360° Vendor Management

Outsourcing Vendor Management: Myths and Reality

Here are some frequent myths related to outsourcing vendor management.

Myth #1: We Need Software - There are many, many companies espousing the need for enterprise-class software to manage the complexities of outsourcing relationships.  There are probably as many diet and exercise fads, too.  What makes these two divergent products similar?  Both have buyers who lack control and they are looking complex solutions, when the actual solutions are simple do-it-yourself (in most cases).  What most people need is intranet-based collaboration tool (like Microsoft’s SharePoint) and a reporting tool (like Microsoft’s PerformancePoint).  These solutions are neither expensive or complex.  Remember, expensive and complex software packages are the hardest to convince people to adopt…and adoption is the name of the game in business process tools (e.g., Sales Force Automation (SFA), Customer Relationship Management (CRM), and e-commerce/sourcing tools). The best places to invest money is in reporting and intranet sites that make content visible.

Myth #2: An Operations Manager Can Do This Job - Maybe he can.  However, vendor management typically requires the relationship skills of a director, the ability to drive initiatives through cross-functional, unaligned organizations (typically a senior director skill), and the hands on day-to-day operations and analytical skills of an experienced manager.  The challenge, however, is to find a candidate with all the skills of a director, but who wants to get his hands dirty every day.  Candidates that lack the desire to manage operations with zeal, will not achieve results.  Candidates that lack the ability manage relationships and cross-functional differences will struggle with effectively and respectfully compelling vendors to deliver results.  Your HR team is your secondary challenge, because they’ll likely want to grade the position at the manager level, but the resource clearly has skills beyond this and is managing hundreds of vendor agents, too.  Vendor manager positions are best positioned as director level positions.

Myth #3: Focusing on Service Level Metrics Is Sufficient - If you believe driving a car requires only the ability to read the speedometer, odometer, and gas tank gauge, you’re crazy.  Experienced executives know the importance of leading indicators and micro-metrics.  This is the type of data that suggests that future problems loom.  SLAs typically are 4-6 metrics that measure the key outcomes, but managing an operation requires an operations-like focus on the metrics that drive overall results, such as training completion rate and staffing accuracy.  Remember, you outsourced the day-to-day work, but not the management oversight or responsibility to achieve metrics.

Myth #4: It’s All in the Contract - Most likely, it’s not.  When you realize this, it’s a) too late and b) going to cause a hate-fest with the contract negotiators.  I’ve seen many contract negotiators fired months or years after contract execution once the business realizes something is missing in the contract.  Hindsight is 20/20 they say, and few executives understand the negotiation trade-offs that were made many years ago.  The two simple truths are:

• The contract will never, ever fully encapsulate the entire outsourcing relationship.  You need to spend time developing processes and documentation to support the relationship’s many different facets (e.g., disaster recovery).
•  The contract is a historical document and reflect the desires of both parties at the time it was negotiated.  You need to spend time updating the document to include changes and current issues and perspectives.

Myth #5: Vendors Don’t Change - This may seem obvious, but take a moment to complete this exercise: First, close your eyes and reflect on the changes that have occurred within your company over the last few years.  Do you remember the process improvements, organizational changes, competitive pressures, technology implementations, and changes in personnel?  Next, think of your vendor and consider the changes they may experience over several years.  Anticipate change in both your company the vendor’s and strive to capitalize on the opportunities those changes present.

This entry was posted on Wednesday, March 28th, 2007 at 7:57 am and is filed under Outsourcing Vendor Management. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.