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Should you outsource vendor management?

Should you outsource vendor management?

Outsourcing the management of outsourcers has been a controversial approach in the past, but the increased demands of IT service management may be too much for some IT groups to handle themselves.

Vendor management is nothing new for most IT organizations. Progressive IT functions have built up their vendor governance capabilities for years. But the vendor management function today is being asked to oversee a host of new IT services, wrangle niche and nascent suppliers, and meet increasing performance expectations, with little increase — or worse, a decline — in funding. As a result, many are struggling to keep up.

One solution is outsourcing vendor management. CIO.com talked to Dan McMahon, director at outsourcing consultancy Pace Harmon about the situations in which bringing in a third-party may have value, the typical benefits targeted, the pros and cons of outsourcing IT vendor governance, and how to make the transition.

CIO.com: Why is vendor governance more difficult for some IT organizations to oversee on their own?

Dan McMahon, director, Pace Harmon:IT vendor governance is increasingly becoming more complex as more services and vendors are added to a firm’s vendor portfolio. Ensuring these vendors’ efforts and performance are aligned collectively with overall business expectations can be extremely challenging. As businesses rely on the collective performance of the portfolio of vendors providing outsourced services, the importance of delivering on expectations becomes essential. Many of today’s internal vendor management functions have not been designed or equipped to handle this sort of change or complexity.

CIO.com: When is outsourcing vendor management a good option? What are the drawbacks?

McMahon: In many cases, outsourcing vendor governance is proving to be a viable and practical option for businesses. Successful outsourcing of the vendor governance function has generally followed one of two patterns.

[Some enterprises employ] a staff augmentation model to secure key resources in the short term. In many cases, these resources have been close to the transaction and possess a deep understanding of the commercial agreement, performance expectations, and retained and outsourced responsibilities. These resources frequently provide support for 90 to 120 days and bring operational expertise, vendor interaction guidance, and transitional support to the permanent internal staff.

The second approach is typically longer in duration, frequently 180 days plus, and fulfills a larger role in elevating vendor governance performance. This is often a transformational role and the resources are expected to provide vendor governance experience, lead practices that can be deployed, vendor management techniques, and—in some cases—offer specific knowledge on how best to work with a specific vendor.

CIO.com: So vendor management outsourcing is usually part of a larger transformation effort?

McMahon: In many situations, outsourcing vendor governance is part of a larger transformation effort. However, in the last few years we are also seeing organizations complement their legacy vendor governance function on a short-term basis. Often a key resource leaves or is [moved] to a new internal role, and the business cannot wait to find a suitable replacement. In cases where internal resources may not be prepared to step into a key and visible role, outsourcing specific vendor governance roles has become an increasingly attractive short-term option. Often this approach has the added benefit of introducing vendor governance process refinements that eventually become part of steady state operations.

CIO.com: What are the typical benefits targeted and how are these outsourcing relationships measured?

McMahon: In situations where the outsourcing of vendor governance takes the form of a longer relationship, companies should expect both objective as well as subjective benefits.

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