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CIOs need to up their outsourcing vendor management game

Stephanie Overby | July 1, 2013
As the IT outsourcing industry is undergoing some fundamental changes, CIOs will need to take their vendor management game to a new level. Forrester vice president and principal analyst John C. McCarthy discusses how CIOs can move from outsourcing procurement to true vendor management.

You have to manage your suppliers. And there are some very clear examples of what happens when you don't. Boeing failed miserably, delegating much of the responsibility for the design around the 787. Mattel had to recall a million toys made by a contract manufacturer in China because they were covered in lead paint. Conversely, Apple has done very well, not just based on their strength on the innovation side of the house but on the supplier governance side of the house. Boeing's Dreamliner disaster, Mattel's lead paint debacle -- those are very dramatic and real ramifications of lax supplier management outside of IT. But what's the worst that can happen due to poor IT outsourcing vendor management?

McCarthy: In this day and age, IT and the business are so intertwined that supplier governance has a huge effect. One day, your mobile app doesn't work with the new operating system. Or, like NatWest Bank, your systems are crashing for weeks on end. Is the lack of investment in vendor management solely attributable to recessionary cost-cutting?

McCarthy: Procurement is an easy thing to fall back on. It's easy to prove your benefit if you cut costs by 20 percent with your last contract. But how do you put a number on that project that didn't go off the tracks. Does good vendor management start much earlier in the outsourcing cycle?

McCarthy: Yes, companies that are good at this do a good job of understanding demand. They do a good job of contracting; they don't just throw a contract over the wall to vendor management. It's all intertwined. What companies are good at IT outsourcing vendor management?

McCarthy: Firms like Nike, Cisco, Capital One, Bank of New York Mellon. They all have very mature vendor management practices. Why is decentralized supplier management critical for IT organizations today?

McCarthy: The business is spending an increasing amount of its own money on technology. IT is not the sole source of technology decisions. IT is going to have to evolve to a consultant and orchestrator rather than a heads-down doer. Are most IT organizations capable of making that shift?

McCarthy: I'd say 85 percent of them still have the blue-collar, let's-do-it-all-ourselves mindset. Far fewer see themselves as white-collar designers or consultants.

There are still too many IT organizations whose favorite movie is "Dr. No." But more organizations are starting to figure out that if they deny the business, the business will get what they need on their own. When we talked to people who made IT decisions without the involvement of IT, it wasn't because they didn't like IT. IT was because what they needed to do was too important and IT didn't have the time or money to invest in it.


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