Selecting and Managing IT Vendors

CU360
April 14, 2008 | COMMENTS

The list of external vendors used by even a small IT shop is often long. Vendors provide products and services across a wide variety of categories—telecom, networking, consulting, software, and hardware. Often, the department uses multiple vendors. Given the reliance of financial institutions on IT-based services, the process for selecting—and managing—major outside service and product providers is critical.

Recently IT Managers Journal described a comprehensive methodology for determining the "best" vendor.

Why Vendor Management Is Important

The successful selection and management of vendors plays a large part in determining the overall success of the IT department. Successful selections are often complex and lengthy processes that require the collection and analysis of large amounts of information. Vendor-supplied technologies are often the largest pieces of the IT picture and have the largest impact on end-user satisfaction. Well-thought-out vendor choices and solid vendors who behave as partners can ease the work of the IT manager considerably. Conversely, poor vendor selection can hamstring the organization with constant fire fighting, failed projects, and angry users.

Vendor interests and incentives, unfortunately, are not always precisely aligned with those of the CIO. While client satisfaction is part of the equation for vendors, so are other factors such as profitability, sales commission, and market penetration. To make sure any deal is productive for the IT department, the CIO or department director must supervise and actively manage the delivery of services and products to ensure that execution is consistent with expectations of the organization.

Picking reliable vendors is a high-risk proposition. The selection and subsequent implementation of software or hardware can go awry, wasting millions of dollars, disrupting the business, and ending careers for IT staff. The IT landscape is littered with failed projects, many of them conducted inside successful companies and supervised by smart IT managers.

Experience has shown that IT managers are at a significant disadvantage in the vendor process, particularly vendor selection. A technology professional may manage vendor selection for package software a handful of times in his or her career, whereas his or her counterparts on the vendor side are generally senior-level sales professionals who close multiple deals each year. This puts the IT manager at a distinct disadvantage to the vendor, from an experience standpoint alone.

Compounding the issue is the fact that once a vendor selection is complete, it's generally difficult to undo. If it turns out that better vendors are available, often the sunk-cost and contractual obligations prevent them from being used. Because of the high investment in hardware, software, and services to deploy a vendor product, the opportunity to replace a vendor may appear only once every few years, at best. This means that vendor selection can be a one-way street with very few turning-off points.

The IT vendor selection process includes these steps:

• Define scope for the product (or service) being acquired
• Identify a team to support the selection process
• Identify potential vendors
• Issue a request for proposal (RFP)
• Select vendor finalists
• Perform due diligence on finalists
• Select supplemental vendors (if needed)
• Complete project planning
• Negotiate final vendor pricing

Key points to observe include:

1. Ensure that at all times the effort is being managed, organized, and driven by the IT manager in charge. Top vendor sales professionals did not reach that status through passivity. Vendors will take on as much of the work, and own or drive as much of the effort as the manager lets them, to remain in control of the process.

2. Maintain the evaluation team's discipline in creating, updating, and maintaining documentation for the analysis. Keeping clear documentation on the raw data, analysis, and outcome of each step helps explain to outside observers how decisions were reached, serves as organizational memory, and—most importantly—ensures that no steps are skipped and that the analysis is completed in a rigorous fashion.

3. Prepare a detailed requirements analysis done in preparation for the vendor analysis process. Complete this step long before the first vendor is contacted. Vendors have perfected the courtship required to manage clients through the sales process, and if IT managers have not done their homework in the form of the up-front analysis and scope work, they will be at the mercy of a sales process they neither control nor fully understand. The result can then become a distorted, suboptimal outcome.

For more on this topic see "The Executive's Guide to Information Technology: 2nd Edition," by John Baschab and Jon Piot of Technisource.