Vendor Relationship Management is a key capability requirement of Software
Asset Management (SAM). Vendors are important suppliers of software that can provide your
organisation with a number of benefits in supporting the business. Like all relationship management
activities, there is a considerable investment required by both your organisation and the vendor’s
organisation. This effort should be jointly shared and the level of effort will be based on whether
the relationship is strategic or transactional.
Whilst many vendors claim a
strategic relationship with various customer organisations, there in fact are very few. The closest you
will get to a strategic relationship is that a vendor will undertake tasking to fix or rectify problems
caused by their software or services at no cost. This is predicated that the vendor believes your
organisation has money to spend with the vendor in the near future. This is the basis of what a
strategic partnership is to a vendor, revenue will be available if the issues the customer has raised
can be worked through. Often these issues are another way a vendor seeks revenue, by recommending
solutions they propose to the problems, which requires the customer to spend more money. Your
organisation needs to hold the vendor to account for their failings and not reward them with new
revenue. In a strategic relationship the vendor will normally assign account managers, architecture and
software personnel to their account management team. This is done to identify opportunities and earn
additional revenue. Strategic relationships have a high administrative overhead and associated costs to
them, which includes both time and money.
The majority of vendor
relationships are transaction, these relationships are also known as tactical relationships. The
transactional relationship is based on a point in time when your organisation and the vendor engage to
undertake a transaction. The relationship is based on your organisation making a purchase and the vendor
supplying the software, very similar to a transaction in a shopping centre for buying an everyday item.
This transaction can be undertaken under a contract mechanism or an ad-hoc purchase and it may happen on
a regular or irregular basis. There are many transactional vendors who have good software, employ good
people, are well run and are a professional company. There can be many reasons why your organisation has
determined they do not require a strategic relationship with this software vendor. These reasons could
include that the vendor’s software does not support a key business service within your organisation, the
value of software purchases does not warrant the administrative overhead and associated costs that is
incurred with a strategic partner and there could be many more reasons. The software vendor could also
decide not to be a strategic partner with your organisation based on their business model and business
requirements. Transactional relationships do not go beyond the supply of software in exchange for a
financial payment. Strategic relationships that fail often will revert to a transactional
relationship.
Prior to entering into a
strategic or transactional relationship with a vendor, there should be a viability check done on the
vendor. This is usually based on a financial analysis of the vendor’s viability. There are a number of
commercial organisations that can do this, if your organisation does not already undertake this process
itself. If the financial status of the vendor is not good, then a software escrow agreement should be
considered. A software escrow agreement is protection for your organisation if the software vendor fails
and no longer is able to operate as a business. How a software escrow agreement works is that a 3rd
party holds onto the software payments (or your organisation does) and the software code. If the vendor
fails the remaining money and the software code is given to your organisation. The decision to pay the
vendor and return the software source code is based on previously agreed criteria, defining what
constitutes completion of a particular deliverable or event. A background check on the vendor’s
performance at other organisations should also be undertaken. Your aim is to understand how the vendor
performs over a long period of time. It is important if you can approach other organisations within the
same geographical area, to determine the level of service at your location. Delivery of services by
vendors is not consistent across all geographic locations.
Vendor management plans are
required to ensure that your relationships with vendors are managed to an appropriate level. Vendor
management plans provide your organisation with a standardised approach to the management of strategic
and transactional vendors. Standardisation of these plans will provide you with efficiencies and enable
an effective consistent approach that can be applied to all vendors. Strategic vendors and transactional
vendors will have different vendor management plans, as strategic vendors will require significantly
more effort than transactional vendors. Vendor management plans will enable you to monitor, measure and
report on a vendor’s performance.
A vendor management plan will
require the need for documentation. This documentation will be for the processes and procedures that
will be used by your organisation and the vendor. Typically this will be based on a contract that you
have with the vendor and it will document the practical steps required to enact parts of the contract,
that require interaction between your organisation and the vendor. The key people and their roles will
be listed and how an escalation is undertaken and who is involved. The requirements that your
organisation must fulfil as part of the contract is outlined and serves as a guide to the contract
manager, on what actions are required and when are they required. These actions usually include renewal
dates, compliance requirements, invoice payments and status reporting. The vendor usually has a
reporting requirement in who they have been engaging within your organisation, for what reason, is there
an expected software sale and when is that expected. This is important to provide the contract manager
with enough notice to organise their work plan to undertake this work.
