CIOs should motivate IT vendor personnel the same way they do their own staff.

Guest blog by Ken Grady, CIO, New England Biolabs.

Ken Grady, CIO, New England BiolabsFor all CIOs, regardless of the industry you’re in, vendors and consultants are a core part of your delivery and support strategy. It’s a reality of today’s stretched budgets and the battle for talent in a demanding marketplace. Yet, effective vendor management continues to be a frustration for many IT organizations.

Most IT vendors position themselves as thought leaders and strategic partners during the sales pitch, but in the long run you usually feel like you've ended up with an ordinary contractor. Their long-term motivation to work through the gray areas of the contract and move your business forward is uneven at best. The contract's SLA may be fulfilled to the letter, but your organization is still frustrated with the output. Even the most strategic partnership often ends up reading as an old-fashioned time-and-material (T&M), staff augmentation contract.

It’s a typical situation. And there aren’t many good books or courses on how to engineer a different outcome.

I will let you in on a little secret: your vendor is probably just as frustrated as you are.They have their own challenges and motivations, and they really wish you’d figure out a way to help them be more successful. If you tap into that desire and motivation, and consider their challenges as you build the relationship, you will have the keys to turning a contentious relationship into a partnership.

"Vendor employees are just as motivated by knowing that they’re making a positive contribution as anyone on your full-time staff."

I’ve managed large vendors and small, turned around relationships, fired a few vendors and I’ve been fired as a customer once or twice. Turning the relationship into something positive is not only far more rewarding, it’s usually financially beneficial and more productive.

Based on my experience and conversations with other CIOs and vendor reps over the years, here are a few recommendations for improving realtionships and outcomes with your IT vendors:

1) Select partners very carefully– interviewing a vendor isn’t all that different from interviewing an individual candidate for a role on your team. Does their culture match? Do you understand how they’re incented? Where do they want to be five years from now? 

They may have the right skillset on their bench, but may not be an asset in the conference room when you need them. Or they have the right technology, but the internal levers to pull aren’t clear. Be as thoughtful about the character of the vendor organization as you are about the skills.

2) Invest more time in your strategic vendors. Not every vendor working for your company can be a strategic partner. Pick the ones that can or will provide the skills that will make the biggest difference, and invest more time with that list. Tell the ones on the list that they’re on it. And tell the ones that aren't that they're not on the list as well. They may surprise you.

3) Be honest – and ask for honesty in return: You can’t possibly expect your vendors to help you be successful in achieving your objectives if they don’t know what those objectives are. And vendor employees are just as motivated by knowing that they’re making a positive contribution as anyone on your full-time staff.

If the SLA is being fulfilled but the business is still dissatisfied, be up front about it as quickly as you can.  I hold quarterly reviews with each of our key partners that measure non-SLA metrics like satisfaction, resource availability, new contributions, flexibility, etc. These are not part of the contract, but they are the context for the relationship, and they make a tremendous difference in who we are going to grow as a part of our portfolio, and who we’re going to diminish.

They can’t be a key partner if they’re not willing to listen. I tell them this up front, and ask them to rate us on the same scale, with the same frequency, and for the same reasons. 

4) Share the rewards as well as the risk: This has probably been the most aggressive change I’ve introduced for our key partners. Every service has a value, and I want a provider who is motivated to provide these services as efficiently as possible.

Contracts are often heavy on the ‘stick’ side of motivation, with no mention at all of a ‘carrot’.  If you structure a vendor contract like you’re hiring hourly drive-thru window employees, you shouldn’t be surprised when you aren’t able to get them to bring their best people and ideas forward. For key relationships, I insist that we as an organization lead with the ‘carrot’, and this approach has often changed the entire foundation of the working relationship.

I looks like this: If an implementation contract is written and approved for $1 million, and we bring it in at $750 thousand, then we split that savings. They get $125 thousand bonus. I save $125 thousand.  If it goes over the $1 million target – we’ll share the risk at the same rate (50-50).  This works, and I have implemented it with both fixed cost and T&M contracts. Is the vendor only willing to agree to 20% shared risk? Okay, but then they get a bonus of only 20% of the savings if we achieve it.

Here is an example of a shared risk/shared reward SLA contract: If an SLA is written for 99.9% uptime (~9 hours of unplanned outage), then focus on the .1% up front. What’s the value there? If 100% uptime is worth $1 million to my business, put a $500k bonus on the table.  For every hour of down time, we take away $55,555 of possible bonus. If we achieve 100%, the total value of the contract is more than the baseline. If it’s less, then it’s the baseline minus the same amount.

If the vendor is not willing to work with us in creating a shared risk and reward model, then I know that they’re not positioned to help achieve our strategic objectives. And it’s a signal that I need to look elsewhere for a partner.

In both cases, I’ve articulated to my partner what the value of exceeding expectations is, in terms that are clear and committed. I want them as motivated as possible to keep continually improve their service and the results.

Ultimately, I want to cut that check because it means that my partner helped us achieve a better result. 

Not every vendor is positioned to work with you this way. Not every person you interview is going to be the right fit for your organization. But understanding the motivation of a vendor, finding the ones that can work with you in new ways, and investing the energy and the incentive to grow the relationship is how you’ll find the partners that can help you accelerate success.

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