucial.

6.    Manage Changes and Risks

A key part of your vendor management team’s role is to be aware of the risks associated with third-party vendor outsourcing, and how they should be managed and mitigated.  It’s important to consider the types of data that is accessible by the third-party, what types of transactions they perform on your behalf, where these activities are being carried out (and by whom), and where the data is hosted, etc. This, quite simply, is to determine the risk levels associated with the vendor. During the life of a third-party outsource contract, inevitably things will change.

7.    Plan for The Worst

Don’t assume that the engagement will be a success!  You wouldn’t have decided to outsource to a third-party vendor if you weren’t expecting it to be a success, however you need to be resilient and have an exit plan. Circumstances do change on both sides, and sometimes things don’t work out as expected. You need to have a plan for what you would do if the vendor terminated the relationship with you, or if you find it necessary to terminate your relationship with them, where perhaps you just aren’t getting the expected benefits or it is costing more than expected.

Establishing a vendor and supplier management team isn’t necessarily going to solve all the problems you have with your third-parties, and isn’t going to guarantee a successful relationship, but it will go a long way to helping you achieve the objectives that you had when you decided to engage an outsourcer.

iCore provides consultancy and a pragmatic approach in helping companies to change their IT Service Management capabilities to adapt to new and emerging technologies, frameworks, sourcing models and working practices. iCore consultants have extensive practical IT Service Management experience, working in technology departments for top 250 companies.

For more information about iCore and how we can ensure your IT Service Management goals are achieved, please email info@icore-ltd.com or call 020 7868 2405.