The faster a company grows, the more critical technology vendor selection and vendor management becomes.
According to the CIO Executive Council & IDC 2016 Strategic Partner Index Survey, vendors play a huge role in the majority of companies, with 71 percent of IT leaders spending up to half their budget on vendors.
For companies embracing rapid growth, vendors are especially important, and the faster the company grows, the more critical vendor selection and management becomes. On-demand access to expertise and bandwidth enables companies to ramp up or ramp down in order to jump on an opportunity or fill the gaps. At the same time, they can forgo the need to hire, train and onboard full-time staff and instead keep their core internal resources lean and focused.
Vendor relationships can be integral to your company’s agility and competitiveness, but finding the right ones isn’t always easy. In Deloitte’s 2014 Global Outsourcing and Insourcing Survey, 48 percent of respondents indicated that they were having issues with poor service quality from their vendors.
When the relationship goes sideways, it can often be traced back to a lack of due diligence in the vetting and evaluation process. Given the critical role vendors play in company growth and agility, no company should cut corners on the vetting process. During more than two decades of managing vendor relationships, I’ve followed these four rules for technology vendor selection:
Check vendor references
This may seem obvious, but companies often simply check the box when it comes to references rather than actively using them to evaluate the vendor. I never take on a new vendor without speaking to at least two or three companies that have used that vendor before. And it’s important to ask the right questions. Were there any difficulties? How were they resolved? What did this vendor do well? What did they do less well? Did they complete the project on time and within budget? Did the deliverable match the expectation?
When embarking on technology vendor selection in particular, it’s a good idea to ask the platform or software provider for a recommendation. If you’re considering a Salesforce customization, for example, ask your Salesforce account manager for a list of vendors they recommend for this type of work.
Evaluate vendor financials
For longer-term projects or relationships—an outsourced infrastructure team, for example—it’s important to gauge the vendor’s financial stability. When a vendor you rely on goes into bankruptcy, it can be devastating. Before committing to a contract, you need to determine how the vendor is doing as a business, and once you enter into a relationship with them, that process of evaluation must continue regularly. I work with my financial team to conduct a yearly analysis on my vendors at minimum, which involves obtaining the financial filings of public-company vendors or a request for financials from the CFO of private-company vendors.
Require resumes for the vendor’s team
When contracting with a vendor, my HR department and I expect to see resumes for the people who will be working with my team. I also want to interview those people and have HR speak to them as well. We’ll call references, search social media and perform all the due diligence that we would apply to the hiring of an employee. The expectation is that your vendors will supply you with elite performers, but this doesn’t always happen. Taking the time to thoroughly review and confirm their credentials and talk to them one on one ensures that you’re getting the best value for your investment and entrusting your company performance to people who will reward that trust.
The vetting process works both ways. Exceptional vendors can be expected to examine your credentials as thoroughly as you examine theirs.
Value culture during technology vendor selection
A vendor relationship often requires close interaction between the vendor’s team and your own staff. Finding the right cultural fit is as important as finding the right core competencies or expertise, but it can be harder to identify than other factors such as capabilities, experience and pricing.
This is where interviews become invaluable. In addition to interviews with HR and the CIO, give your internal staff the opportunity to meet with the vendor’s team. Where possible, arrange an on-site meeting at the vendor’s place of business so that you can see them in their natural habitat. While you’re always likely to experience personality conflicts at some point in a project, taking the time to focus on cultural alignment before making your selection will help to keep those tensions to a minimum.
I dive further into how to optimize vendor relationships in another GrowthBits piece. Check out CIO Playbook: 7 Steps to a More Effective Vendor Management Process.
Here’s the bottom line.
By incorporating these four criteria into your technology vendor selection framework, you’ll be able to form a more complete and reliable picture of their ability to integrate with your organization, understand your priorities and deliver products and services that accelerate your success.
And remember, being able to identify the right vendor is important, but it’s equally important that those vendors are motivated to work with you. The vetting process works both ways, and exceptional vendors can be expected to examine your credentials as thoroughly as you examine theirs. I’ve worked hard to maintain an excellent reputation in the vendor community. That means not only paying promptly and fairly and treating them with respect, but actively building a win-win partnership that profits both parties and leaves them feeling good about the relationship.