We discuss the importance of having an IT vendor management strategy to streamline processes, boost efficiencies, control costs, and reduce risks inherent to IT.
While there are many IT tasks you can keep in-house, there will also be some functions better handled by third parties — whether it’s because of its complexity, security concerns, or another reason. An IT vendor management strategy can help you work with vendors to benefit your company.
At its core, vendor management is your company’s process to manage external business partners that help execute many IT activities. The types of vendors a company uses will depend on the nature and specific needs of that organization.
Regardless of the number of vendors your company relies on, creating a robust, strategic IT vendor management program ensures your company will receive the best services, risk reduction and pricing for products and services provided. It also will help improve profit, effectively manage costs and deliver customer quality goals.
Outlining an IT Vendor Management Strategy
While it’s not a simple task, creating a process for the selection, onboarding and ongoing management of your company’s IT vendors will be well worth the efficiencies created long term.
It’s important to get buy-in from members of the IT department, external departments, HR and management as you lay the foundation for your IT vendor management guidelines, as these will be your go-to guide when it’s time to bring in outside resources. Ask for input regarding requirements to ensure you meet organizational needs and don’t miss anything that could jeopardize the process.
Step 1: Determining Company Needs and Spend
Before you select vendors, evaluate what you can do in-house and what would be better to outsource. Whether it’s because you lack in-house capabilities, don’t have the time to devote to a particular task, or simply need help periodically, vendors can help fill gaps short- or long-term.
According to Gartner, technology spending was expected to increase 8.6 percent in 2021 over 2020, with a projected total of $4.2 trillion. A large portion of IT spend is with the vendors that supply products or services, including managed services, cloud-based services, software and hardware. Vendors might include those who provide:
- Telecom, such as cell phones or Local Area Networks (LAN)
- Software maintenance, including license costs for Microsoft, Oracle and other programs
- Network and help desk services
- Cloud and hosting services
- Contract software programming
- Social media services
- Equipment leasing.
According to the Spiceworks Ziff Davis’s, The 2022 State of IT report, “53 percent of businesses in North America and Europe anticipate year-over-year tech spending to increase and 35 percent predict it will stay the same. Among businesses planning to boost tech spending in 2022, IT budgets are expected to grow by 26 percent (31 percent in North America vs. 21 percent in Europe), on average.”
Step 2: Vendor Selection
The next step in your IT vendor management strategy is finding a vendor you trust that understands your company’s goals and objectives and can help you reach identified goals, which is critical to a successful vendor partnership.
When you’ve determined you need a new IT partner to provide services, create a Request for Quote (RFQ) or Request for Proposal (RFP). These formal documents allow vendors to elaborate on their ability to serve your business and create a common reference point for those who plan to submit a proposal. Your company’s RFP or RFQ should include:
- Introduction and executive summary
- Services to be provided
- Project goals or desired outcomes
- Capacities required, including size and timing
- References for interested vendors.
If there’s a vendor you’re interested in learning more about, be sure to invite them to bid on your proposal.
Once you’re past the deadline for proposal submission, create a list of vendors who best meet your requirements. Host either one or multiple meetings with each vendor to better understand what they can bring to the table, the benefits of selecting their proposal over others, and the potential drawbacks of working with them. This also will allow you to discuss pricing and fine-tune what should be included in the contract.
If you find that none of the companies can meet your goals, don’t be afraid to change the RFQ requirements and rebid. This will delay hiring a vendor. However, getting this step right initially can save you a hassle later on by helping ensure you find the right match.
Step 3: Negotiate the Contract
Your contract will help ensure both parties understand the relationship and will help ensure success. If any issues arise, the contract should provide clarity as you determine the next steps. Once you have fine-tuned the contract, you can implement vendors and set up payment.
