Well, the day has finally come.  The so-called “Mystery Vendor Manager” and primary author here at 360° Vendor Management, has formally joined forces with Horses for Sources, which this week announced its entry into the analyst industry with a unique vision and niche – Horse for Sources is the only BPO outsourcing analyst organization focused on buyers.  This is great news for our readers, as you’ll get the benefit of his close collaboration among a pretty amazing stable of BPO veterans that he has personally have come to know, including Phil Fersht (needs no introduction), Lee Coulter (famously interviewed here, here, and here), and Jason Busch (of SpendMatters fame), in addition to a variety of other deeply experienced outsourcing professionals and analysts that are equally talented.  It really is a great mix of analysts and practitioners.  SageCircle covered the announcement with an objective analysis here.

So, what should you expect?  More frequently blogging here regarding vendor management insights, significant use of social media (podcats, blogs, LinkIn, twitter), some interesting collaboration among other analysts, and, most importantly, the information you need to be a successful outsourcing vendor manager.

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Related posts:

1. How Relevant Is Forrester’s 2010 Sourcing and Vendor Management Roadmap?
2. Attention Vendor Management Professionals: 360VM is Back!
3. Outsourcing Governance and “Who Owns Supplier Performance Management?”

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What the $^^@#$ is supplier performance management?

Procurement?  Operations?  That’s exactly the discussion Tim Cummins relates in his latest discussion on relationships and vendors.  Evidently, at the close of International Association for Contract & Commercial Management (IACCM), the final executive roundtable debated this issue.  As Tim says, they “questioned whether it is a role that Procurement groups are equipped to perform.”  Clearly, it’s a hot topic, as Forrester’s Sourcing and Vendor Management analysts have put governance on their 2010 agenda.  In my opinion, vendor management organizations are a bad design, but what about Supplier Performance Management?

First, what is Supplier Performance Management, also known as Supplier Relationship Management?  Is it tracking contractual commitments?  Is it driving greater value and innovation from vendor relationships?  Is it hosting quarterly meetings with vendors?  We don’t have the foggiest clue because the definition is broadly different from organization to organization.  In fact, one could argue that SPM and SRM is nothing more than consulting babble or analyst hype because it clearly is not a well defined process, like inbound customer service or accounts payable.  What is the day to day life of a SPM/SRM leader?  Why did the organization even create a SPM/SRM team?  Was it failure of one team to track the contractual commitments of a vendor?  Or was it the need to find greater value in existing relationships through broader, more strategic dialogue?

Who knows.  And I’ve read the literature available from analysts and consulting firms.  Outsourcing advisors call the function governance.  Manufacturing companies call it supplier relationship management.  IT organizations call it vendor management.  Procurement teams call it supplier performance management.  No one is in agreement on the name or the responsibilities.

What is clear is that there is a real need for companies who rely on strategic vendor relationships to manage these relationships from a perspective of value.  However, how do you do that?  What do you do in January?  In August?  In December?  The third week of the month? How often to do you talk with vendors?  What are the topics of discussion?  What is the benchmark of a strongly performing SPM/SRM team?

Given the complete gap of substantive literature, I would like to invite your comments on what goals a SPM process has and how it should achieve its goals.  I will consolidate your feedback and, for those who contribute in a meaningful way (meaning more than a sentence or two), I will provide the analysis.  For a simple of investment of 10-15 minutes of your time, you’ll get a free consolidated perspective.  And, if you’ve been reading the blog for a while, you know this will be a high quality perspective.

Providing me you thoughts is easy: either leave a substantive comment below or email me at tony (at) 360vendormanagement (dot) com

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Related posts:

1. Offshore Outsourcing Vendor Governance Organizations
2. Outsourcing Metrics: Key Performance Indicators
3. Desperate Measures Include Outsourcing?

Well, the end of 2009 is quickly approaching. Except for the yearend rush of outsourcing vendors trying to claim a final sign-on bonus or their potential clients trying to book severance into 2009’s blood-lined financials, there’s not much left to do, but prognosticate on what 2010 will hold for vendor management and outsourcing governance teams and their offshore and onshore vendors. So, please pardon me as I share my predictions for 2010.

