What the $^^@#$ is supplier performance management?

Procurement?  Operations?  That’s exactly the discussion Tim Cummins relates in his latest discussion on relationships and vendors.  Evidently, at the close of International Association for Contract & Commercial Management (IACCM), the final executive roundtable debated this issue.  As Tim says, they “questioned whether it is a role that Procurement groups are equipped to perform.”  Clearly, it’s a hot topic, as Forrester’s Sourcing and Vendor Management analysts have put governance on their 2010 agenda.  In my opinion, vendor management organizations are a bad design, but what about Supplier Performance Management?

First, what is Supplier Performance Management, also known as Supplier Relationship Management?  Is it tracking contractual commitments?  Is it driving greater value and innovation from vendor relationships?  Is it hosting quarterly meetings with vendors?  We don’t have the foggiest clue because the definition is broadly different from organization to organization.  In fact, one could argue that SPM and SRM is nothing more than consulting babble or analyst hype because it clearly is not a well defined process, like inbound customer service or accounts payable.  What is the day to day life of a SPM/SRM leader?  Why did the organization even create a SPM/SRM team?  Was it failure of one team to track the contractual commitments of a vendor?  Or was it the need to find greater value in existing relationships through broader, more strategic dialogue?

Who knows.  And I’ve read the literature available from analysts and consulting firms.  Outsourcing advisors call the function governance.  Manufacturing companies call it supplier relationship management.  IT organizations call it vendor management.  Procurement teams call it supplier performance management.  No one is in agreement on the name or the responsibilities.

What is clear is that there is a real need for companies who rely on strategic vendor relationships to manage these relationships from a perspective of value.  However, how do you do that?  What do you do in January?  In August?  In December?  The third week of the month? How often to do you talk with vendors?  What are the topics of discussion?  What is the benchmark of a strongly performing SPM/SRM team?

Given the complete gap of substantive literature, I would like to invite your comments on what goals a SPM process has and how it should achieve its goals.  I will consolidate your feedback and, for those who contribute in a meaningful way (meaning more than a sentence or two), I will provide the analysis.  For a simple of investment of 10-15 minutes of your time, you’ll get a free consolidated perspective.  And, if you’ve been reading the blog for a while, you know this will be a high quality perspective.

Providing me you thoughts is easy: either leave a substantive comment below or email me at tony (at) 360vendormanagement (dot) com

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Related posts:

1. Offshore Outsourcing Vendor Governance Organizations
2. Outsourcing Metrics: Key Performance Indicators
3. Desperate Measures Include Outsourcing?

Does Your Offshore Outsourcing Governance Organization Design Support Your Organizational Objectives?

So, I’ve definitely been stirring the pot over the last few weeks.  I’ve exposed the errors in the much celebrated Black Book of Outsourcing, shown that the business of outsourcing certification is big business, and explained why vendor management organizations are a bad idea.  This much skepticism could be a bit karmically unhealthy, so let’s turn the attention onto something you actually really need: a vendor governance organization.

Simply put, you need a vendor governance organization to centralize the biggest decisions confronting companies that chose to outsource.  The type of decisions that you shouldn’t decentralize.  For example, aligning outsourcing with corporate strategy, identifying outsourcing opportunities, sourcing vendors and negotiating ensuring outsourcing projects deliver their intended value, mitigating outsourcing risks, and driving innovation.  All the local, day-to-day decisions should be made by resources tasked with vendor management in operations and IT departments (not VMOs, for these reasons).  Here is a table that compares the responsibilities of a VGO and vendor management resources based on Bain’s RAPID decision making model, published in the Harvard Business Review:

Vendor Governance Roles and Responsibilities

As you can see, a vendor governance organization should be fairly small, as the activities it manages are relatively small.  In larger organizations, where there are numerous vendors and regular RFPs, the VGO could be moderate in size.  Still, the operations teams should take the primary responsibility for a wide variety of activities.

Thoughts on the Vendor Governance Organization

• Leadership – Despite the small size, the vendor governance organization should be run by a very experienced, very senior leader.  At minimum, this is a senior director role, but should more properly be a vice president role.  The seniority is necessary due to the interface with senior leaders, interface with operations leaders who are often directors and vice presidents themselves, external perception of the vendors, and external communications/networking organizations.
• Structure – The team should be also fairly flat, filled with senior level individual contributors, except where multiple sourcing functions exist (ITO, BPO, F&A, HRO), where leads may represent governance of each of these functions.
• Organization Size – Generally speaking, a single senior individual contributor can manage 1 large vendor’s single outsourcing function or 2 moderately-sized vendors (if the vendors have been established for a reasonable period of time).  If there are multiple outsourcing functions with a single large vendor, one FTE should be assigned for each function.  If there are numerous small vendors, consider limiting span of governance to 1 FTE  to 3-4 vendors, assuming there is little effort required to govern the vendors and the vendors are of inconsequential importance to the company and have longer tenure.  Newer vendors require more attention.
• Organization Reporting Structure – A vendor governance organization should report to a direct report of the CEO.  In other words, it should report to a COO, CFO, or other CxO, except in very large organizations which have regional or product line structures without matrix support (e.g., North American Operations is self contained with its own finance, HR, and legal function and directly reports to the CEO).
• When Other Organizations Lack Skills – In situations where the internal organizations lack certain skills, it makes sense for a governance organization to temporarily provide the necessary talent.  This can be done using outside resources (advisory firms, outside law firms, consulting companies) or by hiring talent with the right skills.  If using outside resources, be sure to obtain buy-in from partner organizations you are supplementing.  For example, if your procurement team lacks the skills to run an outsourcing RFP, check with them first – it may be that the talent is there, but you’re not aware of it.  If you’re hiring talent, be sure there is a long term career objective that the resource and the company agree upon.  For example, hiring a skilled resource that wants to run RFPs, but there are no RFPs in the future, it doesn’t make sense to bring that resource onboard.

