Best-in-Class Vendor Management Office

Transcription

1 Drive Your Business Strategy Brief IT Best-in-Class Vendor Management Office Vendor Management Should be a Core Competency of the IT Function With the role of key vendors evolving and with more vendors being introduced into the workplace, effective vendor management has become a critical capability of any enterprise. Denis Desjardins Principal, WGroup Introduction With the growing role of vendors in the delivery of IT services WGroup has long held that vendor management should be considered a core competency of the IT function, as well across the entire organization. This subsequently requires a management process and staffing commensurate with its importance. WGroup uses the the straightforward and well-established Star Model* as a framework for organization design and calls upon significant experience in sourcing and IT service delivery to identify and establish vendor management capabilities. This WGroup Strategy Brief will define and explore the Vendor Management Office (VMO) from a number of perspectives including the foundation, organization design, partnerships, vendor and contract assessments, processes and tools, performance management, financial impact and finally the implementation or rollout plan. This WGroup Strategy Brief describes our recommended considerations in each of these areas. Simplified Framework for Organization Design, Star Model IT Strategy Capabilities People Structure (Rewards) Partnership Processes Source: Kates, A., Galbraith, J. Designing Your Organization,

2 WGroup Vendor Management Framework Vendor Portfolio Management Vendors Tier 1-4 Contracts SOWs, SLAs, T s&c s Processes Policies, Procedures, Tools Stakeholders IT, ADM, Sourcing, Legal Service Levels Demand Management, Quality Organization People, Structure, Skills, Partnerships Foundation Governance, Risk Management, Capabilities, Objectives, Guidling Principles, Policies, Keys to Success Quality and Process Improvement Source: WGroup Before designing the structure of the VMO and its operating processes it is important to consider and come to agreement on a number of foundation elements. Note: Initially, it is helpful to define key terms that are often misused or inconsistently used. Among these are Contract Management, Contract Maintenance, Contract Administration and Tier 1-3 Agreements. Once terms have been defined the required capabilities of the VMO can be identified. This involves an assessment of the direction of the business i.e. what business initiatives are planned or contemplated and an assessment of the IT strategy. The IT strategy should clearly indicate where new or enhanced relationships with vendors will be required. VMO Capabilities are expressed as competencies the VMO must possess in order to support the IT function in execution of the strategy. Next, VMO objectives are defined. These reflect the VMOrelated requirements of the IT strategy and evolve based on the stage of development the organization is in. Objectives are oriented internally toward VMO performance improvement and externally toward vendor rationalization and value realization. Guiding Principles set the tone for how the VMO will interact with vendors and internally, with key stakeholders. They are value statements and are generally communicated internal to the organization and adopted by the staff. Before designing the organization it is also important to define the key organizational-level policies that will govern the operation of the VMO and establish its authority in the enterprise. These policies are distinguished from operational-level policies which are tied to operating procedures. These policies are communicated to key stakeholders by senior management and are enforced with senior management backing. Keys to Success are a representation of what management needs to keep in mind when designing and implementing the VMO. They take into consideration the culture of the organization, maturity level of 2 WGroup