Quickly, before I get started, lest some troll find my opinions worthless, I would like to warn said troll that, indeed, my opinions are worth as much as you paid to read all the great FREE content I’ve shared with you in 2009. It may be worth far less than the Indian outsourcing paparazzi’s opinions, but, with a little luck, they could come true.

So, without further ado, I bid adieu to 2009 and predict these 10 mighty events will occur in 2010:

1. After testing outsourcing’s shallow waters, companies new to outsourcing will cliff dive into the deep end without further investment in governance, only to find that pool parties should be supervised by a lifeguard and that the pool is more shallow than they think.

Struggling with an economy in transition which caused companies to ration investments, leadership at companies who tasted a tiny bit of outsourcing success will heavily outsource in 2010. Since their outsourcing efforts started small, they didn’t consider investing in outsourcing governance, vendor management professional development, or in advisors. They’ll think outsourcing is easy, and multiple streams of outsourcing will be initiated.

Because of the financial realities of 2010, these companies will skip developing smart price per transaction models and rely on fixed monthly amounts or, in moments of real desperation, hourly models. Again, without investment in governance, vendor management, or advisors to keep things in check.

These companies will find that a) success is not easily replicated, b) that not everything can or should be outsourced, c) that it takes real vendor management and governance skill to ensure vendors perform and companies get what they want, and d) that multi-stream outsourcing is a real challenge to manage without dedicated governance resources in leadership positions.

2. Companies that outsource Tier 2 and Tier 3 services will struggle with developing advanced skills.

Most operations leverage their Tier 1 or simple programs as feeder programs for complex programs. For example, experienced call center agents are promoted to escalation queues or application development testers become business process analysts. With expanded outsourcing programs, companies who planned to keep complex or high-touch processes in-house will struggle with developing their staff. Combined with the higher expense of recruiting experienced staff, companies will experience higher costs and more quality issues while they sort out how to build development programs or bring some work back in-house to rebuild feeder programs.

3. Vendors Will Deploy Governance Applications to Improve Client Governance

Up to this point, the companies selling a new category of applications that automate reporting and workflow (like Janeeva, Digital Fuel, and Enlighta) have focused on the buyer-side of equation. While some companies have purchased this software, most do not. Instead, they find themselves in an Microsoft Excel-induced reporting nightmare (made more hellish by the lack of management processes). Since most companies don’t invest in governance applications, vendor performance isn’t visible – and those high performing vendors are sick of taking the heat for their lower performing competitors. High performing vendors will invest in governance software and deploy it to their customers to aid the governance process and make their stellar performance visible. It will also provide alternative revenue streams as clients request integration of multiple vendors into the same application. Sometime after 2010, governance software will be provided as part of outsourced services, with no additional charges.

4. Someone, somewhere will offer outsourced vendor management services and a frustrated client will go “all in” – the final move in abdication of responsibility.

Allow me to coin a new term, Vendor Management Organization Outsourcing (VMOO), which also has an easy to pronounce verb version: to “vmoo” or “vmooing.” In 2010, the big outsourcing companies, like Accenture and IBM, will begin to market VMOO solutions. They will explain the incompetence of vendor management organizations (which, I have argued, should not exist), link this incompetence to it’s competitor’s performance, and build the case for managing other vendors for companies. In 2010, someone with a moderately complex, underperforming vendor portfolio will will outsource their VMO – leaving a vendor to manage their vendors and clients. The skeptics will call it a lobotomy.

5. Companies will leverage the cloud and move away from customized processes.

Cloud computing is at its hype cycle zenith. However, for non-core processes, it simply makes sense. HRO, FAO, and Procurement are all prime areas for cloud computing. Companies struggling with justifying capital expense related to purchasing and customizing these systems will seek solace in cloud computing models and vendors in this space will begin to provide software as part of their solution.

