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UNTANGL I NG COMPL EX VENDOR ECOSYSTEMS

HOW TO ESTABL I SH GOVERNANCE MODELS AND INCENT I V I ZE VENDOR COL LABORAT ION

INTRODUCT ION Why Governance Is Important

As more IT services and applications are outsourced, managing multiple vendors has become a core function for many IT organizations. Establishing effective and strong governance structures is more critical than ever to business success.

But what exactly do best-practice governance models look like?

Effective governance begins by laying the groundwork for open communication channels. For organizations to take full advantage of vendor relationships, there must be a regular meeting schedule to address the needs of key stakeholders and provide the opportunity to strategize, review, align goals, and hold vendors accountable for their performance. However, getting everyone on the same page can be challenging, and meetings often accomplish very little, as conversations lose focus and participants simply want to get the process over with as quickly as possible. Organizations can overcome this tendency by creating clear, concise goals and ensuring that the pertinent topics are addressed. To achieve more effective multi-vendor governance meetings and build better vendor relationships,companies must possess a solid understanding of their own business goals and how they can work with vendors to achieve those goals—and, of course, communicate them. A strong governance structure is critical to building better relationships with vendors and ensuring that they live up to expectations. Moreover, by creating mutually beneficial relationships with IT vendors,companies can greatly reduce costs, improve performance, and drive business goals.

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WHAT ARE THE BUI LDING BLOCKS OF EFFECT IVE VENDOR GOVERNANCE?

There are three prerequisites for effective IT governance:

Mutual respect

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Vendor governance is not one-sided. All meetings should begin with the goal of achieving a mutually beneficial partnership, which involves a clear understanding of both vendor and company goals. The most effective governance structures work to build long-lasting, strong relationships with trustworthy partners, reducing friction and turnover while simultaneously creating a healthier work environment.

Candid information-sharing

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A vendor relationship built on mutual respect requires honesty. That means openly sharing information about any problems, future plans, or limitations that need to be addressed. This creates an environment that allows both parties to work together more effectively and solve issues before they become insurmountable.

Continuous improvement

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No vendor governance strategy should be static. Both sides should constantly work toward achieving better performance and a more harmonious relationship. On the part of the company, this means collecting data, regularly reviewing performance, and putting out RFPs as needed. It also means they should continually identify areas for improvement and work with vendors to develop new solutions.

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STEP ONE : START THE CONVERSAT ION

First things first: build consensus by stressing the importance of vendor relationships. To hold effective IT governance meetings and develop strong governance structures, you need to highlight the value of effective governance to key stakeholders.

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S T E P ON E : S TA RT T H E CONV E R S AT I ON

Communicate these four major benefits of effective IT governance:

Improved productivity

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By creating streamlined structures to manage and oversee IT vendors, productivity can be greatly improved. Managing vendors takes a considerable amount of time and resources, but good governance practices can reduce workload, eliminate siloed information, and improve collaboration.

Reduced cost

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By implementing comprehensive sourcing and vendor-review plans, companies can reduce needless expenditure, find the most cost-effective solutions, and improve value-added returns in a more systemized way. This can translate to significant reductions in the cost of IT service delivery.

Better end-user experience

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Organizations that implement effective governance structures can significantly reduce the risk of downtime, improve IT performance, and create a more reliable IT infrastructure. This means that end users are less likely to experience problems— potentially increasing productivity and brand reputation.

Greater accountability

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IT organizations in some companies function as a nearly autonomous unit with little accountability to the business-at- large. Establishing governance structures helps align IT services with business goals and provides real, quantifiable accountability for vendor performance. This allows IT to better function as a core component of the business, rather than a separate entity.

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STEP TWO: SET THE AGENDA

Communicating and adequately addressing some key topics will ensure vendor governance meetings are truly productive. Make sure to cover these six management areas: finances, projects, relationships, contracts, performance evaluation, and innovation.

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S T E P TWO : S E T T H E AG E NDA

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Financial management

The ability to control costs is one of the most important benefits of an effective vendor governance strategy. Vendors now make up an increasingly large share of the overall IT budget, and to achieve more cost-effective services and keep them accountable, companies must validate and review costs, monitor the economics of contracts, and ensure that the value proposition and expected benefits are realized.