Until a contract is signed, there’s still room for negotiation. Make sure you don’t release other qualified vendors until both parties have signed on the dotted line. The contract is a legally binding agreement that will include:
- Terms agreed to by both parties
- Services included
- Dates of service
- Cost for goods and services
- Other legal points, such as confidentiality, product ownership, how to handle data, governing law, non-compete or special circumstances.
Both companies should seek to minimize risk financially, legally and operationally while also getting favorable terms. This step may take some time, but you should focus on covering all bases should any issues arise in the future.
Step 4: Vendor Onboarding
Once both parties have signed the contract, it’s time to start onboarding your new IT vendor. This step of your IT vendor management strategy includes getting the company into your business network to maximize efficiencies and streamline processes.
Collect documents, such as insurance and tax details, and ensure your vendor is set up in internal business systems, such as payables. Ensure both parties understand how and when to submit invoices and how you will pay them.
If your vendor needs access to specific software or programs, ensure they have the right level of access, along with log-in details. This may require some training and knowledge transfer as the vendor learns how your company operates in greater detail.
Step 5: Tracking IT Vendor Performance
When you created the RFQ or RFP, you laid out your company’s needs. Next is an important step in your IT vendor management strategy: It’s time to use those desired outcomes to establish key performance indicators (KPIs) to track your vendor’s performance. Companies often have a dashboard or balanced scorecard approach that helps define and evaluate metrics for everything from cost to delivery, quality and more.
Companies should be fully transparent with their vendors with all expectations and outline an issue resolution process if the project or service hits a snag. Each vendor should understand what metrics you’re evaluating them against and what it means to be successful.
It may be helpful to schedule meetings in advance, whether they’re weekly, monthly or quarterly, so everyone stays on the same page, and you can communicate and proactively prevent any potential issues early in the process.
Step 6: Manage Vendor Risk
Hiring vendors isn’t without risk. It’s important to understand and mitigate risk as much as possible. Outline potential security, privacy, compliance and other risks and create a framework for how you control risk. Once you flag a risk, list remediation actions if a breach occurs.
Managing risks, especially for IT, is critical to success. In an increasingly online world, security or compliance risks are common. Take all the necessary steps to ensure your vendor’s performance doesn’t disrupt your business operations and outline steps to take when you’re alerted of a breach.
Best practices include to:
- Keep an inventory of vendors
- Catalog risks
- Develop a system to assess vendors
- Create multiple lines of defense against risk, including the ability to audit
- Define a contingency plan
You may never need a remediation strategy, but having one and keeping it up to date can help protect your reputation and financial security.
Step 7: Ongoing Vendor Management
Once your vendors are in place, it’s critical to manage the relationship. Providing strategy updates and communicating changes to your business’s goals, along with feedback, all are important to keep the partnership one in which both parties benefit.
- Communication is Key: Establish mandatory recurring meetings with vendors. The cadence can be more frequent initially, and then the time between them may naturally grow as both parties understand expectations and know the ropes. Make sure not to leave too much space between meetings, as this is a time to share business priorities, strategies and anything that might impact their work for your company.
- Strive for a Long-Term Partnership: Ideally, your vendor should be a long-term partner, as changing vendors frequently can impact quality. Ensure both parties understand operating structures and business models, so there are no gaps in services. Creating a long-term partnership is a win-win for both your company and the vendor, which often results in stronger commitment from the vendor, preferential treatment and, ultimately, leads to success.
- Ensure Value: It’s important to ensure that results are what your vendor promised and contractually agreed to deliver. Keep an eye on other companies or individuals who provide similar services to ensure you’re getting the quality you expect. If you notice complacency beginning to set in, address it immediately. Challenge your vendor to treat you as they would a new customer, striving to meet and exceed set goals and metrics.
Vendors provide needed and valued services to the businesses they serve. Outsourcing allows companies to focus on their core business while also maintaining compliance, streamlining processes and creating efficiencies.
Creating a robust IT vendor management strategy is a tall order, but while it’s a lot of work initially, once your framework is in place, your strategy (updated periodically) will benefit your company for years to come.