6. Companies will contract Innovation, not outcomes. At least a few will.

In a shift away from hourly rate, price per transaction, and outcome-based pricing models, Companies will begin to contract for innovation and transformation with their outsourcing vendors. This will also be the result of companies who have mature outsourcing programs, but need to change their operations to remain competitive. This will set the groundwork for sharing the costs and benefits of innovation and transformation.  I admit this is an optimistic prediction, so maybe I wont go 10 for 10…

7. Companies will continue to struggle to justify the expense and politics of governance.

I don’t think 2010 will be the breakthrough year for companies to invest in specialized outsourcing governance organizations. Sure, advisory firms will hype the “retained organization” and governance teams, but companies will continue to have great difficulty defining and measuring the meaningful outcomes these teams create. Consequently, they will have difficulty elevating the role of outsourcing governance leaders. To be clear, I’m not suggesting the outcomes don’t exist. Rather, I believe 2010’s lack of investment will culminate in a groundswell that will bring governance to most organizations in 2011. In the meantime, beware the outcomes of underinvesting in governance.

8. IT will continue its life and death struggle to innovate, creating more demand for transformational business process outsourcing – and therefore creating even more headaches for IT as they struggle to integrate with vendors’ systems.

Up to this point in time, most outsourcing of business processes has been labor arbitrage focused – leveraging lower cost labor using the same business processes and applications with some minor process improvements. Offshore call centers have leveraged their clients’ legacy call handling technologies, document workflow processes have leveraged workflow systems, and complex back office processes have leveraged their financial, supply chain, and customer service applications. However, these companies haven’t reinvested in their technology or product development teams, who are also struggling with outsourcing their own teams.

Exhausted by the slow pace of innovation, business owners will make decisions to couple business process outsourcing with technology outsourcing. Expect more vendors to provide applications and IT organizations to struggle mightily with the complexity of integrating and governing multiple vendors’ applications. Cloud computing may appear simple, until you need to integrate your F&A vendor’s system with your BPO vendor’s CRM system and your infrastructure’s vendor’s network.

9. Clients get smarter, do more deals themselves; Advisors pitch valuable niche services and “fluffy” theoretical services.

With the resources and training available from the IAOP, expect more clients to do their own outsourcing deals. After all, their budgets are tight and they have the ability to leverage contracts and selection processes used in prior outsourcing deals. If clients do need an advisor, expect the independent and smaller guys to play bigger roles. The exception will be the large IT renegotiations, where advisors will continue to earn their keep.

This will leave advisors with small, high value projects, like benchmarking, vendor screening, and contract reviews. Advisors will see a dip in revenue and will attempt to hype intangible projects, like designing governance organizations, “vendor diagnostics,” and price structure benchmarking.

10.  Clients stare geopolitical and vendor risk in the eye – and blink again.

After weathering a terrible economic year and terrorist attacks all over the world, while witnessing the demise of Satyam, companies have heard plenty about diversifying their vendors and geographical footprint. Still, don’t expect clients to heed the warnings. Barring an Indo-Asian nuclear war or a Philippine coup, there won’t be interest in diversification. The pundits will exclaim, “The big one is coming,” but until a major event occurs, don’t expect IT and operations to change a thing.

What?  Your crystal ball tells you something else?  Share you comments with the community of thousands of vendor management and outsourcing professionals that visit 360° Vendor Management by leaving a comment below.

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Related posts:

1. How Relevant Is Forrester’s 2010 Sourcing and Vendor Management Roadmap?
2. Outsourcing Governance and “Who Owns Supplier Performance Management?”
3. Offshore Outsourcing Vendor Governance Organizations

Will the Forrester Research 2010 Roadmap for sourcing and vendor management professionals get you to where you need to go?

I’m always interested in the professional analysts’ take on sourcing and vendor management.  Paid pundits who spend as much time with paying buyer customers as they do with their pandering vendors’ analyst relations teams should have an interesting look on the industry, right?  For the moment, we’ll ignore the ability of analysts to be objective (such as the alleged charges against Gartner or the open hiring of analyst relations professionals with the intent to “get better placement on key reports”) or the desire by analysts to replace superstar sensationalists with “ambitious” replacements.  Let’s look at the work they intend to do in the vendor management space.  And, since Forrester was kind enough to openly ask for feedback on their 2010 Roadmap, they get my constructive feedback.

