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10 ways to reduce your risks in buying decisions and vendor selection

These ten procurement strategies will reduce your risk when researching and selecting new IT solutions.
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 There are few handbooks on how to select the right equipment, software and vendors—but there shouldn't be! These are areas fraught with errors and lawsuits, so it is imperative for IT to buy and partner well. Here are ten proven procurement strategies.

1. Get all of your vendor’s references

Most sites ask their vendors for references and receive a hand-chosen three or four companies to call. Instead, request your vendor’s entire client list and make your own selected reference calls. You’re likely to get more unvarnished opinions, which will help steer you to relevant question to ask a prospective vendor before you sign on the dotted line.

2. Request a “try and buy”

No matter how comprehensive your due diligence is, the only way to really assess if a new IT solution is going to meet your needs is to try it in a pilot study at your company before you buy it. If the solution does what you hope it can, you will feel more confident when you ink the contract.  

3. Negotiate a contract with service level agreements (SLAs) and exit guidelines

You and your prospective vendor should reach an agreement on service levels and how those levels will be measured. Then, all parties should ensure that the SLA language is written into the contract before signing. This clarifies everyone’s understanding of performance expectations going into the agreement, and it gets your working relationship with the vendor off to a good start. Also within the contract should be very clearly articulated cases that would allow you to exit the contract. This is an important point many sites miss, because they get so excited about signing the agreement that they think that nothing will ever go wrong. Unfortunately, things happen. Your vendor might underperform, or your business needs might radically change, or there might be a change of management control at the vendor (such as the vendor being acquired) that you are uncomfortable with. An exit clause allows you to leave a contract without fault or penalty if you have to.

4. Vet the vendor for governance and business continuation

Your vendor and its solution should meet or exceed your corporate requirements for IT governance and security. If there is noncompliance, your business is at risk. Also perform a careful review of the vendor’s disaster recovery and business continuation plans and procedures.

5. Choose your project manager/account executive

It is important to have a strong project manager/account executive while your new solution is being implemented—and it is equally important to continue to get strong project/account management performance from the vendor after implementation. All too often, vendors switch clients over to less experienced project managers once the contract has been won and the initial implementation is over. As a result, sites can experience degradation in service and responsiveness from their vendors. Reserve the right to interview and pre-approve any vendor project manager before the individual is assigned to you.

6. Always interview at least three different vendors

You need to know “what’s out there” when you are in search of a particular IT solution. There is a tendency at times for sites to pre-select vendors without surveying the field—but taking a look at a number of solutions broadens your perspective, and also helps you develop additional questions to ask each vendor.

7. Know what you want

Always engage all of the internal stakeholders in your company in a thorough definition of your business requirements before you go shopping for an IT solution. Sometimes sites shortchange the requirements definition process, and find themselves instead listening to their vendors, which proceed to tell them what they need. Never fall into this trap. Your business should always drive this process.

8. Learn your vendor’s culture

Cultural compatibility is a prime driver of collaborative success between organizations. You should make it your upfront business to understand your vendor’s business culture, and whether it will mesh with your own. Cultural incompatibility can “break” any project—even if the solution itself is good!

9. Obtain an upfront understanding on personnel recruitment

It’s not uncommon for businesses to lose key employees to their vendors, or vice versa. Sometimes this creates hard feelings that impair business relationships. This is why many organizations have recruiting policies in place with their vendors that govern cross-hiring.

10. Review your vendor’s upgrade and trade-up policies

When you sign on to a solution, your CFO is likely to ask you for projected annual expenses. This is what makes it important to understand the vendor’s policies on product upgrades, how often they happen—and also whether the vendor will take in value for your older solution if you choose to upgrade.


About

Mary E. Shacklett is president of Transworld Data, a technology research and market development firm. Prior to founding the company, Mary was Senior Vice President of Marketing and Technology at TCCU, Inc., a financial services firm; Vice President o...

4 comments
lpointmpoint
lpointmpoint

Solid, practical article.  But #5 is a stretch.

MarcWilliams
MarcWilliams

One of the simplest ways to go about reducing risk when selecting vendors is (in my experience) to involve your procurement/purchasing/commercial team. Revolutionary, I know but they are the ones who spend the time training to deal with exactly these issues.

Granted, a smaller organisation may not have direct access to that sort of expertise so consider buying it in. The costs of a failed strategic vendor relationship far outweigh the upfront costs of a few weeks worth of consultancy support.

dnmurphy
dnmurphy

@lpointmpoint  number 5 is vital, failure to have this person to ensure the vendor behaves wlll almost guarantee a failure.

dnmurphy
dnmurphy

@MarcWilliams  Totally agree.  Also professional procurement managers are usually very shrewd negotiators and better than most outside their profession.  Where the procurement is public sector in Europe then OJEU rules kick in and you need specialist expert advice.