Australian Software Asset Management Association




Software Asset Management Vendor Relationship Management




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.


(IE Printing: - There are known IE printing problems that affect certain printer brands and printer types; Chrome and Firefox have no reported issues.)