Transforming Vendor Management Into A Strategic Partnership

Defining an open partnership in ten steps

For most organizations, there is no middle ground when it comes to vendor management.  Vendor management is usually a blessing or a curse.  For organizations with high turnover and constantly struggling to innovate, vendor management becomes the lowest common denominator and something that rarely rises into a strategic role within the company.  However, successful firms recognize and embrace the idea that they need to leverage third parties to help them create new and smarter ways to connect with customers, or accelerate the production of software to help them deliver on a deadline or business promise.

In short, vendor management needs to evolve and transform itself into a strategic partnership, one where both companies treat each other with mutual respect and recognize each has much to gain.

In order to understand and appreciate this, we must go back to the beginning.

When an organization goes under disruption, normally the first place that disruption is felt is the business itself.  Often, to overcompensate, the business ventures into developing products without the practical experience or knowing whether the technology organization is ready and able to support a new product framework.  New velocity required to compete, and new design trends further complicate the issue and can lead to further setbacks.

Mobile phones and a unique user experience

A good example of this happened during the early days of mobile phones.  Many traditional organizations created clunky mobile apps that imitated their website and never innovated their business model using mobile. Banks leaped into mobile banking, but instead of innovating or relying on a game changing feature, they just transferred one feature on the web to the mobile phone. When “mobile first” was deemed as the rule a couple of years after the release of the iphone, more native mobile features started to materialize, but it still took years just to learn the new technology and its design intricacies.

Millions of investment dollars later, people realized that the mobile phone was completely different than a website, and as a result, our expectations for the user experience should be completely different.

Vendor partnerships that empower innovation and technology superiority

The traditional vendor competency that has worked in “outsourcing” has been primarily cost centric.  This drive to the bottom line rarely rewards vendors that deliver innovation and scale, new design trends, improved time to market, new techniques to extracting and using data, better processes to break through communications silos.

This leads to an important question for all of us: How does traditional vendor management actually treat its partners?  Sadly, not very well, with relationships often highlighted by negotiated volume discounts, establishing SLAs that have little to no meaning to the business, and creating Requests for Proposals where who wins is usually the best connected or the most economical vs. the most qualified.

The net effect of this process is often a total sense of distrust and disconnect between the business and products divisions of a company.

As we continue in this new era, we must stop treating our vendor relationships as tactical, and instead, focus on educating vendor management so we can strategically build trust that leads to the creation of open and transformational partnerships.  There is an enormous opportunity for vendor management organizations to stop justifying their existence based on how much money they save, and adopt a higher, strategic goal: empower the organization to create an ecosystem that allows them to not only save money, but also stay ahead of the game by bringing innovation and technology superiority.

Defining an open partnership in ten steps

There are several indicators of an open partnership:

1.     Partners are empowered and incentivized to invest in the relationship;

2.     The purpose of the relationship is clear: the client’s success and not the hourly fee;

3.     Clear delineations of responsibility, with little micro-management from client to vendor given the nature of relationships;

4.     Clear metrics guard the relationship and bind it to common goals;

5.     Production relationships contain lab pods that explore, discover and test new technologies, while creating digital touch points between the clients branded products and services, and their customers.

6.     Partner teams are cross-functional, comprised of engineers but also designers, artists, and product associates that work within a pod, hand-in-hand with multiple reps of the client’s divisions;

7.     Goals are shared. Velocity, quality, autonomy and product KPI commitments are consistent, regardless of who sits in what payroll;

8.     A sharing of the agile model, metrics driven with an open dialogue for expectations and goal alignment;

9.     A process for shared risks, issues, triggers and tool sets to track projects and road maps;

10. Information is open, as the client opens up its goals and the partners (formerly vendors) share operating models, metrics, levels of attrition, people issues and most important, risks and rewards.

How to get started

So where and how do we start?

Simple, let’s get something done.  Figure out the scope, create a cross-functional team – a pod – and instead of developing complexity around what to do, bring in talent that digests the requirements in real time.  Ultimately, you’ll want to let the pod DEFINE the requirements and suggest product and features as a function of their understanding of the business goals and needs.

After a few quick wins, the pod will split (per mitosis) and other pods will be developed, as if cells dividing to create new tissue.  That’s how a partnership scales: with real time data and through an ecosystem of teams (pods) that leverage people that already understand the customer business, process and goals required to achieve success.

The partnership can be measured every day as a function of how mature these pods are, given that maturity is a function of what teams deliver for velocity, quality, autonomy and specific product KPI.

With this model, we ensure that everyone is motivated to produce together at the highest level of performance, and that the system is gamified towards the highest maturity by rewarding results, partnership, performance and innovation.