Why Bother with a VMO?

With a vendor management office, your goal should not be to create a firewall between IT and the vendor, using a procurement group as a proxy, but to be smart and consistent within the enterprise about managing multiple aspects of any vendor relationship. That's why a formalized approach that combines IT, procurement and legal people makes sense, says Joe Pucciarelli, program director for technology financing and management strategies at IDC (US).

At many enterprises, the CIO has de facto responsibility for managing IT vendors, but the day-to-day reality is that individual departments, technology platform owners and project offices manage vendors for their local needs, perhaps tapping into corporate procurement and legal staff for some of the tactical contracts and pricing analysis. That can work in smaller companies with a small number of vendors, where the CIO or a few IT execs can keep the information in their heads, Cecere says.

CIO Dan Demeter doesn't want a vendor management organization outside the CIO's domain at talent management firm Korn/Ferry International. "They tend to treat IT sourcing as they do buying toilet paper," focusing on price and not understanding the underlying technology issues that affect IT's ability to serve business needs, he says. "If you give [vendor management] away, you really take away a lot of the control, not just over prices and contract terms but over the relationship and support."

But Demeter says that CIOs of large organizations need vendor management because of their scale. "It's essential because of all the technical details," he says, citing his previous experience at Citibank.

The changing nature of technology procurement - from hardware and packaged software to provisioning of infrastructure, software and business processes as services - also supports the use of a more formal vendor management approach that crosses departmental boundaries, says Rob Watkins, CIO of food management company Compass Group, The Americas Division. "As you have more outsourcing providers that cross departments, there's an opportunity to manage these relationships strategically," he says.