There's no question that the IT outsourcing industry is undergoing some fundamental changes. IT leaders are looking for more innovation from their partners. Business users are bypassing IT to procure their own technology services and products. And outsourcing providers are struggling to understand the shifting dynamics of their deals and relationships.
Yet, amid all this transformation, many buyers continue to employ an outdated approach to IT outsourcing governance, according to a Forrester report earlier this year on the state of the IT services market.
"The combination of business-led innovation, new vendors and delivery models, and the shakeout in the provider ranks means that senior IT management has to fundamentally change how it approaches supplier governance," the authors of the Forrester report wrote. "The endless focus on a cost-based procurement model has left companies with rock bottom prices, but poor delivery and execution track records."
As changes in decision-making, delivery models, and supplier positioning take hold, CIOs will need to take their vendor management game to a new level, says Forrester vice president and principal analyst John C. McCarthy, who co-authored the report. IT leaders need to remodel their vendor management groups from a centralized procurement-centric organization to a more decentralized supplier management group focused on business outcomes, according to McCarthy.
CIO.com talked to McCarthy about what CIOs can learn from the outsourcing mistakes of Boeing and Mattel, which IT organizations are vendor management rock stars, and why IT leaders who want innovation from their providers "need to stop looking out the window and start looking in the mirror".
CIO.com: You say that CIOs need to move from outsourcing procurement to true vendor management. What's the difference?
McCarthy: Procurement is one aspect of the outsourcing transaction, but it's a subset of a much longer three-phase lifecycle--first, understanding demand, then doing the deal and, finally, the ongoing management of suppliers.
But, as Boeing learned the hard way, it's not enough to just subcontract the building of a next generation jet. If you're giving suppliers more responsibility, you've got to put in place the proper governance.
Vendor management organizations are dealing with a much more diverse IT supplier environment today. As we found in our recent study of the IT service market, the business is taking more direct responsibility for buying IT services and managing suppliers. So the vendor management groups, used to working with IT, now need to work with the business.
CIO.com: Why aren't IT or vendor management groups paying as much attention to vendor management as they ought to?
McCarthy: In the middle part of this decade, they were expanding their capabilities to be full vendor management organizations. But with the great recession of '08 and '09, they went back to their procurement-centric focus and looking for the lowest price. But just because you got a good deal doesn't mean your vendor is now a member of the Psychic Friends network capable of reading your mind and understanding what you need.
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