Turning Vendors Into Trusted Strategic PartnersBy Peter High | Posted 05-17-2013
Turning Vendors Into Trusted Strategic Partners
By Peter High
Gary Wimberly is the CIO of Express Scripts, one of the largest pharmacy benefit management organizations in the U.S. As dramatically as the company has grown, Wimberly has found that selecting better vendors and driving them to become trusted advisors has been a path toward better throughput and innovation. It also has allowed him to populate his own team with a higher concentration of subject matter experts and to lower the cost of IT across the board.
WHO: Gary Wimberly, CIO, Express Scripts
WHAT: Detailing his approach to vendor management and the value he has derived from a more robust vendor management process
WHERE: St. Louis, Missouri
Gary Wimberly has managed IT at Express Scripts through an astonishing era of growth. The company has gone from a $40 billion company to a nearly $100 billion company in just a few years. He has led major activities through the merger with Medco, and ensured that the cost structure of IT has decreased while its capacity to innovate has increased. One of the key weapons in his arsenal has been a better vendor management process than most other companies have. In this interview with CIO Insight contributor Peter High, Wimberly explains how he and his team have accomplished all of these feats.
CIO Insight: Your organization was among the earliest to establish a vendor management office. Clearly, your team has thought about the management of vendor partners. First, I would to know what has driven your use of external partners.
Express Scripts has gone through a period of extraordinary growth. When I joined the company our revenues were one-fifth of what they are now, as we close in on $100 billion in revenues. We operate in an ever-changing environment as well, as health care is as dynamic an industry as you can find. As we have expanded, IT’s responsibilities have grown accordingly. We need to do the traditional technical jobs that IT departments have done for years—the so-called “keeping the lights on.” In this category of work, we are expected to reduce costs to operate base functions each year. Frankly, it’s a constant struggle to do more for the same budget or less.
The bigger challenge and opportunity is that we are increasingly a part of the innovation puzzle at Express Scripts. So much of what we do, from an innovation perspective, has IT at its core, whether it is with our virtual pharmacy or data analytics teams. In order for us to meet these demands while we grow exponentially, vendor partners need to be a big part of the story. Vendors provide critical flexibility to scale our workforce in the face of client and regulatory demands.
How has your relationship with vendors evolved over that time?
Several years ago, our IT team resembled many others. It was comprised of leaders, subject matter experts and execution teams. We realized we could not meet the growing expectations because to an increasing extent, we were the bottlenecks. If the company came to me in the fourth quarter and asked me if we could spend $50 million more on new IT capabilities, frankly, we would not have been able to do so. Instead of adding more employees, I developed a resource strategy that augmented our employee base with outside resources.
At the outset, we created deeper relationships with three tier-one service partners who together helped us change our organizational model. We rely on them for 80 percent of our external labor. As a result, our cost per employee went up because we have a greater concentration of leaders and subject matter experts but with a lower cost per contractor, the overall FTE cost declined.
Turning Vendors Into Trusted Strategic Partners
With each of the three vendors mentioned, we developed a capacity services agreement. We have received lower hourly rate cards in exchange for a longer commitment from them. As the relationship with our vendors becomes deeper, we have drawn much more expertise from them. We have revamped our evaluation process to stimulate and encourage the innovative thinking done on our behalf. In fact, some of that motivation is brought about by aligning executives at our company with their companies, and investing in our partnership—primarily made of an investment of our time—to ensure that they are setup for success with us.
Now that this process has been established for some time, how has it evolved?
As we have increased our reliance on a few large vendors, our approach to sourcing and vendor management has had to change as well. We have moved from every project being a discrete and separate deal to specifically thinking about long-term relationships. This changes how we purchase, but it also changes how we manage. We’re careful to get MSAs in place now that envision a broad base of work. We are better at projecting forward the possibility of multiple rounds of work together to take some of the natural friction out of the process.
Competitive bidding has its place, but for us, the competitive bidding process does not allow us to move as quickly and efficiently as we would like. We prefer to establish long-lasting relationships with firms we can trust so that even if we are embarking on a piece of work that will require a seven-figure investment, we can proceed quickly and with confidence in the results.
I know you stress the need for vendors to become partners. How do you distinguish one from the other?
For a long time, like a lot of companies, we prioritized our vendors based on how much money we spent with them. A vendor with whom we spend 10 times more than another must be 10 times more important, right? That is not correct, and it sends the wrong message to large and small relationships alike.
Now, factors that determine strategic partners versus nonstrategic vendors include:
· How senior the relationship is in IT:
o Nonstrategic vendors report in lower in the Express Scripts org structure
o Strategic partners report to senior members of the team
· The amount of time the supplier spends with Express Scripts:
o Nonstrategic vendors spend time with our company and with several others
o Strategic partners are dedicated full-time to us in most cases
· The extent to which they are integrated into Express Scripts teams:
o Nonstrategic vendors are not integrated into teams, typically working in their own silos
o Strategic partners are more tightly woven into our teams, often acting as full-fledged members of our teams for extended periods
· The metrics that drive the relationship:
o Nonstrategic vendors are judged based on performance, price, incident and response
o Strategic partners are judged based on these factors as well, but we add to it innovation and trust
· The value that Express Scripts derives from the relationship:
o Nonstrategic vendors provide products that meet our needs
o Strategic partners do that while providing new ideas that further the Express Scripts agenda
· Finally, the ideal state for each is different:
o Nonstrategic vendors still need to provide high product or service quality
o Strategic partners offer those things, and they are trusted advisors to boot.
We have done a lot to ensure that we have more of these trusted advisors who are helping us drive our robust innovation agenda.
About the Author
Peter High is president of Metis Strategy, a boutique IT-strategy consultancy based in Washington, DC. A contributor to CIO Insight, High is also the author of World Class IT: Why Businesses Succeed When IT Triumphs, and the moderator of the podcast, The Forum on World Class IT. He can be reached at email@example.com.