Action items:

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Foundational goals Set short- and long-term spending goals and craft governance strategies to support them. These goals provide a base from which to measure performance and measure progress toward increasing value. Governance meetings should happen regularly to evaluate the company’s current status in relation to milestones, as well as address any budget overruns that occur. Monthly invoice reviews Review vendor invoices on a monthly basis to gain an in-the- moment snapshot of spending, ensure that expenses are on track, and prevent billing surprises. This review period can provide a reality check for spending. It also represents an opportunity to address issues with vendors as they arise, rather than putting them off until they become more serious. Budget scorecard Every quarter, review the budget and rate it based on previously defined goals. This is a chance to assess vendor elationships, set new goals, and make adjustments as needed. Value-proposition management Absolute spending figures have little meaning if they’re not placed in relation to the value they add to the company. Strive to ensure that vendors are living up to their promises and that service-level agreements (SLAs) meet the needs of end users.

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Project management

Project management is a critical function of vendor governance, since it can be challenging to develop and implement new solutions with third parties. Although vendors may have their own project managers, it is still important for the company to oversee projects. A vendor’s project manager represents the vendor’s interests, so a company must also represent its own interests to ensure business goals are met. Companies should measure and monitor project control and execution performance; review schedules, issues, risks, and mitigating actions; and compare budgets to actuals, and estimates to completions. This process ensures projects stay within budget and meet expectations and deadlines.

Action items:

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Communication channels Be very clear with vendors about what you require from the project early on. This means setting quantifiable milestones and holding the vendor accountable to them so the project stays on track. Create governance structures to monitor performance and set up regular communication channels with the vendor. Monthly measurement reports Carefully monitor project progress and review it at least once a month. By collecting quantifiable data on project progress and comparing that data to predefined milestones, IT organizations can gain a clearer understanding of progress and identify areas that may need to be addressed. Issue resolution Have structures in place to ensure that any project issues are resolved quickly. This necessitates clear communication with vendors, establishing conflict-remediation processes, as well as the collection of data to help identify problems before they get out of hand.

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/ Quarterly multi-vendor project overview

IT organizations should have a sense of how its projects are performing in aggregate. Review quarterly multi-vendor consolidated reports that include clear indications of the status of every project underway. This overview allows you to quickly gain an understanding of the current state of affairs and take strategic action as needed.

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Relationship management

Building strong relationships with vendors can have many benefits for an organization. Better partnerships decrease turnover, improve reliability, and result in better service delivery. To build strong relationships, governance structures should incorporate a sense of value and respect, while at the same time ensuring the company’s needs are met.

Action items:

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Overall communication Ongoing, well-defined communication helps foster a healthy vendor relationship. Hold regular meetings with the vendor, and clearly define the key points-of-contact to allow for mutual goal planning, accurate assessments, and collaboration. Vendor risk assessment Conduct vendor risk assessments to gain insight into the potential risks associated with a given vendor’s product or service. Reviews should identify any risks that the vendor may be subject to—both in absolute terms and relative to other vendors—and determine how that risk will align with the company’s overall risk-management strategy. These reviews should occur before contracting with the vendor as well as on an ongoing basis for the contract period. Satisfaction review Regularly communicate the level of satisfaction with the vendor. This allows the vendor to address any problems and work toward improving the delivered services. Long-term planning To maintain a healthy vendor relationship for extended periods, plan for the future. Discussion of long-term goals allows the vendor and client to ensure that they stay on the same page in regards to demands and capabilities. Incumbent vendors can also use the opportunity to adapt to the company’s long-term needs.

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Contract management

The foundation of a vendor relationship is the contract, which provides a basis for measuring vendor performance. The contract also serves as a roadmap for providing important guidelines in the event of problems, allowing the company to better plan for the future.

Action items:

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Compliance review At the core of vendor governance is the compliance review. Ensure vendors are delivering on the requirements set forth in their SLAs and address any shortcomings promptly. Monitoring contractual deliverables and red areas can provide the company with leverage to negotiate reduced prices or other compensation. It also helps the company identify problematic vendors and decide when to request bids from alternative sources. Dispute resolution Most contracts include predefined processes for escalating issues and resolving disputes. In the event of problems, meet with the vendor to discuss solutions or to terminate the contract. Try to gain an understanding of why the problem is occurring and whether the vendor can actually meet the company’s needs. This will also help guide attempts to solve any issues that arise.

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/ Contract review and improvement

Look for ways to improve a contract so that it better meets the needs of the company. It is frequently the case that terms that seem sufficient on paper actually fail to deliver the level of performance the company requires. In some cases, it may be necessary to renegotiate the contract before the renewal period. During renegotiations, it may be helpful to solicit bids from other vendors to provide alternative options and leverage for negotiations.

