Building and Maturing a Vendor Management

Capability Primer for 2018

Published: 18 January 2018 ID: G00344303

Analyst(s): Christopher Ambrose, Joanne Spencer

Technology vendor management is a necessity, enabling IT and the

business to extract value from technology vendors and service providers.
Sourcing and vendor management leaders need a framework for
implementing a consistent model that improves and advances technology
vendor management.

Scope
Building and maturing a vendor management capability involves developing and enhancing a
discipline for managing technology vendors and service providers that optimizes business
outcomes.

This involves implementing:

■ A disciplined vendor management framework and governance structure

■ A gap assessment and roadmap for vendor management maturity
■ A vendor management organization or function as a center of excellence
■ Bimodal processes to support digital initiatives business agility
■ A marketing mindset to drive adoption of a vendor management discipline
■ Vendor management value metrics that go beyond cost optimization
 Analysis
Figure 1. Building and Maturing a Vendor Management Capability Overview

Source: Gartner (January 2018)

In 2017, we continued to see growth and interest in digital business initiatives. In the 2017 CEO
survey, 42% said "digital first" or "digital to the core" is now their company digital business posture.
Furthermore, while 57% expect to focus on building in-house information technology and digital
1
capabilities, 29% will outsource information technology and digital work to external providers.

Tracking a dynamic technology market, making risk-adjusted decisions that include emerging
vendors, and focusing performance metrics on their impact to business are all foundational
2
capabilities that vendor management needs to support the agile demands of the business.

To support this, vendor management leaders are creating lean vendor management organizations
(VMOs) that often operate as a center of excellence (COE), developing processes, standards, tools
3
and templates. However, too often, these VMOs are implemented without a clear charter, leading to
conflicts over the ownership of critical vendor management functions.

Ensuring that vendor management is agile requires managing vendors in a collaborative vendor
ecosystem. IT, sourcing, procurement, vendor management and the business must collaborate in

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 managing technology vendors and service providers. This will provide the stability to manage
traditional vendors and the agility to onboard and manage newer, innovative vendors.

Top Challenges and How Gartner Can Help

Sourcing and vendor management leaders have greater access than ever to increasingly advanced
technologies, tools and capabilities with which to design and execute an effective and efficient
vendor management program. Mature vendor management uses agile, fast-track processes and
governance to address the "need it, want it, get it now" business-user mindset fostered by the
digital business transformation. Collaboration tools and methods can link stakeholders, as well as
vendors, into vendor management processes to enable a 360-degree view of strategic vendor
relationships and progress toward business outcomes.

Through published research and client engagements that help answer the following questions,
Gartner can help these leaders create and enhance vendor management capabilities.

How can we create vendor management programs that support business growth while
managing vendor risks?
Business and IT stakeholders and external customers now operate in the digital world with instant
and borderless access to data anywhere, any time and on any device. IT and the business have
much shorter cycle times and thus need access to new capabilities and vendors faster than ever
before.

IT and business stakeholders want access to, and relationships directly with, their vendors. They
need vendor management that supports them without becoming overly bureaucratic or overly
process-driven. The vendor management organization of the future must adapt or risk being
bypassed or relegated to managing only costs and rudimentary contract performance.

Gartner's 2015 vendor management survey indicated that "direct access to technology by the
business" is most commonly viewed (35%) as a top trend in terms of the impact on vendor
management efforts. Inadequate due diligence of vendors opens up the potential for unknown,
potentially damaging, risks. Digital technology vendors often require more monitoring and evaluation
of operational and security controls than traditional IT vendors.

Efficient processes and effective governance and policies — combined with appropriate staffing
and organizational structures — are key to ensuring stakeholder satisfaction. Effective governance
can also aid practices that drive value and speed, while avoiding (or mitigating) high-risk ventures
that may be approved based primarily on low costs or time to market.

Planned Research

■ Applying a Vendor Management Framework

■ Developing a Vendor Management Mission and Charter
■ Where Should Vendor Management Report? IT, Corporate Procurement or Somewhere Else?

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 ■ Integrated Vendor Risk Management

How can we build and implement a roadmap for maturing our vendor management
program?
Vendor management remains a relatively immature discipline. It exists in many large enterprises but
is emerging in midsize enterprises and less-regulated industries. As enterprises look to establish
and improve their vendor management capabilities, they move through levels of maturity. To do this,
they must develop a roadmap, gained from an analysis of their vendor management gaps and
priorities.

The first step in this process is to assess its maturity. Gartner's "ITScore for IT Vendor Management"
is an online maturity assessment tool that helps clients examine their technology vendor
management maturity across four key dimensions:

■ Governance
■ People and organization
■ Processes and tools
■ Analytics and trending

By completing the assessment and analyzing the resulting report, sourcing and vendor
management leaders can compare their vendor management programs with the four dimensions
and desired maturity levels. An assessment uncovers gaps in capabilities and provides the
opportunity to prioritize the critical actions required to mature vendor management. These critical
actions then form the basis for the establishment of a roadmap for vendor management maturity.

Planned Research

■ Implementing Practical Vendor Rules of Engagement as Part of Vendor Management

Governance
■ The Roadmap for Moving Up the Vendor Management Maturity Curve From Levels 2, to 3, to 4

How can we make our vendor management programs more agile?

Driving rapid digital innovation through vendors requires speed and agility in vendor management.
This means new ways to meet these needs and accelerate the engagement and onboarding of
vendors. Otherwise, vendor management risks being overwhelmed or bypassed by stakeholders
who continue to operate with an increasing sense of urgency and expect more rapid
responsiveness.

