The Morph from Vendor Management to Vendor Performance Management

Terence Roche

October 4, 2013

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‘I have faith. I just need proof to back it up.’
-Joe, from Simon Birch, 1998

One thing you learn in this business is that most issues have a quantitative and a qualitative side to them.

One small example: end-of-year high school academic awards. Remember them? Every year, I recall seeing line after line of overachievers trotting up to receive all manner of qualitative awards: Class Valedictorian, Leadership Award, National Merit Society, scholarships galore. Watching from the back, from the perspective of somebody who had a consistently spectacular record of never winning any academic award whatsoever (too bad the Jesuits didn’t have a category for “skating by”), I nevertheless had to grudgingly admit that these people were being recognized for qualitative accomplishments that I had not earned. So, OK, they deserved their moment.

Then, right at the end, somebody would announce an award for perfect attendance. In the middle of all the qualitative recognition, we had one award for a completely quantitative reason – just showing up. And as these people who won it trotted up for their ribbon or whatever, I remember thinking that this just beat all. What were these people happy about? Didn’t it ever hit them that in order to win this award, they actually had to show up all day, every day and attend every last class? Man, I thought they were flat crazy. I considered it a bad year if I wasn’t out of the running for that thing about two weeks after school started.

Anyway, there is a point to this, and it has to do with vendor management. Several years ago, vendor management became a big topic at banks for lots of reasons. The trend to outsourcing was one. The fact that regulators started asking about and auditing it certainly caused more focus. The sheer number and dollar impact of these relationships made it a good idea in any case.

So, a lot of effort went into vendor management projects. And a lot of information was gathered. Most financial institutions now have a comprehensive list of providers, contracts, contract expiration dates, financial reports, DR tests, SAS 70s, completed questionnaires (ours included) and other information that does indeed show aspects of vendor stability and performance. It’s all necessary, and all important to do. No argument here.

But, most of these efforts focused on the quantitative side of the relationship. In many cases, what they did not get to is the qualitative side of the equation – how well is the vendor really performing in terms of meeting the institution’s strategic and operating requirements?

These days, when we are asked to work with any FI on looking at alternatives to systems, it very seldom is for quantitative reasons – vendor stability, financials, etc. At the end of the day, almost 100% of the time, it is because the FI does not feel that the vendor met commitments and managed the relationship well. And, when the incumbent vendor bids to keep the business, conversations always center on what went wrong with the relationship and how the vendor will promise to fix it. At that point, it’s usually too late for the promises to be credible.

But ask yourself this. If you have found yourself in this situation with a vendor, can you say that you managed the relationship well during the term of the contract, and that you proactively did everything you could from your side to manage the vendor’s performance to a better outcome?

Vendor performance management focuses on the qualitative side of the relationship as opposed to the quantitative. Here are some examples of “qualitative” issues FIs should manage with just as much formality and transparency as the more quantitative aspects of vendor management: 

• Do vendor releases meet commitments? If we go back to what was promised at the user conference, did they provide it? Or, was there scaling back of the scope of the release? Delays? Things that just didn’t get done? How clean and tested was the new version of the software?
• Does the institution have effective SLAs with its vendors that are fair, achievable, and protect its own service levels to customers? Are they measured and reported? Who follows up when they are not achieved?
• How quickly does the vendor escalate and solve big problems? Does the vendor get the same heartburn as the institution and does it demonstrate an acceptable level of urgency to correct problems? Does the vendor communicate regularly with the institution and provide a credible plan for correction? How many issues does everybody agree have gone on too long?
• Does the vendor have a long-term roadmap for the institution that outlines the reasons for and timing of a migration to another one of its products? Does that roadmap show that the vendor really thought about the institution individually? Or, are lots of ideas about better products suddenly presented 1-2 months prior to contract expiration?
• Does the account manager worry about and fight for the institution internally, or is he/she just overwhelmed and powerless?
• Does the vendor proactively discuss ways for the institution to save money on its invoice? Everybody can laugh at that question if they want to, but I always thought that a 15-year relationship with a slightly lower margin was better than a 2-year relationship with a higher one.
• Has the vendor ever proactively talked about how the institution can make or save money by just using its system better? Call this a usability audit or whatever, but has the vendor walked through the shop and pointed out better ways to do things (better yet, they yelled and got pushy about it)? Does the vendor point out where staff really, really needs to go to training? (Psssst. They’re right on this.) If yes, was it initiated by the vendor or did the vendor need to be dragged into doing it?
• Is there regular sharing of best practices among clients?

Most institutions probably manage some or all of these things. Too often, though, this effort is too informal, managed too far down in the organization, and seldom reviewed and analyzed in total. There is a real need to make this type of vendor management as formal and as rigorous as the current quantitative parts.

First, there has to be formal accountability for managing these issues, and it has to be as high, or higher, in the organization than the responsibility for vendor management resides now. Second, there has to be transparency – senior management should know when a vendor is not meeting qualitative standards and there needs to be action taken or escalation. Third, there needs to be some kind of scorecard or reporting mechanism that documents this.

Vendor management is good. Done right, it makes regulators and auditors happy. Vendor performance management is crucial. Done right, it saves relationships. (Note to vendors: that’s why all of this is good for you, not bad.)

It’s time to make sure we are focusing on the qualitative more than the quantitative part of vendor management. Financial institutions need a Vendor Performance Management Process.

And, for everyone still in the running for their company’s Perfect Attendance Award for 2013, a plea. Pull a Ferris Bueller…. soon…. please… it is nothing short of obligatory. Trust me on this. -tr

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