In today’s competitive business environment, most organizations have moved from single vendor to multi-vendor relationships, getting their business processes outsourced to an increasing number of vendors. There is an inherent risk associated with relying on single vendor relationships. The lack of consistent controls, ineffective vendor assessment programs, and inefficient reporting processes make it problematic for organizations to proactively and reliably measure, manage, and optimize vendor performance. 

Maintaining visibility across the service portfolio and accurately assessing vendor performance are two major pain points of vendor management.  Often clients become data rich and information poor. They are overwhelmed when each vendor starts feeding slew of status reports, SLA and KPIs.

To improve the vendor management process, it is important to track and evaluate your vendors on a regular basis. An appropriate process should be put in place to categorize your vendors. This vendor stratification will help you bring additional focus toward managing your strategic vendor relationship and less emphasis on tactical ones. Spending more time on monitoring your key vendors ensures they are meeting your expectations and it also allows you to proactively take measures to seize opportunities or mitigate risks.

Vendor Classification/ Stratification strategy helps you prioritize your vendor management efforts; it classifies vendors into appropriate tiers and dynamically assigns controls based on defined vendor classified tiers. 

The three vendor management competencies based on which vendors can be categorized are:

• Relationship - value aligned to deal with business goals, internal external focus, business changes addressed
• Performance - service monitoring, service assessment, business outcomes, metrics aligned to deal objectives
• Contract- commercial terms followed, contract elements, contract elements adjust to change

Benefits include:

Eliminate weak vendor choices and proliferation

Vendor Classification/ Stratification helps control costs at the procurement stage by enabling a ready comparison of vendors, the services they provide, and the fees they charge. With a holistic picture of materials, services, costs, and expertise available from each vendor, you make informed choices and better decisions. Also the vendor list it reviewed and trimmed to drop poorly performing vendors.

Centralized Vendor Profile

By executing vendor stratification an organization chooses to retain best options in each type of solution and service. This includes an alternate vendor strategy of strategic intent and best vendors with niche skills or other temp services.

A centralized system allows organizations to have more control - vendors do not get added through an ad hoc process but via proper vendor assessment cycle.

Vendor Performance Assessment

Existing vendors are benchmarked against multiple parameters such as delivery quality, responsiveness, cost competitiveness, alignment with client organization’s objective through a continual performance assessment cycle. The outcome is re-rating of vendor and reclassification through vendor stratification process.

So this article from CIO magazine is right on the money. We know from experience that our clients have faced this problem for years; Middle managers who lack the skills and the experience necessary to make an outsourcing relationship successful.

Let me summarize the article and then share my thoughts on it. Basically the CIO magazine article states that:

Middle managers are important to organizations and that is even more so in outsourcing organizations because their responsibility extends beyond inner team management to managing suppliers, customers and reporting to upper management internally. Outsourcing firms work with virtual teams who may be located across different countries and in diverse cultures. So the skills of these middle managers becomes even more critical to the success of the organization's mission.

Lack of experience, lack of depth of knowledge and an overall lack of control results in higher costs, lower quality of service or product and the failure to execute according to Willocks and Griffith, two outsourcing experts who have studied outsourcing and middle management extensively.

So I'll stop reviewing CIO's article here and now share my perspective.

Outsourcing management skills are such a delicate blend of communication, knowledge, and experience. Not everyone can be successful in an outsourcing role. We know this because we work with organizations who have set up outsourcing relationships that end up becoming a tremendous overhead cost simply because neither side took into factor the need for a middle manager who could be 100% overseeing the relationship between the internal team and the external customer or vice versa. Note, I said "neither side". Because just as important as it is for the outsourcing company to have good managers to manage the customers, it is equally important for companies who have outsourced their work to third parties to also invest in middle managers who can devote the time and have the skills necessary to make the relationship with the outsourced supplier work.

Successful Oursourcing Partnerships result when middle managers at client companies do the following:

1. Facilitate discussions
2. Problem solve when situations arise
3. Monitor conversations and communications
4. Ensure compliance to processes
5. Build relationships with external teams
6. Challenge internal customers and external teams to come up with new ways of doing things better
7. Getting buy-in from upper management in situations where scope or timeline changes occur
   

On the other end, an outsourcing company's middle manager must be well-versed in everything mentioned above AND be able to manage day to day operations of the internal team to ensure there is productivity and a focus on meeting customer expectations in terms of on-time delivery and quality products or services.

Training, mentoring, and refining communication methods are all ways in which to improve a middle manager's skill set to make them successful in creating a successful outsourcing relationship.

I read CIO's Outsourcing Trends To Watch in 2010 with great interest given what I do for a living. The overall article was not surprising however one section certainly caught my eye. Here's the except:

• Multi-Sourcing Malaise. Multi-sourcing seems ideal in theory—work with best-in-class IT service providers and keep costs in check, thanks to the competition. In reality, it's been difficult at best and disastrous at worst for many customers."Organizations are reassessing their approach to selective sourcing and multi-sourcing, and realizing that they need to have a certain level of maturity in terms of processes, governance and vendor management in order to make the multi-vendor model work," says Bob Mathers, senior consultant with Compass America. "Organizations that have pursued multi-sourcing without investing in management capabilities are finding themselves longing for the problems they used to have with their one and only vendor." Watch for reevaluation and restructuring of these relationships next year.

Upon first began reading this section I thought "No way, is he going to say that multisourcing isn't going to work?" (I'm a huge proponent of multivendor environments and elude to that in my newsletters and even in one or more of my earlier blogs). Then I read the section again.

And what Bob Mathers is saying makes a lot of sense. Multivendor environments are not for the small or immature organizations. I mean that part is quite well understood by most of you out there who know that managing one vendor is difficult with the limited resources you have so how would you manage five providing the same type of solutions with the same limited resources you have to keep oversight and ensure all are performing to satisfaction. I get that.

And I also get that maturity in processes, governance,, etc. is required for a multivendor environment to work.

But where I differ with Bob Mathers is in the statement saying that organizations who've pursued multivendor relationships long for the days when they had only one vendor to deal with. I don't know about that. And the reason I say that is because, even with the overhead management of multiple vendors, companies always benefit from having multiple sources to choose from. Rather than putting all your eggs in one basket as used to be the case, spreading them out across different baskets with varying levels of involvement makes a lot of sense.

The benefits are that if one vendor doesn't perform, there's always another one ready to select from without having to go through tedious vendor selection processes.

Also, multivendor environments allow cost benefits to clearly come through up front because vendors can compete with each other to win new projects based on established prices.

Bob Mathers also states that "Multi-sourcing seems ideal in theory—work with best-in-class IT service providers and keep costs in check, thanks to the competition. In reality, it's been difficult at best and disastrous at worst for many customers."

This is where I find myself disagreeing with Bob Mathers too. If the contracts were written properly up front, and if the costs were negotiated properly upfront, then in reality, customers should have no issues managing those relationships effectively even with a limited resource pool.

Multisourcing isn't for the faint-hearted or for the company that is not mature in its processes but even a small company can benefit from a multivendor environment IF the initial foundation in the form of contractual agreements, Service Level Agreements, Rate Cards, and Processes is laid strongly.