What’s the biggest challenge in IT deal-making?

Understanding ownership of the process, and what role everyone is playing. This must be clear from the outset. Some organizations are not relationship-driven and rely on the top person, relegating the rest of the team to the sideline. This presents problems, because the team is only involved at the last minute, and by then, it’s too late for them to be effective.

Without a sustained focus on internal collaboration, your stakeholders will never know what a good deal looks like. One group might have a vested interest in a vendor, and one group might only want three things – like performance, scalability and speed.  Another group might want to reduce cost. They do not see the big picture. It bears mentioning that the vendors themselves are stakeholders, too. When organizations don’t have a consistent approach to deal-making, they don’t know who or what to focus on.

It all boils down to creating enterprise-level governance – a solid and repeatable process – before any deal starts. This process helps you take the pulse of the relationships and helps everyone understand their roles and responsibilities to achieve a common goal.

Who is or should be doing the IT deal-making?

The truth is that a lot of companies focus on asking the question if IT should do the deal-making, or if it’s procurement, sourcing or VMO? The real answer is that it depends on your organizational setup as not everyone operates in the same manner, so it doesn’t matter where it occurs.  Ultimately, the recognition that it will require a strong partnership between a lot of people with various expertise to drive the right IT deal.

Which constituency  – vendors or stakeholders  –  is more difficult to manage, and why?

Internal executives are harder to manage. But when there are clearly defined roles among IT, sourcing, finance and the business units, and those roles are clear to everyone else, there’s fewer issues.  I can’t overstate how essential it is to have transparency of everyone’s roles and responsibilities.  Vendors need to clearly understand who they are dealing with. If you’ve got a good governance process in place, you will treat all vendors in an equal manner.  Then you can run a good RFP and prevent the vendors from trying to go around you. In other words, transparency among stakeholders begets transparency among vendors.

Vendor management and negotiations become difficult when there’s a sense of distributed ownership of the deal, but they tend to fall in line when they understand how your organization likes to do business.

Vendors do not set out to railroad you. If you enable them to understand your organization’s process, and approach deals as a partnership, you can focus them on your agenda. The transparency of both sides is needed.

Once you know exactly what you can and cannot share with them, you can provide transparency  –  especially as changes arise – so they can clearly understand your needs and your processes.

What have you done to effectively improve stakeholder alignment in the organizations you’ve worked for?

Building good relationships with my internal stakeholders and gaining their trust has allowed them to see me as a partner who adds value. I get them to value my function and my team’s capabilities.  This requires expertise  –  I need to know more than they know – but not too much more!

IT spending and vendor management expertise is hard to come by and how you approach things is a balancing act. You need a value statement for the key stakeholders that helps them all –  especially the key decision-makers  –  but understand what you bring to the table. Buying IT is not like buying desk fixtures for the organization. With IT spends, there’s usually a disconnect. The CIO values different things than the technology or finance or operations stakeholder. You need a value statement that resolves this disconnect and addresses business needs.

Building good relationships with vendors is equally important, because their success is my success, too. When they try to create multiple points of entry into the organization, they’re just trying to find who’s the most appropriate person to deal with.  Sometimes they end up spinning their wheels on something that’s only important to one person instead of staying focused on the big picture. This is preventable if you build good relationships based on trust and transparency.

What are the biggest challenges regarding vendor management?

The first one is incumbency. Changing vendors is hard to do and selecting a new one is not something anyone enters lightly. Because of this, it’s important to have a process in place that ensures vendors continue to provide the right solution competitively and that there is an identifying mechanism and  backup plan for when incumbents aren’t optimal for your changing business needs.  This calls for strong governance that improves transparency internally across the organization.

I think governance rests on five pillars: risk, performance, relationships, financials and the contract.  The big one for me is risk, in all different areas: operational, financial, security and market-driven. You can’t manage every risk for every vendor all the time,; you’ve got to prioritize, and with the right governance discipline, you can do it. If you fail to manage this, you will suffer incumbency indefinitely.

The second challenge is the fact that a lot of the vendors focus on short-term sales. Many of these companies change sales reps like I change clothes, so they don’t understand your long-term plans and get to know your business.  They’re in it from quarter to quarter. They are driven to make the quick sale rather than helping you create a long-term pipeline with a view of where things can go in the future.

The third thing is that the vendor’s staff is trained to go to highest level possible in the enterprise, and they divide and conquer. This makes for a lot of short-sighted transactions.