In a nutshell, Forrester has four goals: “what’s new”, “next level” governance, improving category expertise in particularly narrow IT areas, and building tools and templates following the hit “Vendor Scorecarding” template they published this year.

We Care About Developments

I definitely am interested in new pricing models, models of service level agreements, and emerging vendors.  The more we can learn about this, the better.  However, I wonder how “new” these items could be.  While there is definitely a shift to transaction-based pricing in BPO and outcome-based pricing in ITO, I’m not really certain there is going to be something downright innovative about pricing in 2010.  The same goes with SLAs.  Frankly, this sounds like the potential for a more rehashing of what we already know.  Emerging vendors, on the other hand, sounds like a great topic.  However, does the Forrester have more of an appetite for plotting emerging vendors in a competitive light than Gartner’s legendary Magic Quadrant analyses, that rarely paint an emerging vendor in an extremely positive manner?

Governance, Governance, and Governance

Getting the value from an outsourcing relationship is definitely a hot topic we should all care about.  In addition, we should care about how we organize around ensuring vendors’ performance meets expectations.  The more metrics, the merrier.  Anything that advances the cause of vendor management as a profession and core skillset is good for everyone.  Of course, I’m skeptical about highlighting IT organizations’ outsourcing governance efforts, as this is the area that needs the more help.  However, sharing best practices is a good thing.  Forrester: give us governance research.

Do Not Bore Us With Uninteresting Topics

Outsourcing professionals shouldn’t care about telecommunication, software, and hardware contracting.  Instead, get your procurement team to hire an expert or bring in an advisor or consultant to handle telecommunication and hardware contracting – items that should be done once every year or so and then simply tracked against contract goals.  You simply wont source enough of these contracts to beat an expert in this area.  Software? Hire a software procurement hire an expert and a good lawyer.  Forrester, publish some outsourcing contracts if you really want to provide some value to outsourcing professionals.

Templates, Why Not?

Personally, I prefer to use trade organizations to swap templates.  If you’re part of IAOP, use LinkedIn, or are an active networker, you should be able to get what you need – with enough variety to illuminate interesting areas and different approaches.  However, it never hurts to have another template.  However, I wonder if this is more about Forrester providing tangible value to their customers – a template spreadsheet is more useful than an article on as scintillating a topic as getting more value from offshore vendors, but only allocating 3 pages of content to it.  Sure, its good to provide templates.  It’s just not differentiating.  Heck, the Forrester vendor scorecard template is a mere 178k size Excel file.  How great could that be?

Definitely Not For the Business Process Outsourcing Professional

To be clear for those who don’t know, Forrester’s SVM team is decidedly focused on IT with a rare focus on BPO.  In fact, one could even question how much true vendor management research Forrester even publishes.  Check out the last 10 posted articles from the SVM team:

• Cut Mobility Costs By Classifying Users (12 pages on cellphone and data card usage)
• Sourcing Professionals Need To Understand The Changing Requirements Of Users (a 11 page look at smartphone and computer usage)
• Sourcing Pros: Don’t Forget About Your Friends In Enterprise Architecture (7 pages on enterprise architecture vendors)
• Status, Challenges, And Near-Term Tactics For Cloud Services In Enterprise Outsourcing Deals (13 pages on cloud computing)
• Do Your Software Contracts Permit External Use? (8 pages, with the presumptive answer of “if not, they should”)
• Looking Beyond Global Providers For SAP Services (6 pages on SaaS)
• Refresher Course: Hiring VARs (12 pages that outsourcing professionals don’t need to read)
• Top Strategies To Ensure Continued Value From Offshore Services (a 3 page research article priced at $499 – how good can 3 pages be?)
• The Forrester Wave™: Oracle Services Providers, Q4 2009 (probably a lengthy, uninteresting article on Oracle SaaS and integration vendors)
• European Offshoring Shows Moderate Growth (5 pages of IT-related content that only a vendor could care about)

That’s almost entirely technology focused.  Admittedly, there are some other articles older than these that could be interesting, but they are decidedly IT-focused and likely not of interest to BPO vendor management professionals.  Exactly how committed to BPO is Forrester?  It is not.  However, ITO vendor management professionals could benefit from some of Forrester’s analysis, for sure.