Do you have feedback or thoughts?  Share them with the thousands of other vendor managers and outsourcing governance professionals that visit our site by leaving a comment below.

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Related posts:

1. Another Tale from “When You Don’t Have Vendor Management Governance”
2. In the Absence of Outsoucing Governance or Vendor Management
3. Vendor Management Organizations Are a Bad Design

Does Your Vendor Management Organization's Design Serve the Enterprise?

For some, vendor management organizations are a silver bullet that solve all problems.  For others, vendor management organizations are the source of internal strife.  Bottom line, for many organizations, they are a terrible solution.  They hoard decision-making ability, distance ownership of execution and delivery from stakeholders, and focus on narrow contractual goals instead of broader strategic objectives.

An Artifact of Historical Scarcity

There was a time, a long time ago, when the challenges of outsourcing required a specialized vendor management organization.  Your procurement organization lacked the skills to source outsourcing suppliers, and they rarely displayed the ability to partner with suppliers to achieve long term organizational objectives.  Your operations team had sufficient conflicts of interest that a team with the incentive to make outsourcing succeed was needed.  Your IT and operations team didn’t know how to work with outsourcing vendors.  The complexity and effort required to transition operations required dedicated staff, lest you not achieve your other business objectives.  Your leadership team wanted closer line of sight to management decisions.  You didn’t have sufficient vendor management process or skills.  Maybe there was organizational conflict where the CIO and the CPO didn’t agree.

So, vendor management organizations were an artifact of experience and knowledge scarcity and the need to control decision-making.  Born was an organization that needed it’s own sourcing, contracting, project management, vendor management, strategy, financial analysis, and operational management skills.  It’s objectives could be defined by vendor achievement of contractual service level agreements and, more strategically, the achievement of corporate EBITA and innovation objectives.  It managed a broad group of internal stakeholders, including human resources, IT, procurement, legal, operations, public affairs, corporate communication, sales, and finance.  All groups leveraged the centralized VMO to facilitate decision-making and execution of outsourcing decisions.

Listen to Forrester Research’s Vice President John McCarthy’s comments on “best practice case studies for vendor management” durin the 2007 Services And Sourcing Forum in Orlando:

Wow, these are complex jobs.  Listen to John list all the reasons for VMOs and the stakeholders they serve.  And that was before politicking began…

Let Internal Warfare Begin

How aligned are your stakeholders with your VMO organizational design?

Where the VMO resided was a subject of major corporate politicking.  Initially, it was easy.  CIOs wanted to own IT VMOs.  COOs wanted to own BPO and supply chain VMOs.  CFOs wanted to own F&A and indirect procurement VMOs.  HR leaders wanted to own HRO VMOs.  At a more lower level, call center executives, application development and maintenance, IT infrastructure, and every sub-organization created their own VMOs.  The politicking began when the COO or CIO had more than one VMO.  Who would own it?  The app dev VP or the infrastructure VP?  Or would they create a standalone VMO to “rule them all”?  Or  one governing VMO to manage the sub VMOs?

It became more complex when the COO and CIO shared the same vendors.  Companies, like Accenture, with their strong back-door selling (you’ve seen this excellent back-door selling training company, right?) ran circles around CIOs and COOs whose teams couldn’t get organizationally on the same page regarding strategic initiatives.  They had better information than their competitors and limited companies’ decisions by plying this information with internal stakeholders to influence outcomes.  Companies realized this was going on, and sought enterprise VMOs to centralized decision-making.

And then organizations that shared the same functional sub-responsibilities clamored for centralization.  Procurement asked to source and contract outsourcing vendors.  Legal asked to own the outside counsel relationships that supported outsourcing contacts.  Global workforce management teams asked for management of vendor call center personnel.  Contingent labor vendor management organizations wanted to leverage offshore IT labor, too.  Project management offices asked to lead the outsourcing transitions.  Operations leaders, on the line for service levels, performance, innovation, and customer service, asked for greater control over vendor management decisions related to their organizations.

At this point, the VMO was in an impossible position.  It’s once strategic role was being challenged by operations and IT executives who were directly responsible for execution – the problems outsourcing vendors were experiencing, in part due to the internal communication challenges of independently operated VMOs, were causing operations and IT executives to miss goals.  Functional organizations had evolved, bringing more outsourcing experience to HR, Legal, Finance, and Procurement – and these groups wanted to own their functional responsibilities for the entire enterprise, without exceptions for VMOs.

Applying Organizational Design Theory

First, it’s important to realize that organization structure is made-up of 4 key elements (John Child, Organization: A Guide to Problems and Practice, 1994):

1. Assignment of tasks and responsibilities that define jobs
2. Clustering of positions into groups and groups into departments and departments into the broader organizational structure
3. Mechanisms to facilitate top-down and bottom-up communication
4. Mechanisms to facilitate cross-functional coordination

One can quickly see that compromises in clustering (step 2) require more cross-functional coordination.  Structurally, this coordination is created by matrix organization structures.  These matrix organizations go through several structural stages (Richard Hackman and Greg Oldham, Work Redesign, 1980):

1. Traditional structure (the starting point)
2. Temporary overlay, which managerial roles are created to run particular projects, like transitions and implementations
3. Permanent overlay, in which the managerial roles created in the 2nd step become permanent
4. Mature matrix, in which the roles permanently created in step 3 have equal power to the traditional structure

The organizational problems arise in step #3 when the VMO becomes permanent and then shift to a mature model, which requires power sharing.  Traditional structure leaders are challenged to share power, which takes the eye off the strategic objectives of the company.  Also, as outsourcing becomes more pervasive in an organization, matrix designs become more widely adopted by an organization.

