Building stronger IT vendor relationships

Baljit S. Dail and Andrew S. West

Globally, enterprises in a wide range

of industry segment lags behind in terms of their relationship with IT vendors,

barring a few, says a recent Mckinsey report. At  the same time, these companies have developed successful partnerships with other vendors and suppliers.

This Mckinsey report delves deep into the factors that are holding back certain

companies in building successful relationships with IT vendors and suggests

solutions for stronger parnterships.

According to the report, style="mso-spacerun: yes">  majority of the technology executives want

to have stronger relationships with their IT suppliers. However, due to

inconsistent behavior while interacting with IT vendors, for instance, giving

too much emphasis on costs and bargaining, they lose out on relationships.

McKinsey interviewed IT executives at

23 companies representing a wide range of industries to learn about

technology-purchasing patterns, criteria, and priorities over the next 12 to 36

months. The findings included not only a number of factors that subvert

effective buyer-vendor relationships but also ways for both parties to increase

the value they deliver and receive.

Around 20 percent of the executives

interviewed regarded costs-not added value-as the top priority, while 70

percent said that they want to move away from purely transactional

relationships by establishing stronger partnerships with a smaller number of

preferred IT suppliers. This 70 percent want vendors that better understand

their specific technical environment, offer ongoing advice, help them manage

aggressive technology upgrade-and-innovation cycles, and provide solutions for

their most pressing business problems.

However, of this 70 percent, only 30

percent actually do have close relationships. The rest continue to think and

act in a transactional way, and many blindly seek the lowest total cost of

ownership (TCO) from their vendors in all circumstances-typically by

negotiating hard at the bargaining table.

Buyers and vendors alike stand to

gain from a smaller number of more committed relationships. Mckinsey says

companies aspiring to better relationships with their vendors should approach

the challenge on two fronts. First they must analyze their portfolios of IT

vendors to determine which ones are the best candidates for closer

partnerships. Then they must change their behavior to close the gap between

themselves and their vendors.

A critical vendor provides the

integral products that support crucial technology needs or the noncommodity

products that eat up a large part of a company's IT budget. These are the

vendors for tight relationships.

Once a company has ranked its

vendors, it should compare the skills of the critical ones with those of its

internal IT organization to see how well the two complement each other and

which capabilities of which vendors it might further leverage to meet its needs.

Next, explore which vendors have the skills and commitment to exert the

greatest impact on your company. The third step is to identify the gaps between

your current and desired vendor relationships. Focus time and resources on

undercapitalized yet critical relationships.

Mckinsey suggests few points to ensure a better

relationship with IT vendors:

style='font-size:10.0pt;mso-bidi-font-size:8.5pt;font-family:Arial;color:#4C4949;

mso-ansi-language:EN'>Be explicit about expectations lang=EN style='font-size:10.0pt;mso-bidi-font-size:12.0pt;font-family:Arial;

mso-ansi-language:EN'>. A good portfolio analysis helps companies identify

what, they want from their key vendor relationships. The style="mso-spacerun: yes">  company's needs, what will it pay for added

services etc must be communicated clearly. Also one has to make sure that the

vendor shares your desire for a closer relationship.

Involve senior management style='font-size:10.0pt;mso-bidi-font-size:8.5pt;font-family:Arial;color:#4C4949;

mso-ansi-language:EN'>. Assigning an executive sponsor (such as the CIO or the chief marketing

officer) to build, monitor, and sustain ties with a vendor is important.

Share information. When a company shares details about its IT infrastructure, business

plans, priorities, or technology road map, its vendors can provide more

effective solutions and insights. Moreover, sharing information allows

companies to leverage their vendors' R&D and can thereby prevent major

customization expenses.

Provide regular feedback style='font-size:10.0pt;mso-bidi-font-size:8.5pt;font-family:Arial;color:#4C4949;

mso-ansi-language:EN'>. Constructive, systematic feedback demonstrates a high level of commitment

and provides a forum for resolving issues.

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