3 processes, skills of the staff under consideration and the required capabilities of the function. The Foundation establishes the operating parameters and aspirations for the VMO. Once the Foundation has been established the work of designing the organization and key processes can begin. Organization Design At the macro level one of the key decisions needing to be made involves the contracting function and its position in relation to the on-going vendor management function. The contracting function includes qualification of vendors, conducting of RFx processes, and facilitation of vendor selection and negotiation of contracts. The on-going management function includes managing the portfolio of vendor relationships, monitoring performance, validating invoicing and facilitating value realization. Often, the contracting function can be found within a procurement or sourcing organization with minimal ties to the IT function. In order to maximize effectiveness contracting and on-going management need to be brought together if not formally, through an organizational change, then informally through the establishment of processes that promote interaction. When the contracting and on-going management functions are closely linked an operating environment will exist that minimizes vendor-associated risk and better enables leveraged interaction. The contracting function is staffed with individuals skilled in vendor selection processes and contract negotiations. Additionally, they require project management skills (or access to them) for management of larger, more complex transactions. Key responsibilities of the contracting function include: Vendor identification and evaluation Vendor qualification RFx lifecycle management Vendor selection facilitation Negotiation and contracting Contract maintenance (amendments, certain SOWs, etc.) Contract repository management Vendor on/off-boarding Vendor disengagement The on-going management function is staffed with individuals skilled in vendor and operations interaction. They need to understand contract terms, performance management and finance and be able to apply that knowledge in an operational environment. The contract managers are often assisted by contract administrators who use advanced organizational skills to maintain contract calendars, data repositories and key documentation. Key responsibilities of the on-going management function include: Contract portfolio management Contract calendar monitoring and maintenance Vendor performance tracking Financial performance tracking Invoice processing licenses and maintenance Invoice validation all other Contract management support It is important for the VMO function to develop strong working relationships with key functions across the organization. Best-in-Class Vendor Management Office 3

4 Third-Party Contract Classifications (Illustrative Example) L Vendor Criticality H Niche Monitor and Maintain Contingency Plan Low-Touch Consolidate and Reduce Strategic Engage and Manage Diversified Control and Rationalize L Vendor Criticality H Soft. Dev. Tech Igate Link Tech NRT Intersoft, Half TSI Tibco Teradata Epicore HP SAS SW D&D Microsoft IBM Juniper Agilysys Microsoft AT&T Aruba Switch Dell Oracle ACS ABC L Relationship Complexity H L Relationship Complexity H Source: WGroup Often a VMO Business Office is established with the following responsibilities: Financial management and analysis Vendor assessment and analytics Quality management Process, forms and template management Forms origination and processing All functions within the VMO also have a role in dispute resolution, audit and compliance support and continuous improvement. Partnerships It is important for the VMO function to develop strong working relationships with key functions across the organization. The first set of relationships is focused on the client base (i.e. those whom the VMO serves). Here the VMO needs to be responsive to needs, proactive in developing relationships with vendors on behalf of the organization and focused on performance. The next set of relationships is with the functions with which the VMO interacts to perform its duties. These include legal, procurement and risk management. Here the VMO must fulfill its obligations promptly and assist the support organization where required. Clear lines of responsibility must be drawn and understood by all parties to eliminate confusion and promote efficient operations. The final set of relationships is with external support organizations such as consulting firms used for specific skill sets (generally used in larger transactions) and external counsel. The VMO must be able to manage the service provider while maintaining relationships with internal partners and vendors. Vendor And Contract Assessment Vendor profiles are created to serve as a quick reference of key vendors organization, capabilities, strengths, weaknesses and management team. Profiles consist of a two to three page synopsis with information derived from the Internet, various research firms such as Gartner and Forrester and the vendor s web site. A list of key contacts within the vendor organization responsible for managing the relationship as well as more senior executives in the reporting change is also helpful. 4 WGroup

