Six CIO Mistakes in Vendor Management

1 Failing to Speak With One Voice

CIOs make the biggest mistakes in vendor management when too many cooks get in the kitchen without putting an executive chef in charge. “A very typical issue that we see is managing these relationships by committee,” says James Harvey, partner and co-chair of the Global Technology, Outsourcing & Privacy Group at law firm Hunton & Williams LLP. “Which means no one is held accountable, communication breaks down and suppliers don’t get good direction.”

Even though CIOs must depend on a cadre of experts to help manage relationships, they must also find a way for the organization to speak to the vendor with one voice. “Suppliers will try to ‘mom and dad’ you,” says Lynden Tennison, CIO for Union Pacific. “They don’t like the answer they get from the IT guy, so they’ll go to the supply guy. Or they don’t like the answer they get from the supply guy, so they’ll go to the IT guy and try to play you against yourself.”

2 Skipping the Homework

If you don’t understand what you’re going to require of the vendor, how can you expect the vendor to understand the requirements? “You can’t expect the vendor to perform if you can’t define what that task is,” says Dave Weidenfeld, a 23-year veteran at McDonald’s, who worked within both the legal department and the IT department on vendor management. “They can’t agree to perform and to read your mind. They just can’t do that, that’s not possible. Inexperienced CIOs and IT managers often rush into vendor relationships without laying the groundwork by developing written requirements and going through a formal RFP process.”

“The phrase you will hear again and again in the outsourcing industry is, ‘Our mess for less,’” Hunton & Williams’ Harvey says. “So we’ve got a messy situation that’s costing us a lot of money, and we don’t really have good management in place. Sometimes the thought is, ‘Let’s move that to a third party, engage in a little bit of labor arbitrage and reduce our bottom-line expense associated with that activity.’ That rarely works.”

3 Fixating on Price

The price on the contract may be an important consideration, but it certainly isn’t the only one. “Most people can get the price right, but the more important thing first of all is, ‘Do I trust these people and are they going to deliver what they promised?’” says Best Buy CIO Robert Willet. “Because, in many cases, speed to market actually is as important as best price.”

4 Using Too Few Suppliers

Even if you think of your vendors as partners and have a good relationship with most of them, it still pays not to rely too much on a single vendor. “If you go too deep with one partner or one vendor, you end up being put in a position where your ability to negotiate is massively reduced,” Willet says. “We have been in that position; we’re not in it anymore. As a result of that, we went with other people in order to make sure there was not a monopoly at any time.”

5 Only Dealing With Large Vendors

CIOs who choose to stick only with the “safe” pick of a large vendor often miss out on tremendous opportunities offered by going with smaller to midtier players. These types of partners offer a couple of obvious advantages over their larger counterparts, Union Pacific’s Tennison says. “Usually, you tend to find that you get the principals in those firms, and in a lot of the larger firms, you don’t always get the principals,” he says. “If you’re not the 800-pound gorilla, you usually get kind of the ‘B’ team, whereas if you’re working with a smaller provider, you tend to be their gorilla—or at least one of the gorillas—and you tend to get the ‘A’ team.” The other advantage of going with smaller vendors is that an enterprise tends to have greater leverage in negotiation and is less likely to be put into the type of compromising situations that can crop up when dealing with a monolithic provider with loads of legal and negotiation resources.

6 Signing and Forgetting

Vendor management does not end after your organization signs on the dotted line. Too many rookie CIOs forget that even though contract negotiation is an important step in vendor relationship development, it is only the first step. Successful CIOs review their partners regularly to ensure everything is going according to plan and to make adjustments to agreements when necessary. “What happens when you don’t check in on the contract from time to time is that you drift away from the deal,” says Weidenfeld of McDonald’s, “and eventually it turns into a situation where everybody starts pointing fingers.”