This is exactly where the largest strategic problem lies.  Danny Miller matched strategies similar to Porter’s strategies with the best organizational structure:

Matching Vendor Management Organization Structure with Organization Strategy

As few organizations have innovation as their primary corporate strategy, they aren’t structured into a matrix organization.  Pervasive use of outsourcing using VMOs arranged in matrix organizations create significant problems because they cause the company to inadvertently change  structures, taking away focus from corporate strategy.

What You Should Do

The bottom line is that vendor management organizations should only be created when the skills and experience don’t exist in a company at the beginning of an outsourcing initiative.  It should be temporary, designed to develop the skills and experience necessary to implement outsourcing projects and manage vendors.  At some point, the day-to-day line responsibilities of the VMO should be shifted back into line organizations, where line managers take responsibility for delivery of objectives by managing vendors to achieve the goals.  Since the service level agreements in the contracts should meet the needs of these organizations, there should be little concern – these organizations should be managing performance and reporting on results already.  The staff responsibilities should be shifted back to the staff functions (procurement, legal, HR, and finance).

The only responsibility that should remain centralized is outsourcing governance.  This governance function, as described in the IAOP OPBOK, should focus on rules of engagement, encouraging cross-functional communication, project prioritization, initial project implementation tracking, high level interdependent planning among divisions/departments and vendors, evaluating enterprise-wide vendor performance, and the sharing of outsourcing best practices.  That means the other 9 categories of responsibilities defined by the IAOP should be temporary or distributed through other organizations.

Counter Arguments

Outsourcing advisors and experienced clients may disagree with the recommendation above.

There may be situations where outsourcing for cost reduction reasons is an imperative and such should be centrally managed to ensure EBITA objectives are achieved.  I wouldn’t argue against this, except to suggest that even this should be temporary and that, at some future point, the organization work toward developing the vendor management competency in all parts of its organization in order to deliver on its new reality – outsourcing isn’t just a project, it is a long term manner of delivering, and decentralizing the management of its delivery mechanism outside of the delivery leadership makes little long term sense for the reasons listed above.

There may be situations where the focus of outsourcing is sufficiently large such that few internal operations remain.  For example, I worked for a west coast savings and loan bank fifteen years ago that had exactly six IT employees – the CIO, his admin, his VP of strategy, and some assorted junior staff members.  The rest, including most leaders, were entirely outsourced.  In this case, staff functions should still be allocated to procurement, HR, and legal organizations, but the day-to-day line vendor management responsibilities should be centralized.

Some people may argue that managing a matrix organization is the role of an outsourcing VMO.  That’s great, but see all the problems listed above.  Why go through that if you don’t need to?

Finally, some people would simply argue that outsourcing management and vendor management skills are insufficiently available within an organization to distribute the responsibilities.  Well, it is absolutely the responsibility of any organization undergoing an outsourcing transformation to take this internal development opportunity seriously.  Upgrade talent, use training organizations to build skills, and seek professional development at major organizations to develop your staff.  Simply housing the talent in a single organization is destined to failure in the long run.

Related posts:

1. Offshore Outsourcing Vendor Governance Organizations
2. Outsourcing Vendor Management Organizations
3. Outsourcing Governance and “Who Owns Supplier Performance Management?”

Outsourcing Education is a Big Business

It is highly likely that you’ve sought professional development to improve your vendor management and outsourcing management skills. There are very, very few resources available to vendor management and outsourcing professionals.  As a result, you’ve probably encountered a few companies out there that specialize in training for vendor management professions.  Have you noticed the pricing?  Developing certifications for outsourcing professionals is definitely a big business.  Is it worth the investment?  If so, which should you select?  Let’s delve into what’s available and whether it is worth the money.

There are a two primary professional outsourcing certifications available: the International Association of Outsourcing Professionals’ (IAOP) Certified Outsourcing Professional (COP) and the Customer Operations Performance Center’s (COPC) Vendor Management Vendor Management Organization Coordinator (referred to as the VMO coordinator).

IAOP Certified Outsourcing Professional

The IAOP touts itself as the leading outsourcing certification organization.  Indeed, they are the only organization with significant reach within the advisor, client, and vendor community (over 40,000 members).  The organization is young, founded in 2005, and is run by a single chairman, Michael Corbett, and a strategic advisory board made up of a who’s who of advisors, vendors, and clients, including Booz, CB Richard Ellis, American Express, Accenture, Liberty Mutual Insurance, PWC, and Accenture. There are also a wide variety of official committees devoted to developing the IAOP’s reach and goals with a similar footprint of big name firms.  These networking opportunities provide outstanding value.

The COP certification requires a professional experience, education/training, and completion of an exam – 150 points must be earned.  In terms of professional experience, the application requires the candidate detail experience in 10 end-to-end aspects of managing and outsourcing engagement.  In each of these 10 categories, the candidate earns 5, 10, or 15 points based on the number of projects and companies at which the category’s experience has been earned (5 for one project, 10 for two projects, and 15 for 3 projects and two companies).  Earning the 50 minimum required points is relatively easy if you have worked in the vendor management or outsourcing space for a year or two.  The requirement to demonstrate experience gained at more than one company to earn the 15 point award in each category means that most people who have earned their experience at a single company will be limited to 100 points.

Earning education points (up to 100) is far more difficult.  A post-graduated degree in a business-related field is worth 25 points.  Completing the “COP Master Class” is worth 75 points.  Passing the COP exam is with 25 points – something you’ll need to do anyway if you want the certification.  In short, many people will be required to take the COP Master Class unless your outsourcing experience is broad and deep.  It is important to note that vendors, advisors, and clients all take the same exam and master class.

