Posted by Lutz Peichert on September 27, 2011
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.
Building these relationships is like planning your desert journey. Clients need to understand and continuously monitor the viability of vendors. One approach to do this is what we at Forrester call “the Vendor Viability Index.” This method allows companies to combine and understand the performance of the vendors, predict upcoming changes, and map it against a company’s risk tolerance profile.
To learn more about defining vendor viability and mitigating vendor risk, I encourage you to join me at my presentation at Forrester’s upcoming Sourcing and Vendor Management Forums in Miami and London.