IT Supplier Management Lessons Learned
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Learn how to choose the best vendors and suppliers for IT. From a Fortune 500 CIO.
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IT Supplier Management Lessons Learned
- 1. IT Supplier Management: Top 5 Lessons Learned
- 3. Copyright IT Central Station. All Rights Reserved. For reuse, contact resources@itcentralstation.com Agenda • Know Your Supplier • Do Your Prep work • Incent Your Supplier • Manage Your Supplier 3
- 4. Copyright IT Central Station. All Rights Reserved. For reuse, contact resources@itcentralstation.com Know Your Supplier What drives their organization’s performance? • Culture • Both nationality and industry • Software vs Services Provider • Compensation • Determine which internal organization “runs” the company, and how management, sales, and consultants are compensated • Do software sales rule? Recurring maintenance? New services? • Boundaries • Can you leverage the software division for deals on services? • Fiscal periods • Leverage their quarter and yearends for better deals • Check your sources • Gartner analysts and informal network • Review sites: www.itcentralstation.com • References (formal and informal) • Existing agreements • Public documents (10-K) • Org charts 4 Both Tangible and Intangible facets are important
- 6. Copyright IT Central Station. All Rights Reserved. For reuse, contact resources@itcentralstation.com Do Your Prep work Have you read the MSA? SERIOUSLY – have you read the MSA? • Interesting sections to be aware of: • Negotiated discounts, rate & pricing caps • Allowable contract types (fixed, not to exceed) • Acceptance criteria (re-work) • Deliverable and intellectual property ownership • Cancellation & notification terms 6 Chances are, your supplier also hasn’t read the MSA, and your agreement may not be aligned with the MSA.
- 7. Copyright IT Central Station. All Rights Reserved. For reuse, contact resources@itcentralstation.com Incent Your Supplier • Firm Fixed Price • What is both the explicit and implicit risk premium? • What are the Acceptance Criteria? • Firm Fixed Price by Object • Can work well when there is a high number of development objects (programs, reports, training courses) • Not to Exceed • What are the terms in the change order process which ensure the cap doesn’t keep changing? • Withholds/Risk sharing • This can work as an incentive for a cash-driven company – but doesn’t work for all cultures) • Performance Bonuses • Performance Penalties • Free software, free services, non-payment 7
- 8. Copyright IT Central Station. All Rights Reserved. For reuse, contact resources@itcentralstation.com Manage Your Supplier • Assign your suppliers a Tier based on spend and risk level • Establish a recurring governance meeting for them to assess their performance and discuss with you • Use a standardized agenda or scorecard so that you can measure the progress period-to-period (they WILL try to vary the format, obfuscating progress!) 8
- 9. Copyright IT Central Station. All Rights Reserved. For reuse, contact resources@itcentralstation.com Supplier Tier Classification Supplier Tier Matrix Annual Spend Low Risk High Risk <$250k 3 2 $250k>$2.5M 2 1 <$2.5M 1 1 Risk Factors: Size of company, Availability of replacement skills or products, Software maturity, Length & strength of existing relationship