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Performance management

Companies must ensure vendors deliver the level of performance necessary to meet business needs. As IT’s role shifts from building and maintaining infrastructure to monitoring and managing third-party vendors, performance must be strictly controlled, and structures must be in place to resolve problems when they arise. It’s important to measure performance in relation to SLAs and to business goals; as well as review deliverables, trends, and performance data like aggregate incidents, problems, and root causes. Monitoring performance gives companies a more holistic view, and helps ensure that end-user requirements are met.

Action items:

/ Monthly performance-measurement reports

Review performance measurement reports each month, comparing them both to SLAs and current business needs. Any areas in which performance is lagging should be addressed, either by working with the incumbent vendor to develop new solutions and improve existing ones, or by finding a new vendor that can better meet the needs of the company. / Quarterly multi-vendor aggregate performance reports Gain a better vantage of overall vendor performance by reviewing aggregate reports on a quarterly basis. This can help identify structural problems within the organization and allow the company to make better long-term strategic decisions.

/ Qualitative performance-monitoring

Monitor qualitative reports on performance and tailor SLAs to better meet real business needs. Although vendors may be delivering on the relevant metrics set forth by the SLA, they may be failing to deliver on end-user expectations. This phenomenon is known as the watermelon effect, and occurs when compliance with SLAs appears green on the outside, but upon further inspection, is red on the inside. This can have extremely damaging implications for IT and the business—think losses in productivity, damage to brand image, and other problems related to unsatisfied end users.

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Innovation management

One of the greatest benefits of using third-party providers is that it allows a company to source talent, ideas, and services from a diverse range of providers. Businesses should take advantage of this by involving the vendors intimately in business innovation and allowing them to submit proposals, work with business leaders to develop new solutions, and bring fresh ideas to the table.

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Vendor proposals Establish a predefined process for vendors to submit ideas, business cases, and proposals. Additionally, hold briefings to discuss added value, partnership, and other innovation topics. This gives vendors the opportunity to prove their potential to bring value to the company, and allows for an influx of new ideas into the organization. Monthly review Every month, track and review individual submissions and make decisions about each one. New vendors should be given an equal chance to prove their worth over incumbent vendors. Quarterly review Quarterly reviews are an opportunity to share strategic and tactical business ideas. Meet with vendors on a quarterly basis to discuss IT intelligence, emerging trends, and plans for the future. Following this method, vendors and companies become strategic partners, working together to achieve mutually beneficial goals.

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E F FECT I VE I T GOVERNANCE : A TO-DO L I ST

Communicate how effective IT governance can improve productivity, reduce costs, and lead to better vendor relationships.

Gain the support of key stakeholders within the company when planning governance meetings.

Set clear goals and focus on achieving those goals when conducting governance meetings.

Establish open communication, regular reviews, and strong part- nerships as the basis of your IT governance strategy.

Develop an agenda that incorporates key talking points in the following six management areas: finances, projects, relationships, contracts, performance, and innovation.

Discuss all points with key business leaders, IT staff, and vendors on a regular basis.

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IMPLEMENT STRONG GOVERNANCE STRUCTURES

Understanding the fundamentals of effective multi-vendor IT governance is the first step to building healthy, value-driven vendor relationships. Let Wavestone help you implement the most effective strategies to benefit your business. Visit us at wavestone.us or give us a call at (610) 854-2700 to learn how we can help you.

About Wavestone US

Wavestone US provides a peer-to-peer approach to IT optimization and transformation. As the North American arm of Paris-based global management and IT consulting firm Wavestone, it has supported the transformations of more than 200 Fortune 1000 companies across a wide range of industries. Wavestone US is unique in that it offers a practitioner’s perspective on IT strategy, cost optimization, operational improvements, cybersecurity, and business consulting. It is the company’s mission to help clients successfully deliver their most critical transformations and achieve positive outcomes. Driving businesses forward through digital transformation is what we call “The Positive Way”.

www.wavestone.com

In a world where knowing how to drive transformation is the key to success, Wavestone’s mission is to guide large companies and organizations in their most critical transformation projects, with the ambition of a positive outcom for all stakeholders. That’s what we call “ The Positive Way ”.

Wavestone brings together 3000 employees across 8 countries. It is a leading independent player in the european consulting market. Wavestone is listed on Euronext Paris, and recognized as a Great Place To Work®.

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