If we just manage the contract with the vendor, we’re going to get pretty much exactly what we’re paying for, and potentially miss an opportunity to ensure the vendor is really working to improve our business outcomes.
When we talk vendor management we don’t mean negotiating the lowest possible price, we mean working with vendors so they can help you can achieve long term value.
Here are some of my thoughts about why sound vendor relationship principles are so important and how to use them to unlock more value from your vendor relationships.
Cloud, ask for what you want – you might just get it.
Is it really that simple? Yes, and no. If you don’t know what you want, you’ll end up with a lot you don’t, so it’s important you know what you want. Once you’ve established what you want, you’ll need to know how to ask for it or you’ll probably end up disappointed.
Businesses must first know where they are going and how to get there. Adopting the cloud because everyone else is or because it will be cheaper is not enough. For the cloud to be successful a business must know how it will operate in this new world. How will changes be made? How frequently will the business want to flex services from the cloud provider? Will that be automated or manual? Will the business retain solution architects or will that function now come from the vendor? These are just a few of the questions that businesses must address before adopting cloud.
There is no question that costs can be lowered by leveraging infrastructure and services provided by the marketplace. However, realising more than just a lower price requires clarity of the operating model both within the IT function and across the broader business.
Businesses are beginning to understand cloud and that it can form a big part of their future IT model. But applying aaS or other consumption models to their business can be tricky. If they’ve not gone down the cloud path before or aren’t getting the right advice the outcome might only be cost savings when it could be so much more. As so often the case, this outcome depends greatly on your vendor. To unlock more value from vendor relationships there some key elements to consider.
Vendor Relationship Management
Businesses that adopt cloud services have outsourced some key operating components to a vendor meaning their successes are now intertwined. Making that relationship thrive is more critical than ever before.
Both the business and the vendor need to invest in achieving long term value. The vendor needs to understand your business, what it is you want from an aaS model and your motivators for change. The vendor needs to be focused on your outcomes. It’s all about fulfilling the potential – being clear on the business strategy, how cloud will enable the organisation and how they, the vendor, can play a critical path in your future success.
At the same time the business needs to understand the vendor and its services roadmap. A relationship such as this cannot be one-sided. How can the business ensure that it is consuming the vendor’s services efficiently? How does it ensure it is the customer that the vendor wants in the long run? Remember, together both businesses thrive.
Companies that are serious about aaS can achieve results through deploying Vendor Relationship Management (VRM) best practices. This is so much more than operational contract management or having governance meetings with the vendor. It means the vendor really working with and on behalf of the business. Rather than just providing the services in accordance with the contract and meeting or exceeding the SLA, results are gained by challenging vendors to go further through VRM activity. With this model, you ask vendors to work with the business to add more value over the long term, to think of new ways of doing things and embrace new technologies and innovation to improve the business process.
It’s important to go further than just managing the contract with the vendor. If we just manage the contract with the vendor, we’re going to get pretty much exactly what we’re paying for, and potentially miss an opportunity to ensure the vendor is really working to improve our business outcomes. We’re looking for innovation, first mover advantage, efficiency, fine tuning and optimisation. We’re looking for how the vendor and its services can accelerate the business’s success in the marketplace. We’re looking to stay at the forefront of the market without having to continuously return to testing the market. We may be willing to invest savings in new services. Essentially we’re looking for the vendor to go further than the contract. We’re looking for them to bring ideas to the table, to tell us what else we could be doing and help us explore new ways to improve the customer outcome.
Understand the vendor proposition
Equally, it’s important to understand the different cloud consumption models and what the vendor offers (or what they are proven to deliver) and what makes them tick.
To unpick this it helps to have an insight into the vendor’s own operating and cost models. Understanding the vendor’s objectives, where the profitability lies for the vendor and what drives and motivates them could provide a key to unlocking additional value for both parties.
For example, are they a managed provider offering everything from hosting, architecture, e-commerce, services, security and more? Or, are they simply a hosting service that allows customers to do-it-themselves? Do they offer just a transactional relationship where customers simply pay for a service, receive the service and that’s all? Or, can the vendor do so much more, creating an opportunity to work together to drive value for both businesses?
The motivations and drivers for each vendor are very different and when it comes to monetising the revenue model some vendors need a reminder to look at the needs of the customer first. For example, it’s not uncommon for vendors to not look further than winning business with a low cost of hosting and then making up the difference in services. This is short-sighted approach. Others will explore what’s best for the customer with a view to maximising what they can offer and how to improve offerings and value over time, whilst meeting the customer needs and developing the relationship. The latter certainly has more potential to deliver value for both parties.
So, whether you’re coming to the end of a contract or ready to make the move to cloud, take a look at what you really want. Are you happy getting exactly what you’ve had for the last three years, with just a lower price point? Or, do you want to unlock opportunity and allow IT to be an enabler for the business? Think beyond IT and what the outcomes of operating under a new model could be.
There’s a real difference between vendor management (managing a contract for supply of services) to moving up the value chain and ensuring the vendor is providing a valuable long term relationship for the business.
If you don’t know where to start, work with a partner that has industry experience, knows vendors and is experienced in unlocking potential. Be bold and tell the vendor what you want. You might just be pleasantly surprised.
To discuss the topic further, please get in touch with the author, Julia Dol, on 021 458 542.