As market pressures and changing customer expectations force firms to utilize more supplier-based solutions, the need to professionally manage this supply becomes vital. Whereas in the past, "outsourcing" IT was primarily viewed as a cost-saving exercise, today a firm's top-line performance can be directly affected by the success of its suppliers. Deep industry knowledge along with direct customer experiences can put selected suppliers at the frontline of customer interactions and business innovation. When planned, built, and managed in the right way, the sourcing and vendor management organization SVMO can become one of the most important and value-generating organizations for companies.

While the changing business environment requires companies to react faster and manage disruptions more efficiently, their success relies on a constant but efficient supply. A well managed SVM organization will contribute to the overall success by ensuring a qualitative supply for the most favorable price.

Building a successful SVMO today may be more difficult than building any other internal organization. Managing a demand-oriented, well-balanced solution portfolio from external sources is a difficult exercise that has to be based in new governance models, supplier frameworks, and management tools.

To address these needs, Forrester has created the Sourcing and Vendor Management Practice Playbook, which brings a structured approach to building an SVMO that can help companies at various stages of maturity — from those at the start of their journey to those that are well-established

Was the introduction of the Ford Model T an improvement or an innovation over the horse drawn wagon?

As an SVM professional, you may ask, “Why is this question important for me?” But as an ever-growing number of companies invest in innovation, they will realize a significant portion of this can come from the existing relationships with suppliers.

Forrester surveyed over 1,000 IT executives and technology decision-makers in Q3 2011 about which priorities will have the most significant impact on this year’s IT services spend. The top answer, at 56% of the respondents, was the need to innovate and grow their business. In fact, innovation rated higher than the ever-important lowering operational costs (40%)!

To execute on these innovation priorities, you — the SVM specialist — must understand the innovation potential of your suppliers and how to leverage this in the future. Success on this endeavor will require setting the stage. SVM pros need to understand the difference between a supplier-driven improvement — that we expect — and a service or business-focused innovation that needs investment and management. SVM pros can start with three key items: 1) Use an innovation screening checklist to understand who to partner with; 2) educate vendors on business priorities and key stakeholders within the business to enable innovation; and 3) manage delivery-oriented innovation as a part of your daily vendor governance.

Imagine the following: You’re about to embark on a road trip through the desert. Anyone who loves living would put the car they rely on into a repair shop prior to starting this journey to make sure that it doesn’t break at the most inappropriate moment – i.e., the middle of nowhere. Moreover, a forward looking plan should be defined to mitigate the risk of a breakdown, supported by a close monitoring of critical components of the car while riding it. Nobody would rely on only checking the receipts from prior check-ups.

However, this is what often happens when it comes to managing IT suppliers. Most companies today manage suppliers “backward” looking. When selecting a supplier, a basic check about its viability is done – if ever – and from the point of the purchase onwards companies only control the delivery. Most organizations think that contractual clauses about IP protection and exiting contracts are enough. But when do you use such clauses? And what do you do if a supplier – for whatever reason – isn’t able or willing to support you anymore?

Only a very few companies understand that there are things they need to control aside from the operational control of what is being delivered against what they pay. Companies need to check and consistently monitor the viability of their strategic suppliers. On average, 70% of the IT budget is spent with external suppliers of hard- and software services. And this investment needs to be secured. On top of this, more and more companies understand that becoming more innovative requires a closer, more strategic relationship with few suppliers.