These challenges can only be mitigated by internal alignment. One of the things I have heard time and again is misalignment usually comes from miscommunication and having disassociated goals.  For executives, it means to be setting up their teams for success without their needing to be there.  This is achieved by providing their teams with processes and tools that better facilitate transparency and collaboration. When internal stakeholders are working as partners and one unit with equal stakes in making the project successful, they co-direct the vendor instead of competing for lead status. Executive leaders too, must let their team play their roles and enable them to add value.

Very often, a stakeholder will feel that an incumbent has worked well for a long time, and there’s no need to work on transparency or the relationship. That’s when the CIO has to move people around to evolve the relationship and revisit the subject of efficiencies.

A final thought on incumbency complacency: vendors must demonstrate where they add value too, and they don’t do always do a very good job here.

How can VMO teams help make a difference?

First and foremost, creating a line of trust with the business and IT team to help them see you as a value-added partner and not just red tape while still managing risk and compliance. It’s a balancing act. However, through trust and collaboration, the function can take a seat at the table for being able to be a sounding board and provide an independent perspective on perception vs. reality of a situation. It always helps when you can provide a fresh point of view as the stakeholder may be buying a product or service infrequently. – They don’t have a pulse on the market or how the vendor is operating across various activities in your organization. The biggest benefit is the current and considerable knowledge of what the market looks like today – not five years ago and their performance for your entire organization.

They can provide a snapshot of the current market, identify the key levers in a given deal, and help the business achieve leverage with our suppliers. They are empowered and enabled to become an extension – a trusted partner – in the organizational strategic deal-making. They can validate the business or IT team decision-making and keep the organization from making some big mistakes.

How do you make sure your best practices are followed by overseas stakeholders in the organization?

The trick here is to educate our global colleagues, not preach at them. We strive to keep them informed of what we’re doing and how we do things, so they feel involved. We keep them apprised of the deals we’re making, and the specific deal points. We encourage them to get outside training, too, and give them access to conferences to help them understand the complicated vendors.

We want them to have a sense that we’re on the journey with them, so we have regular communication checkpoints and update them on large global deals that involve or impact them. It can be difficult because confidentiality is required and there can be information leaks. You have to have proper governance to do this successfully. There are also a lot of differences among cultures that must be learned.To get it right, your team makeup needs to include those that truly understand what needs to be considered, how to message and what’s important to them. You need to use different styles and approaches, depending on where you’re doing business.

In an earlier white paper (How to Build a VMO), you talk about how a strategic VMO “oversees value creation … and prevents of value loss.” Can you elaborate?

First and foremost, overseeing value creation includes understanding who your key stakeholders are in the deal, what’s important to them and how they will measure success, aligning the stakeholders to the bigger picture and driving a deal that achieves the value that was desired. It’s more than merely driving the process of the deal execution but rather contributing expertise and knowledge that brings value to the deal itself. Now, doing the deal  is not good enough since once a deal is signed, there can be value leakage since vendors inevitably come in and try to build onto the contract.  You need to practice strong contract management as part of the VMO to prevent this. This requires you to constantly look to the vendor to make your IT environment better if they want you to grow your business with them. Vendors can bring innovation – and you can structure your contract to require it.  Good governance means the vendor is doing everything they can to earn your business.

The CIO doesn’t necessarily know everything that the VMO knows, such as how tough some vendors can be. They are focused on getting the most points of entry into and information out of your organization – they divide and conquer. This requires a disciplined focus on key supplier relationships and insistence on transparency. And it requires vigilance about internal alignment – again, stakeholder collaboration based on strong relationships, supported by a consistent process.

It behooves the VMO to figure out how to make the vendor successful. This is challenging because lots of times, stakeholders show little interest in the vendor’s perspective or success. Furthermore, once the sales team is gone, it’s the vendor delivery team who comes in to make everything work. If the relationship is not strong and transparent, it can be disastrous for the delivery team. Now they have to learn your organization, but they don’t have a good pulse on what was negotiated, or what was the mindset behind the deal. They’re left holding the bag.

For me, stakeholder alignment is the linchpin. It will prevent a deal from going sideways; it’s fundamental to getting a good deal.

Where should a VMO sit and how can it demonstrate value?

Truthfully, any function should report to a leader where the value is understood and the efforts are recognized. If a function is constantly being asked to demonstrate the value of it, chances are that it’s either not sitting in the right area. Alternatively perhaps the value statement is only process-focused and not outcome-focused. Or sometimes, organizational structure and roles aren’t clearly defined, leading to multiple people with similar skillsets getting involved in the deal-making,creating ineffective deal-making scenario. Good and effective leaders are less concerned about where a function like VMO sits but rather focuses on how leveraging the talented pool of resources across the organization can create effective governance and win together.