Integrated Vendor Management

You don't want to make IT vendor management only an IT function or only a separate corporate function, says Dan McNicholl, chief strategy officer for General Motors' IT organization. "You need to balance the competing goals, specialty skills and the broad relationship," he says.

Among several ways to institute a formal vendor management organization, the most common choice is a virtual approach: Here, you assign procurement and legal staff to IT vendor management, and use IT "account managers" to coordinate all aspects of specific vendor relationships and IT "scouts" to assess technology and market trends that may change needs later.

With this arrangement, you maintain the typical client relationships with the vendor, such as having engineers work with vendor support staff. "The vendor management needs to be ingrained at all levels," says GM's McNicholl, and then coordinated. Although some CIOs worry that procurement staff only want to squeeze the last nickel from a vendor, Achievo's Mathaisel believes they bring real value to the vendor management process. "You gain a rigour and a discipline that financial people naturally have," he says.

It makes more sense to create a virtual office than to establish a VMO as its own department, Mathaisel says. For one thing, financial and legal staff can rotate through the virtual group as part of their career development while maintaining a career path in their departments, he notes. These staffers often end up learning new skills that help them move into compliance activities when they return to finance, Mathaisel says. IT staff often have the same concerns. But when it's safe to take on vendor management roles, the IT staffers often find new, unexpected opportunities, he says.

Not every vendor or deal gets the attention of a vendor management office - nor should it, says Gary Plotkin, CIO of The Hartford's financial services property and casualty division. The goal is not to build a bureaucracy but to devote management resources to those relationships that have the most impact or potential impact on enterprise strategy, he says. At The Hartford, Plotkin has a threshold of several hundred thousand dollars to determine what vendor relationships are managed through the formal vendor management process. There's good reason to set thresholds of spend, says Accenture's Modruson: "The rigour costs money, so you want to be proportional to the spend."

The Hartford assigns an IT manager to each vendor that surpasses the threshold. "That's the go-to person," Plotkin says. Some vendors whose business volume is very large get a senior vendor relationship manager, such as Plotkin or one of his deputies, assigned to them as well. A CIO or CTO can work directly with a vendor's CEO or CTO in a way that, say, a network operations manager can't, so having multiple relationship levels is important, Plotkin says.

Achievo's Mathaisel, GM's McNicholl, Cisco's Dixon, Compass's Watkins and Accenture's Modruson follow the same basic model as The Hartford's Plotkin.