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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. IT leaders say they want more innovation from their IT service providers, but it doesn't seem that they're making the necessary changes internally to get it. Forrester's survey of more than 1,000 IT outsourcing decision makers found that 59 percent were adding more specific technical SLAs while just 38 percent were adding more business-outcome-level metrics.

McCarthy: Clients need to stop looking out the window and start looking in the mirror. They want innovation, but they lack the internal vendor management focus and processes to get there.

The good news is that for the first time in the 8 years that we've done this survey, cost was not the number one criteria [in IT outsourcing decisions]. As we enter this unprecedented period of innovation, things are going to have to change. IT leaders will have to look at costs not just at the rate level, but also at the lifecycle level. If you get a good rate, but have to do something over three or four times to get it right, it's not such a good rate anymore. What are some of the best practices of those IT organizations that get vendor management right?

McCarthy: They separate innovation from ongoing operations in the contract and in the management. You'll see a very different set of attendees from the client and the vendor on their innovation councils than those involved in system implementation or operations.

They embrace concepts like our 10 steps of systematic multi-sourcing.

They understand what they're trying to accomplish from a business point of view versus an IT point of view. When IT made all the IT outsourcing decisions, presumably its experience determining demand and contracting with vendors helped make up for what may be lacking in the vendor management department. But if business users with much less experience are making these big technology decisions -- and no one's managing the vendors well -- the potential ramifications would seem to multiply.

McCarthy: One of the biggest problems that's going to confront this industry is that while the rate of innovation is clearly going up, the investment in governance needed to make those innovations successful is not happening. That's going to come back to the end user and the IT organization and bite them both in the butt.

Those on the business side will tell you that their technology acumen has gone up, and that's true to some extent. But more often than not they're relying on a vendor like Salesforce to manage their infrastructure for them.

I'm not going to go the "chicken little" route. But the business is still in its technological adolescence. And as anyone who's even had a teenage kid knows, they damn well need to be supervised in adolescence.


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