CIO Connect: What it takes to make or break a vendor relationship

Metrics are essential and the more successful risk and reward mechanisms tend to focus on output rather than input measures.

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The centralisation of procurement, tighter spending controls, and more strategic views on supplier management have led large enterprises to reduce the number of their IT-vendor relationships by an average of 20%. Building the right relationship with the right supplier is more important than ever for today’s CIO.

Any relationship begins and ends with the strength of personal relationships that are forged, but he says that the culture of a relationship really needs to transcend individual behaviours to permeate across every interaction point from CIO level down. In this context, the services contract provides a view of the level of shared understanding of the different but related needs of each of the parties.

The framework the contract provides is key to aligning the goals of the relationship and should be seen as a means of protection against bad behaviours. It also provide some terms of reference that help build continuity of service for key individuals, be they an account director, a CIO or an IT executive. It takes on special relevance in the case of contracts that are outsourced over a long period.

Cynics argue that suppliers promote longevity into the sourcing agreements simply as a means of protecting a revenue stream.

A vendor will argue that the closer, over time, they get to understanding the real needs of their customer, the more likely it is the vendor becomes strategic to that customer and a partner that is able to innovate and drive added value.

Equally, customers who are prepared to get close to specific vendors can play a role in the commercial futures of their supplier. By indicating their preferences, wants and concerns they can help direct the product development and product acquisition plans.

CIOs often talk about wanting to implement ‘risk and reward’ mechanisms in their IT services or outsourcing relationships, and depending on the level of trust this may be in the form of risks which include a “penalty” payment for underperforming and the rewards include a cash bonus for over performing. But the more successful risk and reward mechanisms tend to focus on output metrics rather than input metrics.

So, instead of focusing on traditional input service levels such as system uptime, it may be more appropriate to measure the number of orders or processes handled by the system in a particular measurement period. Output metrics tend not to be within the end-to-end control of the service provider – for example the number of customer orders processed by a system will depend on customer demand, as well as the effectiveness and efficiency of the system. Output metrics, therefore, require a more collaborative approach between the parties.

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