The Art After the Deal

See also: Six Vendor Management Mistakes.

Whether they are greenhorns or seasoned pros, most CIOs are operating in survival mode today. And in the battering seas of today’s tsunami, most are looking for any lifeline they can get.

The savviest CIOs look to form strong partnerships with their vendors to optimize their spending and build competitive differentiation, flexibility in the marketplace and growth in business intelligence.

“When you’re in survival mode, that’s when you need your partners more than ever to help you to find smarter, quicker, better, cheaper ways of finding solutions to problems,” says Robert Willet, CIO of electronics retailer Best Buy.

By showing CIOs how to use technologies differently, vendor partners help them maximize existing assets without worrying about buying new ones. “You’ll get more out of what you’ve already got as opposed to worrying about what you haven’t got,” Willet adds.

To get the most out of vendor relationships, it helps to turn to experts for advice. While most IT staffs might know the ins and outs of the technology or skill they are seeking, they are often less knowledgeable about the intricacies of negotiation, contract review and the like.

The best organizations know how to team up with either in-house negotiators and legal counsel or contracted consultants who understand the subtleties of procurement and partner development. “The skills have to come from somewhere,” says James Harvey, partner and co-chair of the Global Technology, Outsourcing & Privacy Group at law firm Hunton & Williams LLP. “So you have to be sure that the individual you have in charge of a relationship is more than a bean counter and is willing to stretch themselves personally and professionally into managing this relationship.”

Rookie CIOs should avoid falling into the trap of thinking that IT purchases differ from other procurement activities across an organization. “I’m not sure there’s anything all that unique [about IT buying], to tell you the truth,” says Joe O’Connor, vice president of the supply department at Union Pacific.

Union Pacific’s CIO, Lynden Tennison, has a close relationship with O’Connor and his team. It’s so close, in fact, that he relies on two full-time supply employees who reside and work directly within the IT department to provide advice on new and existing relationships.

These internal business partners offer advice drawn from the experience gained from the supply department’s more than $8 billion-per-year procurement activities.

As Tennison explains, the relationship with the supply department took years to perfect, but the work has paid off. “They’ve helped us to really understand the full picture of what we’re trying to procure,” he says. “You might think you were buying the lowest-cost alternative, but often you would end up … having hidden costs inside your organization that would change that whole equation. Or [you’d] put pressure on a vendor to make a reduction in one aspect of their product when the reality is that the bigger expense is in another area you hadn’t even thought of.”

The relationship has also helped Tennison’s staff challenge existing buying assumptions. For example, when Union Pacific was acquiring laptops, a lot of its IT pros thought the lightest laptops were what their internal customers wanted. Tennison and his team asked, “Are those really legitimate business drivers?” What they found was that the difference of a few ounces mattered very little; the same went for a few inches difference on thickness. “So that totally opened up the market from a price-point perspective to a whole different class of laptops that we [previously] would not have considered,” he says.

Most importantly, though, Tennison’s relationship with O’Connor and the supply department has offered his staff a system for classifying purchases that helps them define the rules of engagement with a vendor.

“I can remember these discussions where we would say, ‘There is no way supply could help us with this because they just don’t understand. We’re buying middleware and they don’t have a clue what we’re buying, and they’re going to tell us that it’s all the same, but it’s really not all the same,'” Tennison says. “For some products, that’s true: They’re very much feature-function based. But a lot of products we buy are largely commodity-oriented. Supply does a real good job of … giving us a decision matrix. Our engagement changes a little bit depending on where you are in that continuum.”

Classifying procurement activities in such a way is critical in relationship development. It’s the first step toward identifying vendors that can be tapped for more intimate partner relationships.

These relationships can be with suppliers of market-differentiating technology or IT staffing resources that will directly impact how effectively the business interacts with its customers, says Bill Godfrey, CIO for health and sciences publisher Elsevier. “It requires a change in mind-set across both companies’ executive and operational management teams,” he says. “Not only do you want to increase your own staff’s capacity to continually innovate, [but] you also want to bring your vendor’s capabilities to the table to help you do that.”

Both vendor and client must commit to moving and maturing into that model, Godfrey adds. Managing service-level agreements and key performance indicators is important, but finding programs and projects to collaborate on–as well as any problems in them–should be top of mind in deepening the relationship.

At Elsevier, Godfrey and his team are working on shifting outsourcing relationships so that his partners interact more with customers and internal business employees to better understand the business and offer innovative products to the customer.

“We, the customer, have to get much more comfortable with our partner directly engaging our customers and colleagues so that they can develop the subject matter expertise and the level of market intimacy that’s really necessary to innovate,” Godfrey says. “My job is to evangelize this, facilitate this, judge the relationship, and help to find those projects and programs that would serve to build a foundation to grow on.” N

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