Synergies across assets-intellectual property, people and process-of two companies are an “enabler” for a strong alliance. With skillful leadership and vision, a partnership can evolve to benefit both companies financially and deliver solutions that stand above competitive offerings. Yet, the collaboration between organizations is always a potential and not a guarantee. Even the most seasoned alliance managers miss opportunities for growth while focused on tactical details.
Don Hickey, Director of IT Vendor Management for UPS, explained the transactional nature of vendor management in his past experience. According to Hickey, “he and many of his peers at large enterprises spent their days-and many still do-addressing issue resolution, evaluating metric performance and dealing with change management processes.” This meant reviewing SLA dashboards, checking on availability, computing penalties, etc. For Hickey and other industry experts, the dynamics of vendor management have evolved away from the “stick” approach to management.
Fear, uncertainty and doubt will always drive near-term performance. However, the threat of penalties or lost business will not open pathways to leveraging value from each party. That’s very much an old-school approach to management. Take a page from Apple or Softtek who expanded into additional geographies based on and in collaboration with one of its customers to gain perspective on what can be done with a more open approach. If both companies can envision growth opportunities, then each will invest time and intellect to find creative ways to grow the business.
A Wrong Term
Perhaps vendor management is the wrong term to use altogether when contemplating the strategic value of alliances. From the perspective of nearshoring, a large enterprise or independent software vendor (ISV), using external resources is adding a dimension that enables the sourcing/partnering entity to deliver superior or otherwise innovative services. Forward-thinking vendor management professionals have begun to take a different approach to managing service providers believing that a strategic stance is entirely appropriate.
Many have advice about how to best manage vendor relationships. A contemporary view that takes into account potential value and moves the process from tactical to strategic will prove to be the most beneficial for all involved. Tips to functioning from a strategic vantage point include:
1) Think Win/Win. Above all, consider the benefit to each party. Yes, the service provider earns new business for itself. That is not enough. The provider is driving growth as well, investing in technology resources and training. Your company often benefits through its provider’s evolution.
2) Consider the Possibilities more than the Limitations. Discontinue your thinking of vendor management as simply overhead and open the doors to broader collaboration.
3) Assign Yourself the Job of Internal Champion. Sell the strengths of your nearshore provider inside your company–that’s your job! Any hesitation to do so likely means you chose the wrong outsourcer.
4) Give a Little/Take a Little. Overarching strategy and sometimes unannounced plans need to be kept close to the vest. However, some insight into direction must be shared to gain collaboration benefits.
5) Put Routine Activities in their Proper Place. Routine or tactical tasks can be handled by junior staff. Relationships require executive attention supported by tactical activities.
6) Maintain a Personal Touch. Invest periodically in demonstrating commitment by going on-site in person and taking interest in the outsourcer’s goals.
7) Give Providers a Seat at the Table. Carefully make the nearshore provider part of the team. They have a role to play in advancing your business and add more value as they feel less like simply the hired help.
Experts in the business of developing third-party relationships agree, the job of alliance development is tricky business. The sourcing team or alliance manager is operating in the middle of two organizations. While no doubt fiscal responsibility falls on the side of the employer, gains in revenue or improved innovation can only be achieved through the basics of negotiation. Creating a win/win while honoring the corporate bottom-line is the challenging, and sometimes impossible task of managing sourcing relationships and alliances of all kinds.
The Winner’s Circle
Developing alliances is an exercise in possibilities followed by diligent execution. Often, the result is not anticipated and never would have found its way to market if the companies continued to focus only internally. For instance, a sourcing provider’s expertise in agile development methods may serve as a catalyst to upgrade enterprise skill sets while vertical industry knowledge can help the service provider grow its business in other regions with careful consideration of competitive situations. Both organizations are winners beyond that of a business transaction. It is inventiveness that drives innovation; especially in technology-related businesses; and often delivers exponentially more value to both businesses than simply adding a resource or new customer. That’s the beauty of bringing in an outside perspective.
Hickey is in a unique position of having moved from a tactical to strategic approach to vendor management. He and other vendor management executives at UPS are on a track to demonstrate leadership in the vendor management space with a more enlightened approach that moves away from limited benefit, transactional management. In a word, vendor management ought to be “strategic,” as much as internal hiring for key technology or service positions. Viewing outsourcers as an extension of staff and realizing that switching providers is doable, but has an associated cost is a critical consideration of the process.