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Avoiding the Bear Trap

Avoiding the Bear Trap

CIOs need to be more diligent about managing vendor relationships.

Americans have a great put-down for those annoying colleagues who are always wise after the event, dismissing them as "Monday morning quarterbacks". Australians, of course, offer slightly more raw variations of this jibe. But no matter how you wish to describe those bestowed with 20:20 hindsight, the CIO would tolerate this type of peer analysis more than anyone else strutting the C-Level.

Unfortunately, organizations are packed with people who think they can do the CIO's job better than the incumbent. We have seen a managerial move to replace tech-oriented CIOs with those who have operational or financial experience to drive the IT division. The average lifespan of a CIO in Australia is somewhere between two and three years as a consequence.

There are plenty of more important issues than worrying about professional longevity, yet this is the reality for too many CIOs.

One of the bear traps that snare a CIO is the plethora of sourcing contracts that have to be negotiated and managed every day. In this country, our maturity in this arena is significantly advanced compared with most trading partners. Many local IT shops are entering or are in the middle of their second and third generation deals.

The truism of sourcing is quite simple: no matter how tempting it might be, never screw your supplier too hard to the floor. The relationship will determine the success or failure of a deal, not how little you managed to pay. The quick win on the money front can be a career limiting achievement in the medium to long term.

Vendors have a nasty habit of taking the cheapskate deal with an agenda to "land and expand". That is, they get in the door and then cast their net for more profitable work that can underwrite the bath they took on the previous contract. Even the mature organizations, including many government departments, have felt the pain of this scenario.

It can play out in brutal fashion. One day, you wander through the door and ask one of two questions; firstly, where did the consultants all go? Or secondly, why have I got "F Troop" on parade here, where are all the skills and experienced people that I am paying for?

The answer to the first question is straightforward: the consultants have a utilization and personal profitability number they have to hit so that they can make their own sales and fulfilment targets. That can represent 40 percent of their salary. If they cannot make their targets with you, then they'll make it with someone else. Regardless of what you think you signed as a sourcing deal, this is often the harsh reality.

The second question relating to F Troop is dealt with by applying the adage: You get what you pay for.

Land and Expand

Of all IT topics, sourcing deals and vendor management are the focus of the most common question asked of Australia-based analysts. Perhaps refreshingly, these questions have moved over the years from being about money to service-level agreements.

Another key issue in the local market has been the propensity to start to think about, or even go down the path of, multi-vendor sourcing. Organizations and government departments are moving away from the one-vendor story and the promised volume discounts. IT buyers, rightly, feel locked in and have struggled to free themselves from the proverbial straitjacket in those circumstances.

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