The COP Master class is offered in two formats: a four day $3,500 ($3,000 for members and less for member’s with corporate status) in-person training class or an online $2,995 training class requiring 35-40 hours of work.  No doubt, the “budget” online training class is more popular because of the lower cost, especially given the cost of travel expenses.  Of course, those who forgo the in-person class lose the greatest value of the class: networking.

The COP exam is a 200-question, 3.5 hour online exam requiring that you get 70% of the questions correct.  Material is taken directly from the Outsourcing Professional Body of Knowledge (OPBOK), a 321 page PDF available to members that covers end-to-end outsourcing from client, vendor, and advisor perspectives.  Th OPBOK was last published in January 2008 and is on version 8.

The COP certification is costly to earn.  Here is a rundown of costs

1. $395 – Membership in IAOP
2. $600 – Application and Exam
3. $3,000 – COP Master Class (in the USA, prices vary in other countries) – required if you don’t earn sufficient points in other areas
4. $800 – Governance Workshop (optional), provides 15 more points to toward the COP certification
5. $250 – Online Exam Prep Workshop

(Note: the IAOP offers a bundle of the Master Class, Governance Workshop, and Online Exam Prep Workshop for $4,300)

So, here’s how it breaks down assuming all candidates take the Online Exam Prep Workshop and a post graduate degree:

If you can earn 100 points through a combination of experience, you will not take any additional classes and will pay $395 + $600 + $250 = $1,245.

If you can earn 85-99 points through a combination of experience, you will take the governance workshop and pay $395 + $600 + $250 + $800 = $2,045.  You could take the master class instead, for an additional $2,200.

If you can earn 50-84 points through a combination of experience, you will take the master class and pay $395 + $600 + $250 + $3,000 = $4,245.

If you have experience worth less than 50 points, you can’t qualify for certification because the combination of post graduate experience, classwork, and the exam cannot exceed 100 points.

If you do not have a graduate degree, here’s how it looks:

If you can earn 125 points through a combination of experience, you will not take any additional classes and will pay $395 + $600 + $250 = $1,245.

If you can earn 110-124 points through a combination of experience, you will take the governance workshop and pay $395 + $600 + $250 + $800 = $2,045

If you can earn 50-109 points through a combination of experience, you will take the master class and pay $395 + $600 + $250 + $3,000 = $4,245

If you earn less than 50 points, you can’t qualify for certification because the combination of post graduate experience, classwork, and the exam cannot exceed 100 points.

Of course, the IAOP has certified other organizations to provide training through it’s Bridge Program.  Colleges, companies, and private trainers pay the IAOP to first assess their classes for $1,500 for the first 3 courses and $250 for each course thereafter.  Courses must be recertified every 3 years.  So far, Duke offers 2 courses (only one provides 25 COP designation points), the University of St. Thomas in Houston offers 1 class worth 25 COP designation points, and Open Source Development LTD offers 3 classes, none of which count toward COP certification.  Luckily, the IAOP provides points if you attend one of their conferences.  The World  Summit ($1,400 in 2010) is worth 8 points and the Asia-Pacific ($1,200 in 2009) and Europeans ($? in 2009) summits are worth 6 points each.  The Global Human Capital Forum ($700 in 2009) provides 3 points.

Once a member, 20 continuing education credits are required each year.  You can do so by taking the classes (why you would retake classes, I don’t know) or attending the conferences above, as well as attending IAOP chapter meetings.  So, unless you can also speak or teach classes, which is worth 2x the normal 1 credit per hour rate, you’re going to need to take a class or two each year to keep your COP certification.

Phew.  That’s complex.

The IAOP COP certification all quickly adds up to a pretty spendy proposition if your company isn’t sponsoring.  Essentially, count on spending $395/year + continuing education credits you need + certification and, ever two years, recertification for another $50.  Throw-in some travel to attend conferences and classes, and you’re talking a pretty significant investment.

If your company is sponsoring you and not taking a corporate sponsorship, it adds up if a number of people need certification – after all, how many people manage outsourcing vendors at your company?  If you work for a reasonably large company too stingy to take out corporate membership (price is negotiable), then you could easily be talking $60,000+ for the first year for 15-20 people, and another $20,000-$30,000/year thereafter.  And then, what do you have?  A group of people who understand outsourcing 101?

Have no doubt this: The business of outsourcing certification is big business.  Take 40,000 members (the current stats are “100,000+ members and affiliates”) spending $2,000/year annually, and you’re talking about IAOP being a $80M business.  And, that’s just the member dues, fees, and classes.  Add to that master COP training (for train the trainer) and, as any impartial observer would note, vendor sponsorship fees.

That’s right, vendor sponsorship fees.  Look at the 2010 World Summit Agenda and note that the opening is sponsored by Accenture, numerous networking events are included (where vendors, at least at other events, pay for the opportunity to mingle), and the event itself is prominently sponsored by Accenture, CBRE, Colliers International, and Booz in the literature.  Browse the IAOP website, and you’ll find advertisements from a number of vendors.  On my screen right now, there’s NCS, Insigma, DataPipe, North Dakota Chamber of Commerce, Infosys, and DNL Global.  Each time I browse another page, another group of vendors’ ads revolve.  The IAOP takes the most bizarre move in actually rating the top 100 vendors.  Why bizarre?  They are supposed to support the industry, so why do they only rate vendors and not their other constituents?  Why not customers or advisors?  Oddly, comparing the Black Book’s top 50 in 2009 (which, as we’ve analyzed, is fairly unbiased, although a poor example of a good analysis) to the IAOP’s top 50 in 2008, 30 of the Black Book’s vendors are not in the top 50.  Why are the ratings so different?  I don’t know, but could it be that a leadership partially made-up of vendors has some biases that cannot be removed?