Increasingly, business units have greater autonomy in IT and technology vendor decisions, and
more control over their budgets in this area. Business decision makers and technologists have
access to digital technologies that they can deploy rapidly, but without adequate governance or
vendor risk management. In this fast-paced environment, the importance of compliance with
regulatory requirements and the protection of sensitive data or intellectual property may be

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 overlooked or not understood. A vendor management capability designed to be more agile and
responsive can shorten contract cycle times and speed up project initiation, while avoiding negative
consequences for the business.

Planned Research

■ Communicating and Marketing Vendor Management

■ Becoming Bimodal in Vendor Management While Effectively Managing Risk

How can we develop a cooperative and collaborative vendor ecosystem?

Enterprises are beginning to recognize their technology vendors as part of an ecosystem of supply.
However, they still are managing them with traditional methods and tools that track and incentivize
individual vendor performance rather than the contributions across the ecosystem. As enterprises
look for ways to integrate many vendors into a dynamic delivery model, they are searching for
methods that will optimize how each ecosystem partner will contribute to the achievement of the
collective ecosystem objectives. New contracting models, governance structures and competencies
are needed to operate a vendor ecosystem.

More advanced vendor management leaders align vendors' interests with those of their own
organizations. They use operating-level agreements (OLAs) to define the expectations of, and
touchpoints between, different internal and external providers. Once they have achieved this, the
next step is to motivate vendors to work together for the mutual benefit of their businesses.

Planned Research

■ A Framework for Managing Complex Vendor Ecosystems

■ The Governance Model for Managing Vendor Ecosystems

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 Related Priorities
Table 1. Related Priorities

Priority Focus

Technology Sourcing and Technology procurement transformation facilitates innovative business outcomes
Procurement Transformation by enabling technology procurement leaders to become trusted advisors in
acquisitions of digital technology and services.

Evolving Portfolio and Resource This initiative addresses the practices, tools and skills required to maximize
Management portfolio value and resource capacity potential to meet today's dynamics and
prepare for tomorrow's trends.

Technology and Solutions for Gartner's technology and solutions for supply chain and operations research
Supply Chain and Operations covers supply chain technology strategy, software and services.

Managing Vendor Performance Gartner research on managing vendor performance and risk reveals the best
and Risks practices for assessing, monitoring, and managing vendor performance, risks and
relationships in pursuit of business goals.

Services Sourcing, Procurement Services sourcing, procurement and vendor management integrates cost-efficiency
and Vendor Management with transformation capabilities to deliver the IT and business services the
enterprise requires to meet its objectives.

Source: Gartner

Suggested First Steps

■ Define the role, expectations, and scope of your vendor management program and document it
within a vendor management charter.
■ Assess your current level of maturity and identify the "to be" target state as well as a general
timeline for moving up the maturity curve.
■ Define the scope of vendor management and where its core activities fit within a life cycle
approach to vendor management that covers the disciplines of sourcing, procurement and
vendor management.
■ Define and communicate specific, measurable, actionable, relevant and time-bound (SMART)
goals for your vendor management program.
■ Implement a governance model that defines roles, policies and processes for how vendor
management will operate.
■ Develop a set of measures to assess the performance and value of vendor management in the
organization.
■ Communicate the outcomes of a vendor management program to the executive managers
through a status report, and ensure that this is communicated to IT leaders.

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 ■ Understand the impact of digital business on your organization's strategy and vendor
ecosystem.

Essential Reading
■ "Formalize Technology Sourcing, Procurement and Vendor Management Disciplines to Ensure
Business Value"
■ "Comprehensive IT Vendor Management Framework Builds the Foundation for an Effective
Program"
■ "The Head of Technology Vendor Management's First 100 Days"
■ "ITScore Overview for IT Sourcing and IT Vendor Management"
■ "2017 Strategic Roadmap for Vendor Management"
■ "Six Key Steps to Developing Effective Vendor Management Governance"
■ "Aligning Vendor Management Metrics to Business Value Proves Program ROI"

Tools and Toolkits

■ "Toolkit: Establish a Vendor Management Mission and Charter"
■ "Toolkit: Technology Vendor Management Strategic Roadmap, 2017"
■ "Toolkit: Head of Technology Vendor Management's Job Description "

Evidence
1 Gartner 2017 CEO survey: Gartner conducted this research from September through December
2016 to examine CEO and senior business executive views on current business issues as well as
some areas of technology agenda impact. It qualified and surveyed 388 business leaders. The bulk
of the research was conducted via telephone interview (293); an additional 90 surveys were
achieved online and there were five self-administered paper surveys. All respondents were screened
for active employment in organizations greater than $250 million in annual revenue. The survey was
developed collaboratively by a team of Gartner analysts who examine IT's role in business. It was
reviewed, tested and administered by Gartner's Research Data Analytics team. The results of this
study are representative of the respondent base and not necessarily business as a whole.

2 Gartner Vendor Management Survey, 2015: Between June and August 2015, Gartner asked
vendor management professionals about the challenges created in their vendor ecosystems by
vendors driving innovation, digital business activities, and competitive advantage or agility. Forty-
five percent of respondents said "Managing these vendors is more of a challenge," as a result of
these changes. This is the second-most-common challenge they face as a result of vendors'
changes, behind "increased risk introduced by these vendors (48%). The 500 respondents in six
countries came from midsize to large organizations with 100 or more employees.

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 3 The top four driving forces behind vendor management professionals moving to a formal VMO are
the desire to improve business outcomes; service from vendors; relationships with vendors; and
controls, policies and processes.

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