A vendor management plan will
include the requirement for a communication plan. The communication plan should be consistent with your
team’s communication plan. To ensure its consistency you should use your team’s communication plan as a
template. The communication plan should always be in use to ensure that the communication between your
organisation and the vendor is consistent, clear, intelligent, timely and appropriate. The communication
plan responsibility rests with both your organisation and the vendor, where the roles and
responsibilities will be assigned to both. Ownership of the communication plan is best assigned to your
organisation. This will enable you to shape and guide the development and maintenance of the plan that
suits your organisations objectives. Being realistic, vendor’s interest in the communication plan is to
help build future sales, which is their organisations objective.
The communication plan should
detail what are the major channels your organisation and the vendor will use to communicate. There will
be more than one channel as there will be a requirement to interact with the vendor on many levels.
Examples of channels include monthly meetings, executive meetings and contract management. Monthly
meetings are generally based on operational requirements of your organisation. These meetings usually
enable both your organisation and the vendor to raise issues for discussion and quite often result in
action items to be undertaken outside of the meeting. These action items are recorded, monitored and
reported on in subsequent meetings. There is an opportunity for your organisation and the vendor to
provide information that helps to inform the other organisation. Examples of your organisation issues
you would raise are: advising on business decisions, organisation changes, new regulatory requirements
and other matters that assist the vendor in understanding your organisation better. A vendor may raise
issues such as; advising on key organisation changes, new software products and visits by key personnel
from outside of your location.
Executive meetings are a step
up from the operational meetings where the communication is more directed at strategy and futures, only
rarely are operational issues discussed. When operational issues are discussed, these issues usually
have been running for quite some time, are affecting a key part of your organisations business and
probably have been escalated from the operational meetings. The executive meeting forum enables your
organisation to advise the vendor of the future strategy, timing of when decisions are expected to take
form in your organisation and to raise business problems, that a vendor may have a possible solution for
in the provision of software and/or services. The vendor will usually discuss their organisations future
direction, capabilities they are providing to other customers and introducing visiting executives from
the vendor’s organisation.
An important commercial
requirement is the contract management channel. Your organisation and the vendor’s organisation will
both have specific requirements that should be documented in the communication plan. A number of
commitments made in the contract by your organisation and the vendor’s organisation will be undertaken
through the contract management channel. This channel has an important requirement for rigor and
formality to be applied when transacting commercial activities. This channel is also a useful mechanism
to raise issues that have been raised previously with the vendor but are not being resolved to your
organisations satisfaction. As the contract management channel is an extremely important mechanism for
the vendor to process revenue transactions, they will take seriously any concerns raised. The vendor
will view these issues as potentially being able to affect their revenue. To summarise the key
fundamental requirements of a communication plan, basically it is extremely important that the messages
being given to the vendor through all channels used by the communication plan are consistent, clear and
repeatable.
Software vendors have been for
a long time based anywhere around the world. The multinational's are mostly based in the United States
with a network of executives in each region. There are still some Australian companies but they are in
the minority. In managing the relationship with a vendor it is important to understand the level of
authority that your local account team have, the authority of their executives in Australia or Asia
Pacific and what issues are escalated and what decisions are made from their headquarters. This multi
laying of the authority by the vendors requires your relationship management planning to accommodate for
these layers. It means that you cannot solely have a relationship with the local account team. Your
organisation will have to engage across all the vendors’ layers to effectively engage with them. The
local account team will be more generalist in the technology and issues. As you proceed further up the
ladder towards the vendor’s headquarters, the people you engage will be more likely to be subject matter
experts and key executives for a specific role or function. For key organisation issues, strategies and
deep inherit issues with the software, these are the people you will need to engage. This engagement is
usually established by the local account team.
The proliferation of software
vendors makes it a difficult task to keep across the required vendor management tasks. The more vendors
there are, the greater number of transaction vendors you will have to manage. You cannot manage a large
number of vendors as strategic; the amount of work involved is too high. If it is attempted to manage a
large number of strategic vendors then the quality of the vendor management will suffer and will not
meet the requirements of a strategic vendor relationship. If your organisation has strong control over
the selection of software in providing the capability for the organisation, then you should have fewer
vendors. If this is not the case in your organisation, then you may be able to influence the selection
of software products through a commercial argument and whether that vendor is a strategic or
transactional vendor. If there is a move towards the consolidation of vendor numbers, this will make
your efforts in managing these vendors easier, due to the falling numbers. If you are disengaging with
vendors, remember to review your vendor management plans to determine what actions your organisation
needs to undertake for disengagement.
This article on vendor
relationship management discussed a lot of the issues and approaches you need to consider to effectively
manage vendors. Vendor management is not easy and it is influence by the culture of the vendor’s
organisation and the people they assign to your organisation. There are a number of additional
strategies and more in-depth information to become available in the topic specific articles and in-depth
information articles.
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