COPC’s VMO Coordinator

The COPC takes a completely different tack and a more narrow niche.  The COPC focuses on customer transaction processing, including call center and backoffice processing.  It would not be appropriate to apply to IT outsourcing categories.  The focus is actually on certifying an organization to one of two standards: the Customer Service Provider (CSP, for vendors and internally run operations) or Vendor Management Organization (VMO, for vendor managers).

The COPC was founded in 1996 and built it initial CSP standards in collaboration with a number of companies who saw a mutual need for a performance standard.  They are based on the United States’ Malcolm Baldrige National Quality Award.  It is an independent, privately run company that does consulting-type work.  In 2001, when outsourcing began to influence how operations were managed, the COPC developed the VMO standard.  The standards address the specific processes that CSPs and VMOs must use to meet the expectations of internal stakeholders, vendors, and customers.  So, unlike the IAOP COP, which focuses on high-level outsourcing “what’s”, the COPC’s CSP and VMO standards address the detailed “how’s”.  For example, the COPC addresses how to audit vendor quality, how to forecast transaction volumes, and how to handle business continuity events.  In short, the COPC focuses on operation process excellence and the activities that clients and vendors must take to be successful.  The list of clients is impressive, although not as broad as the IAOP.

In terms of individual “membership”, it is not a professional development model, like the IAOP, the PMI, or other organization.  There are no annual dues, no complex certification calculations, or continuing education obligations.  Instead, you simply need to attend a COPC VMO or CSP Coordinator training class ($3,800), which is a five day class that concludes with a lengthy exam.

The COPC doesn’t hold conferences, so the networking opportunities are fairly limited.  There are also no vendor sponsorships.

The COPC also tends to push it’s auditing services, which ensure your organization meets the the COPC standards.  Many companies achieve the certification and some take the learning and don’t bother with the certification (and probably don’t get the same results, either).  The auditing process takes more than a year for most companies, which begins with an initial analysis of the company’s/vendor’s performance against the standard, and then continues with improvements that are necessary until the organization passes an audit.

The cost of certifying an organization?  It probably runs north of $100,000, plus the need to train most vendor managers or vendor resources. That excludes internal efforts to reengineer processes to meet the standard.  However, that small amount of money pales against the cost of a large BPO operation and operational benefits it can gain.

Other Options

Carnegie Mellon University’s IT Services Qualification Center (ITSqc) recently released a standard that is akin to the legendary CMM models for which it is famous.  The development of the new standard is likely due to the increased nature of outsourcing in the IT area, which has eliminated the need for clients to seek CMM certification, but also challenged vendors who deal in a many-to-one model with clients, who frequently have little desire for CMM restrictions The new standards are the eSCM-SP (for vendors) and the eSCM-CL (for clients).  The list of certified vendors isn’t very long, and there are no CL certifications.  It is also an organizational certification, not an individual certification.

Frankly, given the apparent complexity of graphics like the one below, it is hard to believe client organizations will be clamoring for it:

Can certification models get more complex?

Final Analysis

To some, this is an apples and oranges comparison.

The IAOP’s individual membership focused on outsourcing basics, along with its broad networking opportunities definitely creates some advantages.  The COP master class teaches something taught nowhere else (except the school of hard knocks), but focus on the client-advisor-vendor more than the operations.  Modeled after PMI, ISM, or CPA organizations, it’s high initial cost and recurring costs are hard to digest ($2,995 for an online class?).  Also, the IAOP’s decision to dip into vendor sponsorships indicates some bias.  I am currently a member without the COP certification, and I can say that without little doubt, most chapter meetings are vendor presentations, not client discussions.  It’s terribly difficult to have a balanced discussion with so much vendor marketing surrounding you – something the IAOP is finally realizing as the create customer-only networking events during the conferences.  However, there is no resource like the IAOP.

The COPC’s VMO and CSP coordinator certifications are focused on how to manage operations effectively and efficiently.  They create results, but only if the organization embraces the broader certification, which is far from cheap and can require extensive reengineering, something the some clients or internal stakeholders may have little appetite for.  I am a registered COPC VMO Coordinator and think extremely highly of the COPC and the standards.  I believe the COPC standards should be adopted by any medium-to-large operation focused on BPO activities because they create processes for vendor management, something that most VMO’s completely lack.  However, the lack of networking opportunities and the COPC’s self-interest in auditing against standards can be a turn-off to some.

Either way, there is no doubt that individuals working in the outsourcing space need development opportunities.  Both organizations bring tremendous value to their members and the industry.

So, here’s my recommendation:

1. If you’re part of an organization of any size with IT outsourcing responsibilities with sufficient budget, require your VMO and vendor account personnel to obtain IAOP COP certification.  Best yet, host a class and have your vendor managers and vendor account teams take the classes together!  That’s a meaningful investment.
2. If you’re part of an organization of substantial size with BPO responsibilities and sufficient budget, implement the COPC VMO standard and require your vendors to achieve the CSP standard as part of the RFP/negotiation process. Also, require key personnel to obtain their CPO certification.  Not all at once, clearly.  Your governance resources should take the IAOP governance workshop and the IAOP CPO certification, while your vendor managers should focus on the COPC VMO, and later cross-train everyone.
3. If you’re part of an organization of moderate size with BPO responsibilities and moderate budget availability, require your VMO and vendors to take the COPC training classes, but don’t bother with the certification unless you really want to excel and have the budget/time.  Again, require personnel to obtain their CPO certification.
4. If you’re part of an organization of small size with BPO responsibilities, or simple an individual looking for outsourcing skill development without company financial support, the IAOP courses are ideal.  Get membership and look for ways to take the COP Master Class.
5. If you’re an individual looking for vendor management skill development, the COPC’s VMO class is the one for you.

What are your thoughts?  Leave your comments below and share your knowledge with others.

