VMOs Here to Stay

The tightening of purse strings over the past several years has given a clear advantage to technology buyers over vendors, thus paving the way for companies to get tough in negotiations. But CIOs interviewed for this article say their VMOs will remain in place regardless of IT budget increases. "It has been a great time to be a buyer of IT services, but I don't see the process changing at Guardian," says Omartian. The shift toward multiple vendors and large outsourcing contracts means that CIOs can benefit from a centralized VMO "in any climate", he adds. With a VMO, they are likely to get better deals and better service from vendors - no matter who has the upper hand.

Some CIOs say they are so pleased with the new arrangement that they plan on adding responsibilities to their VMOs. At Aflac, for example, Lester predicts that his VMO will become more active in searching for technology acquisitions. The VMO already does a lot of behind-the-scenes work, investigating vendors by talking to venture capitalists, and analyzing when a start-up might sell or have an IPO. In the future, the VMO, in addition to negotiating deals with vendors, might be able to discover promising technology companies. (Lester speaks with experience on this topic; Aflac bought his software company in 1999.)

With hundreds of vendors trying to get in touch with Aflac daily, Lester says, many would never get through without the VMO. "There are a lot of small vendors who call us, and they might have great ideas," Lester says. "With an expanded VMO, we will be able to try some of them out. We're ready to take it to the next level."

SIDEBAR: Checking References

Smart companies check references when choosing vendors, but they don't always ask the right questions to uncover potentially uncooperative behaviour. "If you try to come at it directly, it's sort of like: 'Does Joe have integrity?' You have to ask it indirectly," says Bart Perkins, managing partner at Leverage Partners. Ask vendor references these questions:

1. Can you describe a time when there was a disagreement between vendors? How did this vendor handle it?

2. Can you describe a time when you asked for an expansion to the existing contract for a new piece of work? How did the vendor in question react? Did the vendor want to do it all, or was it willing to share?

3. Would the other vendors want to work with this firm again? How would the other vendors describe this firm?

SIDEBAR: Six Keys to Success

Smart CIOs have set up their VMOs with these tips in mind

• Centralize the function under IT and get executive support for the plan.

• Win over internal customers. During vendor negotiations, those in the VMO should include the internal customers whenever possible. If they see the benefit and are included, they will be less likely to try to circumvent the VMO or aid vendors attempting to do the same.

• Start small. Pick some areas to apply the VMO to initially and build it over time.

• Appoint a VMO director with legal or financial experience - or both. Experience as a vendor helps as well.

• Use your own contract whenever possible to minimize risk. If that's not possible, mark up the vendor's contract to make sure it's in your favour.

• Keep vendors competitive by making sure they know about each other.

SIDEBAR: A VMO's Duties

• Set up formal RFP process and oversee all RFPs

• Monitor vendor performance using Balanced Scorecard or other method

• Negotiate contracts with vendors

• Work with project managers to oversee IT budgeting

• Develop form agreements and contracts in order to avoid signing contracts always drawn up by vendors

• Learn vendor tactics and how to use them to company's advantage

• Stay abreast of market conditions and pricing trends

• Categorize suppliers into groups such as "strategic" and "commodity"; a strategic supplier should have good access to the CIO