Nearshore Americas
vendor management

Where Does Vendor Management Fit Into Your ITO Organization?

A vendor management organization (VMO) may go by a lot of different names and may exist in any number of different organizational structures within a company, but one thing is for sure, it rarely has the same exact function or definition from enterprise to enterprise. If it exists, where it exists, and why is exists is really a function of the maturity of external resourcing environment and the people involved.
Basic structure of an External Resourcing Environment 
In most ITO organizations you’ll find, in some form or another, four major components or pillars of an external resourcing environment. One is an overall IT Strategy usually led by the CIO. Two, the IT organization itself made up of portfolios, functions, business components, and/or project teams executing business requirements within that strategy—let’s call this Demand. Next, you have some sort of vendor community that offers up resources and resource teams to meet the demand—we’ll call that Supply. Finally, you have Procurement whose responsibility it is to connect Supply to the Demand using some sort of sourcing process and model.
Between each of these four pillars, in all combinations, are communication channels. As described in figure 1 (below), there is a communication channel between the CIO and the vendors (Supply), between Procurement and the IT business (Demand), with vendors and Procurement, IT Business and the vendors, and so on.vendor management organization
In all likelihood these communication channels are defined by the normal project flow through the organization. The CIO defines vision, orchestrates funding, and manages approval to execute projects.  The IT Business organizes around the projects and seeks internal and external resourcing to build out the teams. They engage with Procurement who in turn negotiates with vendors to congeal the teams.  These sorts of communication channels between the pillars can become highly efficient and effective in the environment of project execution. So much so, that some common expectations and benefits may fall by the wayside.
What might be missing?
Where is Innovation, Investment, Productivity and the over used term, Value-Add? Depending on the model used in the external resourcing engagements, these aspects may be virtually non-existent, especially in FTE or Time and Materials models.
Consider whose role it is to ensure that innovation is permeating across the environment. Who is delivering productivity and efficiencies within the processes at hand? Who does the vendor interact with when considering where to spend their investment dollars doing the next POC or solutioning a particular business challenge?
Is there a VMO in your organization and where does it reside?
It is sometimes difficult for one or more of these pillars to incorporate this sort of divergent thinking into their daily grind by stepping back and away from their daily responsibilities to look across the enterprise for such opportunities.
Enter the vendor management organization. Rather than centering the VMO on these four pillars, we can consider VMO to be a cloud enveloping the environment to explore the relationships and communication success across each pillar combination as needed.
A vendor management organization should be a combination of governance and relationship strategy tuned to what the business environment needs and the maturity of the vendor relationships. As such, the VMO may exist in a different form or function from business to business. It can also evolve over time as these characteristics and relationships change.
Where are VMO’s engagement points?
If the relationship between the IT Business and the vendors is strained, or the metrics indicate that something less than satisfaction accompanies the project execution, the VMO can engage to explore how the relationship between the two initiated and evolved. Perhaps the right vendors were not aligned, or the right models employed. Or maybe there are expectations not fully detailed in the Statement of Work that are not aligned between the vendor and the Project team. Vendor management organizations can provide an objective, non-bias mitigation service to these teams, supporting and protecting both.
If the relationship between Procurement and the IT business is at arm’s length (which is often the case), then while Procurement may be executing at a high level with bidding and savings, they may not be integrated well enough into the business to influence a more strategic alignment of and with the vendor. The vendor management organization can spend more time with the IT Business educating them on vendor and model choices as well as a more granular introduction of the wider vendor capabilities and interest. In concert, the VMO can orchestrate interest and excitement with the vendors to direct investment where it has the highest potential payback.
Vendors and Procurement often exist on a very formal level so as to preserve the negotiation leverage on both sides while following extreme Procurement rigor to ensure fairness and equity across the vendor slate. Vendors often find it very difficult to share alternate approaches to what was specifically asked for in the requirements. Vendors also find it difficult to get visibility of the forecast and longer term opportunities that may very well be associated with the smaller projects in the procurement cycle. The VMO can provide a different posture with the vendors to help them see the bigger and longer term environment so they can better their own focus, alignment, and investment choices.
The CIO’s relationship with Procurement, the IT Business community, and the vendors is also important and probably has the most variety across different businesses and industries. The VMO can provide mitigation, arbitration, and facilitation within any of these relationships to ensure establishment of the well-oiled machine of IT.
Build the VMO for what it needs to be for your organization
Some of these relationships between the four pillars may be very finely tuned with no need or room for the VMO or anyone else to tinker with their success. For others, attention may be necessary.
Through governance, relationship sensitivity, observation, and selective involvement, the vendor management organization can offer the right ingredient to the right constituents, at the right time, and in the right manner to ensure optimal IT execution and maximized delight with your external resourcing environment.

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Tim Norton

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