Today’s IT landscape is significantly different to that of a decade ago. Both businesses and individuals are now spoilt for choice. The fact that immediate access to enterprise-ready IT services is merely a credit card swipe away is only one of a range of profound changes reshaping the IT world.
The question is: are your organisation’s IT vendor selection and management approaches appropriate for this new environment?
Technology-led innovation and disruption has not only changed the way individuals and organisations use IT – it has also irreversibly changed the world for IT vendors.
The success of IT vendors is absolutely dependent on IT. But the reality is that vendors are still coming to grips with how they reassess their products, service and overall value proposition in their own increasingly competitive, globalised markets.
When buying IT products and services, today’s organisations need to:
- Maximise the return on any investment in the face of rapid change.
- Engineer a high probability of success with this return on investment.
- Protect any IT investment in the face of rapid technological obsolescence.
- Insulate the organisation from the IT vendor’s risks, especially in the context of significant increases in cloud computing solutions.
Organisations that assume conventional approaches to IT procurement are appropriate may be in for a rude shock. The fact is that, in many instances, the conventional RFP-bid-respond-buy approach to IT procurement is inadequate in today’s environment.
Here are a number of key points to consider when assessing the health of your organisation’s IT vendor management strategies.
1. Don’t try to buy certainty
Traditional approaches to IT supply contracts (or most contracts, for that matter) are based on certainty. The problem is that certainty simply doesn’t exist in the real world. This is why it’s far better for an organisation to select a partner that has the capability, skills and resilience to adapt to change instead of one that tries to guarantee certainty.
2. Share the love, maximise the gain
Building all IT vendor contracts on highly prescriptive specifications, KPIs and penalties may be counterproductive. For important IT services that require collaboration, adaptability, flexibility and innovation, consider agreements that are based on outcomes and gain share rather than specifications and penalties. This can be a real game changer.
3. Consider international information governance
The October 2015 European Court of Justice’s judgment invalidating the US-EU Safe Harbor program may have serious implications for your organisation if you are using a US cloud provider. This ruling prevents the transfer of EU residents’ personal data to the US. Does your organisation handle data that is subject to the European Union's jurisdiction? What are the implications for your organisation? If you’re assessing cloud vendors, now is the time to check.
4. Maintain IT’s hand in all technology investments
Cloud computing gives business units a free hand to directly source IT products and services from very willing and capable vendors, but the risks of unfettered (approved or unapproved) IT procurement are very real.
Any business case for a technology investment should be able to withstand open scrutiny from IT. Company boards should mandate that CIOs retain the right to validate all business cases involving IT investments, even if they are fully funded by the local business unit. This is a sound way to minimise risk to the business.
5. Account for an efficient exit plan
Managing an exit from your ‘perfect’ IT partner in the future could be a real challenge. Any benefits you accrue may end up being reversed by the technology and business reengineering challenges of transitioning to a new provider. When negotiating your contract, factor in what you will need to exit the arrangement quickly.
6. Survey your vendor’s market for disruption
Your IT vendor’s markets are rapidly changing. After all, they operate in an industry that is driving digital disruption. Depending on your own industry, your intrinsic rate of change may well be slower than that of the IT industry. In this case, ensure you understand your IT vendor’s market as well as your own. After all, if your IT vendor does not change, they will not remain in business. The question is: would those changes adversely impact your business?
7. Assume you can’t negotiate with big vendors
For the most part, cloud business models are predicated on standardisation and scale – not adaptability and customisation. This can limit your ability to negotiate any divergence from their standards. This is especially so in the case of the globally dominant IT providers such as Google, Microsoft or Amazon. The key is to perform your vendor due diligence carefully and take care to validate any assumptions about change that underpin your business case.
8. Prize agility in prospective vendors
Your IT vendor’s capability and enthusiasm in responding to mandated changes in commercial, legislative, regulatory and security environments cannot be assumed. Case in point: if the privacy, data jurisdiction or security legislation changes in your legal jurisdiction, will your overseas-based provider be willing or able to comply in a timely manner – if at all?
9. Face the challenge of multi-vendor arrangements
With our organisation’s increasing dependency on IT vendors, it is highly unlikely that a single vendor will meet all your requirements. As digitisation spreads across your organisation, it is most likely that you will need a range of IT vendors. But what processes – including contractual obligations – will you put in place to ensure the various vendors will play nicely together for the benefit of your organisation, even if they are competitors?
10. Understand your vendor’s shareholders are not your own
What if your key IT vendor’s strategic direction is not in your organisation’s best interests? This may have profound implications if your organisation has an absolute and critical dependency on their services. Proactively identify and manage the potential implications of your IT vendor’s strategic changes on your business.
11. Consider your vendor’s vendors
Just as your organisation is depending on the services provided by your IT vendor, they also have their own vendor ecosystems. What visibility do you have over the capability, resilience and integrity of their important upstream vendors? Can you see any risks to your business?
For the most part, CIOs recognise that the days of owning and operating all the necessary IT technologies and systems are nearly over. IT vendors and service providers now play an increasingly critical part in the delivery of your organisation’s IT capabilities.
For this reason, regularly testing and adapting your IT vendor management strategies should be a cornerstone of your own business strategies.