5 The design (or redesign) of the VMO needs to be approached with a focus on enlisting top skills, implementing effective processes and tools and establishing an organization whose role is clearly defined in the enterprise. Contracts are classified according to criticality of the service/product to the business, complexity of the vendor relationship and amount of annual spend (see bubble chart on Page 4). For criticality and complexity a subjective polling of key operational, sourcing and vendor management leadership is conducted to place each contract on a 1-10 scale where 10 represents the most complexity or greatest criticality. A bubble chart (at the top of Page 4) depicts the contracts in one of four quadrants with the size of the bubble representing total annual spend. Generally the upper right quadrant represents those vendors whose contracts are the most complex and critical. For these vendors a more intense oversight model is required such as would be found in an outsourcing agreement. Vendors in the upper left quadrant are generally niche providers where it is imperative on the organization to develop and maintain contingencies for major changes in their (vendor s) business (e.g. acquisition, merger, bankruptcy, etc.). The lower right quadrant consists of vendors where the relationship complexity drives the VMO to invest in controls while looking to rationalize and simplify the relationships. Finally, the lower left quadrant consists of commoditytype relationships where the focus should be on consolidating services to gain additional leverage and further reducing the total number of vendors. Processes The VMO performs a number of functions oriented toward ensuring an optimal working environment where vendors are involved and maximizing the return on investment in the relationships. These functions, listed below, are fulfilled through the application of key processes whose execution must be carefully managed. Functions performed include market and vendor analysis, RFP lifecycle management, contract negotiations, transition oversight and contract administration. Governance processes are established to develop and manage the vendor strategy to be employed, monitor and manage performance of the organization and control demand for VMO services. Front-end processes include vendor qualification, the RFP lifecycle, vendor selection, contract negotiation and, at the back-end, vendor disengagement. On-going management processes include those associated with managing the relationship with the vendors as well as the operations of the VMO. Relationship management processes focus on the contract calendar and ensure deliverables and contract events are anticipated and planned for as well as oversight of vendor operational performance. The operations of the VMO are monitored and improved via performance management and quality assurance initiatives and programs. Detailed RACI charts (Responsible, Accountable, Consulted, and Informed) are developed to define responsibilities and accountabilities for all processes at a more discrete level. Best-in-Class Vendor Management Office 5

6 Tools Tools within the VMO range from simple spreadsheets used to track total contract value by vendor and/or contract calendar events to full contract management and workflow tools. While the contract value and calendar tools can be used within the IT VMO, it is important to leverage workflow management tools across other functional VMOs and procurement organizations to ensure consistency in the enterprise and maximize leverage with those software vendors. Contract repositories are critical and need to be managed to ensure currency of documentation and facilitate its use. The number of repositories should be limited (one repository within the Legal function is optimal) and within each repository the ability to maintain (add, delete) should be limited and carefully controlled. Read access to contract documents within the repository should be granted on a need-to-know basis. The inclusion in the repository of supporting documents to the contract process (e.g. early drafts of contracts, RFPs, project plans, vendor evaluation documents, etc.) should be discussed with Legal. Performance Management Performance management is performed on two levels; externally directed at vendors where their performance against contract requirements is monitored and managed, and; internally where the performance of the VMO is monitored and managed. While the operational area directly engaged with the vendor (e.g. infrastructure management) is directly responsible for the vendor s meeting of contractual SLA commitments and the delivery of value, it is the responsibility of the VMO to monitor the overall performance of the vendor to ensure contractual terms are being adhered-to and interpreted correctly. The VMO performs an integral role in assessing service level failures and advising operations management on recovery of service credits (performance penalties). The VMO also maintains an overall perspective across vendor relationships and monitors vendor interaction in an effort to identify areas where vendors may be working against each other or impacting one another s performance. VMO performance is managed via service level commitments made to the business. Service levels are oriented toward the front-end, or contracting, process as well as the ongoing management process. Examples of contracting service levels include turnaround time for contracting services, quality of contracting services as measured by a transaction-based survey and adherence to the RFP lifecycle schedule. Examples of on-going management service levels include adherence to contract calendars, quality of management services as measured by a periodic (annual) survey, incidence of compliance issues and invoice adherence to contractual terms. As with all new organizations, service levels should be baselined for a period (e.g. 90 days), adjusted to reflect performance then communicated to the stakeholder community. The service levels should also be reviewed annually and adjusted to reflect improvements to processes, tools and vendor relationships. 6 WGroup

