Posted by Patrick Connaughton on March 26, 2010
I'm currently researching the ROI of the Vendor Management Office (VMO) -- looking to help answer key questions like:
- Of the services the VMO provides to the company, which have the most value?
- What are best practices for establishing VMO credibility across the org?
- How is VMO performance being measured?
With about 25 VMO interviews completed so far I've seen a surprising trend -- when asked what VMO services provide the most value to the organization, contract lifecycle management is consistently front and center.
Now, it makes sense that many VMOs are involved in some stage of the contract as an IT domain expert but these folks are actually taking ownership of the entire process -- building contract templates, authoring, owning the approval and review cycles, as well as ongoing monitoring. Some VMOs are also even leading the charge to bring in new software tools to automate this process and get better control of overall contract lifecycle management (CLM). Why?
Given the unique, complex and risky nature of many IT contracts, the CPO's organization is staying hands off and relying on the IT specialists to create a favorable deal that’s enforceable.
OK, makes sense. Buy why should the VMO really own the process end to end?
My initial reaction is no, it shouldn’t. And many of my VMO interviews agree -- but have still heroically stepped in to fill the void short of an alternative.
What do I recommend?
First and foremost, the VMO should be a domain expert. The IT VMO is usually staffed by only 2 or 3 people. For large companies, it is not realistic to think that the VMO can really own the end to end contract process. What does it mean to be a domain expert?
Primarily, assisting in the development of new policies and terms for emerging technologies. For example, what specific terms and conditions should be included in a software as a service (SaaS) contract? Can you run the software in an outsourced environment? What about software licensing considerations when running virtualized servers? What about support considerations for open source software? Being able to guide buyers and contract teams on these types of decisions is part of the role the VMO can effectively play.
The Contract Manager in procurement should own preparing the initial contract, managing the change control process, acting as the facilitator across divisions, ensuring compliance with corporate policies, providing negotiation guidance, developing new contract policies and procedures, and so on.
Now, let's say your company is not buying into this and as a VMO you still need to ensure successful vendor relationships -- a solid contract being an obvious key part of that. If that's the case, my recommendation is to start to capture as much of what you do on paper and in checklists so that it's reusable. An example:
"In the past, our IT group was negotiating contracts directly with suppliers but had no real consistent approach in place. One of the most valuable services we offer is to review contracts in detail, help clarify the goals and make sure there are SLAs in place and that the deliverables are clearly defined. We’ve developed a standard IT check list that’s used to review the contracts, which has been really helpful." - Manager of IT Vendor Relations, Fortune 500 Retailer
Should the VMO leverage Contract Lifecycle Management (CLM) software do do this? That's another blog altogether and a case by case decision. With a tool in place it's easier to capture the SLAs and monitor how the vendor is performing against the contract over time. However, we have not found really seamless integration today yet from the software vendors when it comes to managing procurement, contracts and supplier performance. And, the IT VMO is not the typical end user of these tools so it's not a perfect fit.
Agree or disagree with my recommendation? As always, I'd like to hear from you.
Patrick Connaughton | Senior Analyst - Sourcing and Vendor Management
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