Also, I encourage you subscribe to this blog to receive updates in your inbox.

Related posts:

1. Offshore Outsourcing Vendor Governance Organizations
2. Outsourcing DIY: Less Expensive, Less Scary, More Effective
3. Vendor Management Organizations Are a Bad Design

Manage Your Own Outsourcing Project

Stephanie Overby’s CIO/Computerworld article is certainly thought-provoking.  Essentially, Overby eschews spendy consultants for analysts and independent consultants, pumps up the smart employees already working for a company, recommends companies take advantage of less expensive templates available online, and finally suggests companies start with smaller projects where vendors get the opportunity to prove their worth and internal resources learn the ropes.  What’s not to like about that?

In fact, Phil Fersht, the top outsourcing industry analyst, has blogged this year (here and here) about the troubles facing advisory firms.

Undoubtedly, Companies can be smarter and, despite scare tactics to the contrary, they can do this themselves.  Here’s why:

1. Have Confidence – Whether you’re outsourcing a call center or an application development function, know that if you have a strong grounding in the operational aspects of the outsourcing engagement, you are 70% on your way to doing a fine deal.
2. Know What You Don’t Know – Use analysts and independent consultants to review progress and provide specifics, but do not use them to manage a project.  Many advisory firms can benchmark your contract and pricing for a relatively small amount, which may be worth the piece of mind. Outside legal counsel can also be helpful at times.
3. Negotiate Flexibility – Vendors will lure you into long term contracts that make termination and change very, very expensive.  Shorten contracts to 3-4 years, give yourself as many outs as possible, and stick to your guns on the costs of change, while anticipating potential change and building that into the contract.
4. Network, Network, Network – There are an overwhelming number of people with experience.  Read the resources available online, ask colleagues at other companies, and seek out professional organizations.  Learn the pitfalls, be curious, and apply what you learn to your company’s culture and objectives.
5. Go Slow – Budgets may be budgets, but many a person has lost his or her job for rushing into an outsourcing engagement without first confirming the targeted areas can transitioned to an outsourcing vendor and sustained thereafter.

Related posts:

1. Desperate Measures Include Outsourcing?
2. Vendor Management Differentiates in a Commoditized Offshore Outsourcing Industry
3. Offshore Outsourcing Vendor Governance Organizations

Do Budgets Cause You to Outsource for the Wrong Reasons?

The Wall Street Journal ran an interesting article this morning in which Infosys’ COO says, ”Past patterns suggest that when budgets are under pressure, clients do all kinds of things to get more with less, like outsourcing and offshoring.”

Ah, Shibu, we love your honesty and we are certain you are right.  Sadly, “budgets” do more to drive outsourcing than they should.  They pervert typically rational minds, generating terrible decisions.  Here are some examples:

1. The SVP of HR at a large domestic company asks his team to outsource HR, but behind closed doors he admits, “I need an outsourcing contract with fixed fees, that way the CEO and CFO cannot cut my budget any further.  They’re hurting the company with budget cuts.”  Exactly who is hurting the company?
2. A VP of operations at a medium midwest firm insists that a cost per transaction payment model is bad because, “I can use the fixed fee offshore vendor resources to perform a wide range of projects not included in the scope of the contract and no one can count those FTEs.”  Off contract services?  What better way to create problems with your vendor…
3. A director of operations at small US firm refuses to terminate an offshore outsourcing provider consistently performing terrible services  because he “budgeted monthly service credits for failure to achieve SLAs and a [performing] vendor would be more expensive.”  You get what you pay for.
4. A VP of call center operations for a west coast firm states proudly on an outsourcing governance call, “We are pleased to say we did not have any severance costs when we outsourced the 350 FTEs.  We were able to find other work for them to do.”  Maybe a few FTEs, but all 350 FTEs?  Sounds like a terrible ROI.
5. A finance director preparing an IT outsourcing benefits summary for management, when challenged about the absence of IT FTE cuts but the inclusion of additional costs for outsourcing governance, says, “The work is performed across the USA and is just a small part of the 80 FTEs currently doing the work.  No point in laying people off.”  Does that mean the vendor fees and the new “governance” team are incremental to the budget?

Shibu is right.  If your company doesn’t have formal outsourcing governance, budgets will pervert you.

Related posts:

1. Outsourcing DIY: Less Expensive, Less Scary, More Effective
2. Outsourcing Governance and “Who Owns Supplier Performance Management?”
3. Offshore Outsourcing Management – What’s the Problem?

Picture this: Your company has outsourced customer service for some products, but not all products.  You have a single vendor with over 1,000 seats dedicated to your operation.  These seats are located in several centers located in the USA (for reasons not important to this story).

Your vendor management team is made-up of a single person.  This person coordinates five different programs, handles contractual issues, reviews invoices, schedules training, manages quality, and sets the direction of the five programs.  Needless to say, this person is very busy and, quite honestly, overwhelmed.  No single person could perform this job.

One day, an internal customer service group who did not outsource their operations planned a team lunch to celebrate February birthdays.  However, 12pm-1pm is also the time when customer service team receives the highest call volumes.  As the team all wanted to celebrate together, they needed someone to cover the phones while they ate cake and ice cream.  Driven by hunger or the love of a celebration, the team made a fatal decision.

A few minutes before noon, after the cake and ice cream were set-up in a nearby conference room, the team’s workforce manager flipped a switch that redirected the calls to the vendor.  The phones went silent and the team rushed into conference room.  They sang happy birthday so loudly that other people in the building could hear them. They took the time to also observed a company tradition of sharing what they liked about each of their February birthday team members.  It was a great party.