7 VMO s are quickly becoming the most sought after capability in IT. The impact opportunity is significant in driving expense reduction, lower portfolio risk and improved performance for IT services. Phil Newmoyer Principal, WGroup Finally, a continuous improvement program should be established to drive process efficiency and quality. This program can be a natural continuation of the process design workshops usually conducted during the design phase of the project. These sessions should be held at least monthly and can include representatives of related organizations such as procurement, operations and accounts payable. Financial Business Case The financial business case should include one-time expenditures for hiring, tools, consulting services, etc. and on-going costs for salaries and benefits, tool maintenance and facilities (if appropriate). In order to minimize the impact of the VMO implementation on current budgets it is recommended that the organization is phased-in in such a manner as to ensure major expenditures can be planned for, and included, in the next budget planning cycle. Implementation As introduced in the preceding Financial Business Case section, implementation of the new or revamped VMO should coincide with the annual planning and budgeting cycle in order to address major new expenditures with minimal impact on the business. Acute issues such as problem contracts or vendors should be prioritized and addressed in a focused manner with appropriate regard for costs and the benefits to be realized from prompt resolution. Another consideration in implementation is the phasing-in of certain policies impacting service demand. In essence, when introducing a new policy such as the requirement that all requests for contracting services be submitted to a new group, it is imperative that capacity be available to meet demand. In other words there needs to be enough people available to handle the increased workload so that service levels are met and stakeholder satisfaction does not start out in a deficit. Policy roll-outs should coincide with the ramp-up schedule for new resources. Summary With the role of key vendors growing in importance and with more vendors being introduced into the workplace, effective vendor management has become a critical capability of any enterprise. The design (or redesign) of the VMO needs to be approached with a focus on enlisting top skills, implementing effective processes and tools and establishing an organization whose role is clearly defined in the enterprise. The WGroup methodology discussed in this paper incorporates best practices derived from years of actual experience working in multi-vendor environments across a multitude of industries. This methodology, when executed diligently, will result in the establishment of a top-performing vendor management organization. Please contact WGroup to learn more about the WGroup VMO methodology and case study examples. Best-in-Class Vendor Management Office 7

8 WGroup Case Study: Vendor Management Office (VMO) Situation Actions Taken Results Confusion of vendor & sourcing responsibilities Material risk in lack of consistency with key controls Gap in senior management expectations for IT expense management Processes not defined Organization of generalists without required skills Contracts signed without due diligence and governance No vendor strategies No single view of vendors & spend Not aligned with IT Strategy Lack of credibility and relationships with stakeholders Vendors leveraging the situation with multiple price points and terms across the enterprise Governance teams in place not achieving results Ineffective and unenforced policies Designed and implemented a comprehensive VMO with: Organization model with functional specializations, metrics and accountabilities Designed custom processes using WGroup VMO methodologies Detailed job descriptions and RACI charts mapping every critical responsibility Emphasis on expense management supported by analytics and high caliber VMO leaders Designed and deployed a robust VMO Designed and deployed a VMO governance model with multiple operating and decision teams Deployed VMO operational models integrating new process structure Established a renewed relationship network with clients and stakeholders Added planning teams to manage IT strategy and vendor alignment Drafted new policies to drive behavior and discipline on VMO diligence and adoption Highly effective VMO organization deployed and fully embraced by IT leaders across the enterprise New VMO governance and operating teams covering all IT vendor and sourcing processes, with full management control, vendor leverage, risk management and value creation Significant reduction of IT run-rate expenses, as well as portfolio cost reduction, with sustainable reduction processes in place Vendor strategies completed in full alignment with IT strategies Clarity of responsibilities with specialized expertise driving consistency Significantly reduced contract emergencies by deploying a VMO demand management process reducing risk and dramatically improving the ability to negotiate New culture of vendor diligence and discipline across the organization About WGroup Founded in 1995, WGroup is a boutique management consulting that provides Strategy, Management, and Execution Services to optimize performance, reduce costs, and create value for Fortune 1000 companies. Our consultants, who have years of experience, both as industry executives and trusted advisors, help clients think through complicated and pressing challenges so they can drive their business forward. For more information on WGroup, visit OS_GRMGOSSB_091012_003 Contact Us WGroup 301 Lindenwood Drive, Suite 301 Malvern, PA Copyright 2012 WGroup. All Rights Reserved.