Managing relationships with vendors - Part 2

Don’t outsource your systems architecture

According to Dr Tim O’Neill, co-founder and director of business intelligence specialists Avolution, probably the biggest mistake an organisation can make when dealing with suppliers is to outsource the systems architecture. “This is why there’s so many untold billions of dollars-worth of failed IT projects out there,” he says.

“Outsourcing the architecture function is fraught with danger.” In order for projects to be successful organisations need to maintain a healthy degree of cynicism and effectively force vendors to earn trust.

Object Consulting’s practice manager, Kevin Francis, stresses that organisations shouldn’t only apply this degree of vigilance to major or strategic projects. Quite often, the failure of seemingly minor projects can have far reaching consequences.

“It could be a minor project with a new vendor that could cause significant impact if something goes wrong,” he warns. “Web-based solutions and services such as Cloud offerings and unified communications may be of significant value to organisations without them necessarily knowing it.”

Following a solid decade of IT outsourcing, and with the move towards Cloud-based computing two years in, increasing numbers of organisations — big and small — are finding themselves in the situation where they are juggling multiple contracts.

The trend has its own pitfalls, most notably the tendency to focus too heavily on the details while losing sight of the intended outcomes. “With large contracts if you just manage contracts you get contractual outcomes,” says Gartner’s Longwood.

“And most likely, more spats.” According to Avolution’s O’Neill, as the IT industry moves increasingly away from a model of upfront payments, the quality of the clientvendor relationship becomes paramount.

Read Part 1 of managing relationships with vendors.

“In a situation where a company is making monthly ongoing payments, if they cease to be happy with the provider they will simply move.”

Longwood points to the mining industry as one example of where vendors and clients need a fair degree of flexibility built into their relationships.

“When times were tough mining companies had very tight contracts with suppliers,” he says. “But when the mining boom hit they had to learn to be more flexible. “The business impact of not delivering on time is more crucial than cost in mining now.

“They have had to learn to be more strategic with their vendors so that vendors can plan to deliver.”

Of course, it should come as no surprise that many of the largest and most experienced vendors have themselves developed advanced programs for customer management, which are especially important when dealing with large organisations with access to skilled legal teams.

“Vendors have been managing their client relationships more effectively and for much longer than clients have,” Longwood notes.

But what about situations where a small vendor is servicing a larger client? In this scenario the client has an opportunity to not only have more control over the project, but in some cases it can also drive development of the underlying technology. “There’s nothing to stop a client subsidising development of a product if it’s in its interests to do so,” says Avolution’s O’Neill.

Take Australian SCADA developer, Citect. The company started out servicing a small area of BHP’s giant Olympic Dam mine in South Australia. When BHP decided that it wanted to run SCADA on Windows instead of DOS it essentially entered into an agreement with Citect that resulted in the vendor developing the product according to the miner’s specifications. In return, Citect retained the intellectual property associated with becoming the first company in the market offering SCADA for Windows. The example, however, is one of a handful of fairy tales in an industry riddled with disputes, especially with larger vendors.

One of the best recent examples occurred towards the end of 2009, when the CEO of Air New Zealand, Rob Fyfe, publicly shamed IBM after a failure within Big Blue’s mainframe caused the airline’s check-in, reservation and call centre systems to go down for several days.

“In this case, both parties were seen to have neglected the relationship,” says Longwood.

But the real lesson that should be taken from such failures, according to Francis, is “don’t just assume because a vendor is big that they are good”.

By the same token, companies need to be wary of over testing technology, lest they become mired in so-called ‘analysis paralysis’.

Read Part 1 of managing relationships with vendors.
Part 3 - Northline partners with Brennan for growth

Recommended reading:

• Garter: CIOs must move from outsourcing manager to broker
• IBM set to lose megadeal with AstraZenica
• Why CIOs hate how you sell IT services

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Join the CIO Australia group on LinkedIn. The group is open to CIOs, IT Directors, COOs, CTOs and senior IT managers.

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