Meanwhile, someplace else in the country, the vendors’ call center was completely inundated.  Service levels fell to 4%, abandonment reach 85%, and the workforce team was struggling to understand the reason for the high call volumes.  Worse yet, these weren’t their calls.  They had no training on these calls.  So, following standard procedure, once they recognized that a caller was in the wrong queue, the vendor’s agents would cold transfer the call into the right queue…which promptly routed the call back into the vendor’s queue.  Customers were irate.  The team director tried to call the vendor manager, but the vendor manager was in meetings and was unreachable.

Back at the client’s center, the happy agents returned to their desks and once everyone was ready, the workforce manager flipped the switch back.

Do you have a story to tell about vendor management gone bad?  Let us know.

Related posts:

1. In the Absence of Outsoucing Governance or Vendor Management
2. Vendor Managers Can Satisfy Internal Stakeholders
3. Offshore Outsourcing Vendor Governance Organizations

• The positions require deep operations experience.
• The positions require great relationship-building and alignment-building skills.
• Most vendor manager positions are individual contributor roles, even though they manage operations of hundreds or thousands of FTEs.
• Vendor management positions are typically paid less than their peers managing similar internal operations.
• Vendor management positions require great focus on details: metrics, processes, and contracts.
• Vendor managers must be big picture thinkers with moderate strategic thinking skills.
• Vendor managers rarely have clear career paths.

Sounds like a tough job, right?  It is.

That’s why most vendor managers lack all the skills necessary to perform their jobs exceptionally well.  More importantly, there are few training courses available to them.  Organizations like IAOP sometimes appear to be more focused on developing vendor and advisor sales channels than developing the skills of vendor managers.  The COPC offers good courses, but they aren’t hands-on.  Companies like ICN offer negotiation, selection, and contract courses, but they are tuned for IT procurement/vendor management teams.  All these organizations lack training in the operations or technology that vendors managers typically manage.

Simply put, vendor managers must be developed by building performance management processes that guide activities and gradually increasing the responsibility of vendor managers.   Standardized vendor management processes result in regular, predictable performance.  Increasing responsibilities of vendor managers allows vendor managers to build experience with more complex issues – experience that vendor managers can leverage with delving into root cause analyses, relationship development, and negotiations.

If you lack an experienced vendor manager to develop our processes and resources, it is usually better to hire an external resource or hire an advisory firm tasked with developing vendor management processes, templates, and stakeholders.  Forward thinking executives hire these resources before or during vendor selection, which gives them a leader for transition management and the time to develop the necessary processes in advance of implementation.

Do you have a methodology for hiring or developing vendor managers?  Share our thoughts!

Related posts:

1. Vendor Managers Can Satisfy Internal Stakeholders
2. Vendor Management Job Descriptions
3. Another Tale from “When You Don’t Have Vendor Management Governance”

This article covers the details of vendor management job descriptions.

One of the nuances of vendor management is that not all roles are the same.  Some vendor managers have responsibility for operational day-to-day tasks.  Other vendor managers are responsible for outsourcing strategies and governance.  Some vendor management roles are responsible for implementing new programs.  Others vendor management roles are responsible for training.  This domain focus is an important area, but it’s not the only area to include in a job description.

The categories below address the major areas of any vendor management job description:

Contract Management – One of the prime responsibilities of any vendor manager is to manage the vendor to the responsibilities outlined in the contract and statement of work.  At times, vendor managers will be responsible for authoring contract documents, including service level exhibits, statements of work, and examples.  If you remember your college entrance exam, you’ll surely realize that reading comprehension is a difficult skill – and vendor managers need to be excellent at this skill.  Furthermore, vendor managers need to be well versed in key terminology associated with contracts and understand how they interrelated.  Examples include indemnification, intellectual property, force majeure, and amendments/exhibits/SOWs.  Finally, good vendor managers understand that they must manage the vendor to the contract and be creative when contracts don’t address certain issues (no contract covers every possible event).  You do not need a loose cannon in a vendor management role.

Financial and Quantitative Analysis – Fundamentally, vendors are suppliers of services and products.  Understanding the financial rationale for “make versus buy” decisions and extrapolating internal and vendor costs to develop this analysis is a required responsibility of a vendor manager.  While it may not seem relevant for a vendor manager responsible for training, even this vendor manager must understand the financial repercussions of effective training on vendor operations.  Furthermore, vendor performance is fundamentally a measurable service.  Measuring the quality and timeliness of delivery, as well as understanding core operations management variables and calculations is essential to ensuring the vendor is effectively delivering services.

Relationship Management – While much of a vendor managers’ responsibility is related to controlling and regulating vendor performance, any client should strive to be a vendor’s most valuable customer.  This may include early adoption of vendor service offerings, co-development of functionality and operations, or simply being an advocate of the vendor internally for the company.  This level of relationship management with external partners is a difficult skill to develop.  Salespeople are excellent at this skills, but most operations managers are unfamiliar with the importance of developing a deep, strategic relationship with a vendor.  This is a relationship that the client can leverage when needed most.

Strategic/Big Picture Thinking – In a normal operation, your operation management or project management personnel have a detailed understanding of all aspects of the business because your employees are performing the service.  When a vendor performs the services, it is easy to loose sight of the details that drive success.  An effective vendor manager understands how the interrelationship of processes, technologies, and people create results.  An extremely effective vendor manager understands how to create mutually beneficial opportunities for his/her company and the vendor using this information.  A strategic, broad thinker is essential in a vendor management environment.

Team Leadership Experience – While a vendor management role could possibly be an individual contributor, understanding the vendor’s operation requires previous leadership experience.  Understanding personnel management, managing upwards, managing downwards, and attracting talent is fundamental to operations management.  While the role of a vendor manager may have no direct reports, the vendor manager is in fact frequently indirectly managing teams of several hundred vendor employees.  The mistake many companies make is asking business analysts to fulfill vendor management roles.  Ultimately, these companies have difficulty with consistent vendor performance because the vendor manager doesn’t have the experience to manage hundreds of vendor personnel.

