How to compare your skills in managing IT outsourcing vendors

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In an attempt to keep pace with today’s technological and business changes, most IT organizations rely on a variety of external vendors. But orchestrating a mix of traditional IT vendors, offshore outsourcing companies, and newer cloud computing providers while meeting business demands requires a strong vendor management and governance practice.

Alsbridge outsourcing consultancy recently introduced a vendor management and governance self-assessment tool to help IT organizations assess their effectiveness in contract management, financial management , performance management, relationship management, risk management and general strategy. Multi-sourcing management is an emerging discipline, says Jeff Augustin, CEO of Alsbridge, and companies are looking for ways to assess their own strengths and weaknesses in order to improve their management of service delivery.

CIO.com spoke to Augustine about the challenges of managing outsourcing today, the state of the practice, and why mature vendor governance is key to advancing outsourcing relationships and securing positive business results.

CIO.com:Why are the management and governance capabilities of in-house IT outsourcing vendors so important today?

Jeff Augustin, Managing Director, Alsbridge: One specific driver is the continued growth of complex multi-vendor outsourcing arrangements. You need to have effective vendor management to oversee all vendors in the environment, ensure collaboration, and keep track of all the moving parts and constant changes that take place in the service delivery model.

In a broader sense, companies are making the valuation of outsourcing a priority. They are seeing cost savings, but increasingly they are looking for benefits such as process consistency across business units and better data that can drive operational improvement and customer insight.

Getting better data is also [the] key to more lasting outsourcing relationships. Customers recognize that the overall strength of a partnership depends on trust, but that trust requires factual information about the various functions and processes covered by each area of ​​supplier management. Without this solid foundation of good information, organizations tend to be driven by emotions and end up focusing on day-to-day firefighting. As a result, companies find that supplier management provides reliable and consistent information that fosters trust and generates mutual benefits.

CIO.com: Clearly, supplier management capabilities are essential. Why is the IT organization notare you even better

Augustine: It’s still a relatively immature area for one thing. It is only in the last couple of years that we have seen companies implement dedicated vendor management functions. Now they are trying to figure out how to best structure the function and which supplier management functions to outsource and keep in-house. Another challenge is that this is such a large area [that] it’s hard to prioritize and know where to start.

CIO.com: Where do you see the the biggest gaps in supplier management capabilities today and why?

Augustine: The biggest gap is the implementation of standard supplier management and governance processes to ensure that supplier value is maximized. Effective supplier management requires the coordinated involvement of many internal and external stakeholders and the monitoring of a large number of moving parts. Organizations often underestimate the change management effort required to apply standard best practices.

The industry that seems to be making the most progress in this area is banking and financial services. These organizations are responding to increased regulatory pressure around third-party risk management, and we see them making significant investments to improve vendor governance capabilities.

CIO.com: Are there some aspects of vendor management and governance that IT organizations are typically better at than others?

Augustine: In the banking and financial services industry, we find that IT organizations are the most mature in the discipline of risk management. However, in general, the maturity levels of an organization’s supplier management capabilities depend more on supplier management and organizational leadership than on industry influences.

We find that companies with strong vendor management teams and executive support are consistently strong across the board. all Supplier management disciplines such as contract management, performance management, financial management and risk management. Meanwhile, those without strong leadership are consistently weak in all disciplines.

CIO.com: What can an IT organization learn from this type of self-assessment?

Augustine: The tool is specially designed to help companies assess their supplier management capabilities at a high level, to help them identify strengths and weaknesses. This comprehensive assessment is important because it provides a framework and a starting point for actions to be taken. One of the challenges of managing vendors is setting priorities and knowing where to start.

Identifying gaps in a specific area allows you to prioritize and focus on that area. If, for example, you determine that contract monitoring is lacking, you can focus on that area and then take advantage of contract management improvements in other categories. The first step in any improvement effort is an accurate assessment of the existing level of process maturity and capability. Once the gaps between the current state and the desired state are defined, the organization can prioritize and initiate actions to close the gaps. Ongoing assessments allow organizations to track progress toward desired maturity and capability levels.

Additionally, in many cases, vendor management functions struggle to articulate what exactly they are doing. In this regard, the tool is useful in helping to articulate this.

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