CXO

Have you 'Enron-proofed' your vendor relationships?

Vendor relationship practices once considered standard operating procedure are being scrutinized under the bright light of the Enron scandal. Bob Artner offers these tips on how IT managers can defend themselves and the vendor decisions they make.


Six weeks before the scandal broke, most of us had never heard of Enron. Six weeks after it broke, most of us wished that we’d never heard of it, as the cable news networks covered the story 24/7. Now that a few months have passed, most IT managers look at the slow-motion train wreck tearing apart Enron (and its auditor, Arthur Andersen) the way we look at some natural disaster in a distant corner of the globe. That’s too bad, we might say, but it doesn’t mean anything to me.

I believe that’s wrong.

The fall of Enron and Arthur Andersen is ushering in a sea of change in corporate governance. This is going to go far beyond tighter scrutiny of corporate financial reporting and “off the books” accounting relationships. In fact, I believe that many management practices once considered industry standard might soon be viewed as suspect.

Don’t let yourself get caught in this ethical whirlwind. In this column, I’ll suggest areas of your vendor relationships that you should examine. I’ll also provide some tips on how you extricate yourself from any future difficulty for vendor decisions you’ve made in the past.

The dream project that turned into a nightmare
To illustrate how the times are changing, and how you might become vulnerable, consider the following scenario.

Imagine that you’re an IT manager for a midsize manufacturer. One day, you get called into the CIO’s office, where you find not only the CIO but the CEO as well. The CEO is animated, his speech full of excitement. He tells you that it’s time the company installed a customer relationship management (CRM) system. All of your company’s competitors are doing so, and you can’t afford to be left behind. He sketches out a vision of a CRM system that would feed both your company’s supply chain and sales efforts, allowing you to both reduce costs and increase revenues.

The CIO (your boss) starts talking. They want you to run point on this project. You will create the RFP, select the vendor, and oversee the implementation. This is going to be the most important IT project your company will fund for the next five years, and you’re the one the company is counting on! Your head is reeling with excitement—this is the kind of project you’ve always wanted to oversee. As you get up to leave the office, the CEO says, “Every day we don’t get this CRM system installed is going to cost us money. So the cheapest vendor will actually hurt us if it takes six months before they can even get started.”

Over the next couple of months, you work with the project stakeholders to create an RPF and select a vendor. Eventually, you do a presentation to senior management, including the CIO, CFO, and the CEO. You make your recommendation. When asked about costs, you tell the group that the consulting firm you’re recommending was not the lowest bid. You choose them because they’re experienced, they’ve worked with clients in your industry, and they can start almost right away. They approve your choice and sign the contract.

From your point of view, that’s when the real work starts. The project lead for the consulting firm is their area director. He’s been doing CRM implementations for almost three years, and he knows exactly what questions to ask the various stakeholders. You two hit it off immediately, which is an immense relief, as you end up spending a lot of time together.

Four months go by. The project is almost two-thirds done but has slopped almost a month behind the original plan, due to scope changes needed by manufacturing and accounting. This has also affected the project’s budget, which looks as if it will now come in 20 percent over the original bid.

Other than that, everything’s been going very well, and you’re a few weeks from beta testing the first module. From your point of view, it’s been a dream project: important job, good vendor, and a minimum of finger pointing.

Then, the roof falls in.

It starts with a call from your friend, the area director. In a shaken voice, he tells you that his company has just declared Chapter 11 and that over half the workforce, including all of his team, is being laid off that very morning—himself included.

After commiserating for a few minutes, you ask about your company’s implementation. Who is going to finish it? He doesn’t know. The company is keeping one CRM implementation team, which is based on the other coast, but they are involved in a huge project that won’t be completed for months.

When that phone call is done, you get the happy job of informing your boss and the CEO. As you might expect, they don’t take the news well. However, what you don’t expect is that they blame you for the vendor’s collapse.

“This is a nightmare, and I hold you personally responsible!” the CEO thunders.

“Well, sir,” you stammer, “I’m not sure how I could have seen this coming. After all, the finance department ran a credit report on them and checked their financial statements—“

Your boss cuts you off. “You know perfectly well that we picked this company based primarily on your recommendation. And we never would have done it had we known that your judgment was biased.”

“Biased?” Now you’re confused. “What are you talking about?”

Your boss and the CEO share a look, before your boss smirks, “What am I talking about? I’m talking about your friendship with the guy running our project. You think we don’t know about how you two are always off playing golf together or that your families socialize together? Do you think we wouldn’t find out?”

“There’s nothing to find out!” you roar back, truly angry for the first time. “Our friendship didn’t have anything to do with his firm getting my recommendation, for the simple reason that we weren’t friends at the time! I never even met the guy until after we gave them our business!”

You stop, because you suddenly realize that neither your boss nor the CEO is paying the least bit of attention to what you’re saying. Instead, they just sit there, glaring at you. That’s when you start to sweat a little and wonder, “Is this what it feels like when your career goes down the toilet?”



What should you do?
Granted, my scenario is a little over the top. However, I think it illustrated a couple of points about personal ethics in a corporation.

First, conflicts of interest (even hypothetical ones) are rarely a problem until other things go south. In this little drama, the CIO didn’t care about the fact that you were friends with the vendor’s director until the vendor declared Chapter 11, and he needed someone to blame.

Second, personal innocence is not always a sufficient defense. In this situation, as was pointed out, there was no way your friendship could have influenced the contract award, since you didn’t meet the guy until after his firm had already gotten the business. Remember that you don’t have to be legally guilty of something to have your career derailed. In this scenario, it’s hard to see how you could turn around your relationship with your boss, or the CEO, for that matter!

So how can you make yourself less vulnerable? While not an exhaustive list, here are some ideas:
  • Review your company’s policies (if any) on vendor relationships and vendor selection. If you’re like most IT managers, you haven’t looked at those policies since they were established by the organization. Your policies might not be perfect, but you need to either follow them or fight to change them.
  • Keep your boss informed about activities done with vendors. Most organizations allow their managers to accept a lunch from a vendor, or a round of golf. If yours does, don’t feel bad about accepting an offer from a vendor to play in their next golf scramble. However, before you go, make sure you tell your boss and get his or her okay. Get some air cover from your supervisor. After all, if you don’t have anything to hide, don’t act like you do.
  • Review your decisions—dispassionately. Review in your own mind the decisions you’ve made about vendors over the past year or so. Ask yourself two questions: 1) Was I influenced, even subtly, by my friendship with a vendor (or an antipathy toward another vendor) and 2) Do any of my decisions look as if they had been influenced, even if they weren’t? If you answered Yes to either of those questions, then spend some time thoroughly documenting your actions and distancing yourself from the vendor (should that be necessary).
  • Review all vendor performance. As I mentioned earlier, these kind of ethical cross-examinations usually only arise after a vendor has screwed up. Are you providing the proper amount of oversight to the vendors you work with? How are they performing against their estimates, both on cost and scheduling? What about their financial health? You no doubt check on the viability of new vendors, but when was the last time you did so for existing vendors?

Granted, acting on these suggestions can’t guarantee that you won’t be asked to defend your vendor recommendations. However, it will make it easier to defend yourself.

 

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