Domain Expertise – This area is specific to the vendor management organization – if a vendor manager is expected to perform a particular task, such as quality management, RFP development/vendor selection, or service level measurement, the vendor manager needs experience in this skill.  Most importantly, since vendor managers rarely have direct reports, the vendor manager needs to have high competencies in the area.  Time and time again, we see companies ask project managers to take on vendor management responsibilities.  The project management discipline is significantly different from running day-to-day operations, and operations run as projects frequently lack the discipline to drive continuous improvement initiatives.

Finally, there is the question of seniority of vendor management positions.  It goes without saying that vendor management done well drives performance for the company.  Given the impact of failure, which could include contract terminations, vendor abandonment, and poor customer satisfaction, it is not a place for rookies.  While having junior personnel around to take on reporting responsibilities is the norm, placing anyone less than a true, experienced manager in the role of a vendor manager could have dire consequences.  In fact, companies consistently under invest in vendor management personnel, either in terms of quality, development, or quantities.  These companies are the ones that have challenges created by their own decisions.

Do you look for other key requirements of your vendor managers?  Include your thoughts below or send us a note.

Related posts:

1. Good Vendor Managers: A Scarce Commodity
2. Another Tale from “When You Don’t Have Vendor Management Governance”
3. Offshore Outsourcing Vendor Governance Organizations

• Vendors – The companies who perform outsourcing services
• The Business – The internal organization which ultimately responsible for business outcomes created by the vendors
• Vendor Management Organization (VMO) – A dedicated internal team assigned to managing vendors
• Vendor Managers – The internal resources that are assigned to managing outsourcing vendors

In-Line Model – Frequently, Vendor Managers are imbedded in The Business.  The results are clearly controllable outcomes for The Business and Vendors who clearly understand who their stakeholders are.  However, this type of organizational model definitely has shortcomings.

• In particular, in large organizations where few Vendors are shared across business units, it becomes difficult for internal business units to coordinate activities and perspectives.
• If the Vendor fails to meet one group’s Service Level Agreements (SLAs), the Vendor often has little accountability to the other business unit, regardless of program sizes.
• Internal organizations also have difficulty sharing and enforcing the use of vendor management best practices.  The disconnects are so great that sometimes different business units will establish independent contracts.
• Vendor Managers do not have clear career tracks, and are often left to managing Vendors and therefore not given promotion opportunities typically left for employees with deep internal operations management experience.
• To the Vendors, multiple stakeholders raise the cost of supporting The Business – and the cost savings are left on the table.

In-Line VMO – With increasing frequency, organizations are realizing the shortcomings of approaching Vendors differently.  To ensure best practices are leveraged, Vendor Managers within a single business unit are consolidated into a single VMO reporting to The Business.  The Business therefore develops shared best practices, improves Vendor relationships, and improves the operating efficiencies of the Vendor while maintaining control and creating career development opportunities for Vendor Managers.  However, The Business still fails to achieve synergies that could be gained from leveraging Vendors in other business units and little coordination between the teams develops.  In fact, we’ve seen more BPO vs. ITO organizations developing than ever before.VMO Governance Teams – Large companies that are removing intra-departmental silos through re-organizations or that are seeking greater savings opportunities/better vendor management controls are building small corporate VMO governance teams that assist In-Line VMOs with information sharing.  Corporate VMO’s accelerate vendor management best practices and can serve as corporate level governance, depending on the amount of decision-making control granted to them.  It’s exactly this decision-making control that creates conflict among In-Line VMOs and different business units.  While the corporation as a whole benefits from lower vendor costs, improved decision-making, and better controls in contracts and vendor performance visibility, the different business units begin to lose decision-making authority.  Operations management teams who typically hold traditional viewpoints on keeping decision-making power close to operations leaders are left in an uncomfortable situation where outcomes are decided by corporate employees with different incentives – and The Business will often express this quite vocally, creating an internal power struggle that erodes the ability of best practices to take hold!  In addition, in the business environment where CFOs believe less is more, Corporate VMO Governance teams have a business value that is hard to quantify.Centralized Corporate VMOs – Some organizations are consolidating all In-Line and Corporate Governance VMOs into a single Corporate VMO.  These teams are held responsible for creating outcomes for their respective internal business unit stakeholders and are better able to leverage vendor relationships by focusing on fewer relationships.  The results are more uniformity in vendor results, lower costs, and deeper vendor relationships.  In addition, with the growing complexity of outsourcing contracting, Centralized Corporate VMOs are better able to leverage high-end skills and develop new skills.  The challenges with this model are clear: The Business Unit is left out of the picture (a point it will make clear whenever results are below expectations) and improperly managed VMOs create massive failures.  Centralized VMOs are also challenged with budgets and business unit chargebacks – especially where vendor fees are intermingled across different business units (e.g., call center and mailroom environments).  The other challenge is aligning internally managed operations with VMO managed operations.What model is best?  We don’t believe any single model is best.  However, we would recommend that business leaders employ an organizational model that best fits the immediate strategic needs.  If you’re failing to achieve synergies among the widely distributed supply base or achieving common results, centrally governing or managing vendors is a good idea.  If you’re facing a business environment where local differentiation is essential, give your business units high degrees of autonomy by placing VMO teams close to the day-to-day operations leadership.  If you’re looking for a compromise, the VMO Governance model is a great way to facilitate best practices and place controls on certain aspects of vendor management (e.g., contracting, IT support, and vendor selection).Do you have a perspective you’d like to share?  Share your ideas in a comment below!

Related posts:

1. Vendor Management Organizations Are a Bad Design
2. Offshore Outsourcing Vendor Governance Organizations
3. Understanding What You Have Before You Outsource