Almost one fifth of the firms that the world’s corporate IT teams buy services from are startups or firms that the buying company hasn’t used before. Which isn’t surprising given how firms are increasingly looking for new digital capabilities to seize an advantage over each other.
CIOs also report that 40% of their vendors support a specific business niche rather than provide broad range of solutions. If you speak to the many CIOs and IT managers that are sourcing these niche vendors and start-ups, you will hear time and again that it’s quite a different experience from working with the more established, slicker multibillion dollar global vendors that have dominated the IT landscape for so long.
Many of these smaller firms are often still developing their ability to engage customers, and most of them have fewer resources directed to client relationship management roles. This means that managing their performance often requires more time and oversight from already strained IT vendor managers at the buying firm.
Banking on New Vendors
The CIO of a leading financial services company in CEB’s member network of IT professionals agrees that the new vendors his team works with tend to require more coaching and oversight before they become fully productive.
In response, he redefined the mandate of his dedicated vendor managers to use limited IT resources efficiently. The team take three steps to reduce this burden on their IT vendor managers and make startup and niche vendors more productive.
Focus vendor managers on unstable but high-value vendor relationships: The bank devotes the expertise of its IT Vendor Management Office (VMO) to managing the rising number of new and unpredictable vendor relationships, which are not necessarily the largest contracts.
New and less mature vendors tend to have smaller value contracts but may introduce disproportionate risk and thus, benefit from vendor manager oversight over more stable and often large contract value relationships.
For stable relationships, the VMO delegates’ day-to-day management for most activities to other roles within the function while providing a clear path for escalation.
Collect best practices from IT, business partners, and vendors: As the VMO has to act as the face of the company to new and less mature vendors, the team collected advice and guidance that would be helpful to companies just starting to work with them.
They then organized this advice and coaching into a “playbook” designed as a self-service coaching tool for vendors. This not only helped scale-up the way VMO expertise was used but also provided important advice for new and less mature vendors learning to work with the firm and the IT function.
Incorporate best practices into contracts: Often, vendors sign on to work with a company without fully realizing what is expected of them. This issue is particularly prevalent among new and less mature vendors that often have limited experience working with large organizations.
The IT VMO in this instance used the best practices collected in the coaching playbook to set expectations of its preferred behavior into contracts. Including best practices up front in vendor contracts sets clear expectations and enables vendors to opt out of a relationship that looks like a bad fit.
By taking this approach, the bank was able to manage more vendors with fewer resources and improve the performance of niche and startup vendors.