What I Want From Forrester in 2010

Here’s what I want from Forrester as it relates to vendor management and outsourcing:

1. BPO – Damnit, cover the area will you?  Call centers, data entry, backoffice data entry and transaction processing work.  Industry solutions, functional solutions, countries of choice, and political landscapes.  Someone needs to…
2. Driving Innovation – Take a leadership position in ensuring that outsourcing relationships focus on evolution and innovation, lest they run the risk of being terminated for questionable value in inflexible contracting.
3. Professional Development – Research how to develop a vendor management professionals, provide guidance on sources of knowledge, and advise us on how to take career operations and IT managers and transform them into vendor management professionals.
4. Transparency – Publicly share the revenues you collect from vendors.  I dare you to make us less skeptical of your potential economic biases.  Cloud computing, SaaS, mobile computing, and web 2.0 are at the zenith of the hype cycles – why?  Props to Vinnie Mirchandani’s comments on the topic.
5. Connecting Customers – Use online forums, moderated Q&A, in-person conferences to create networking opportunities for buyers to connect with other buyers, vendors to connect with other vendors, and everyone to network with each other with a strict non-solication policy.
6. Benchmark Key Contract Provisions – Service level risk caps, termination options and costs, key vendor personnel,innovation, intellectual property ownership, and price benchmarking clauses.  That would be interesting to outsourcing professionals.
7. Update Your Outsourcing Tools – Not one useful “Offshoring Tool”, “Outsourcing Tool”, or “RFP and Vendor Selection” has been published in 2009.   Actually, only two items were published in these three categories in 2009, and neither is useful unless you work for one of the last companies that haven’t used a managed service provider to manage contingent IT labor.  And, is that really outsourcing or temp labor?
8. A Vendor Management Forum – There isn’t a single forum scheduled for 2010 that could be of interest to a vendor management professional.  Although, I will note that in the one forum which could be of interest, the 2010 IT Forum, at least in terms of what’s available online as of the date of this posting, you’ve done a fine job scheduling vendors to deliver key presentations despite not scheduling any customer-led talks….

Bottom Line

Forrester Research is a fine firm, but the 2010 roadmap offers little for the BPO vendor manager.  For the ITO vendor manager, Forrester could address the high level items fairly well, but Forrester has some room to grow still – maybe their 2010 roadmap ought to address some additional areas?  Frankly, if compared to the Gartner’s outsourcing analysis, Forrester may have some very insightful analysts, but their offering isn’t as compelling.

What?  You feel differently?  Share you comments with the community of thousands of vendor management and outsourcing professionals that visit 360° Vendor Management by leaving a comment below.

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Related posts:

1. Outsourcing and Vendor Governance Predictions for 2010
2. The Horse’s Forecast for Outsourcing in 2010
3. A Cozy Stable for Outsourcing Vendor Management Professionals

Tim’s article on the complexity of contracting exactly relates to what I’ve seen in outsourcing: a basic legal framework with innumerable details memorialized in hundreds of pages of schedules.  The schedules are drafted by technical experts who generally lack any understanding of contracting.  Consequently, Tim argues,

In IT, outsourcers often bid low initially in the belief that they will later be able to improve margins by exploiting the contract’s or customer’s deficiencies. The obvious point to make is that once the contract is signed, it’s set in stone unless both parties agree its variation. So, if contract development or negotiation is rushed, it’s guaranteed that many unpleasant and costly issues will arise after the paperwork has been signed.

Tim is dead-on accurate.  Many schedules, like service level and pricing schedules, are drafted by authors with very limited contracting experience and very often rushed.  These areas then turn into change orders (aka “death by a thousand cuts).

Tim’s article is a very worthy read.

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2. Offshore Outsourcing Vendors, Customers, and Advisors: They Should Know Better
3. The Black Book of Outsourcing – Invaluable Resource or Red Herring?

Does Your Offshore Outsourcing Governance Organization Design Support Your Organizational Objectives?

So, I’ve definitely been stirring the pot over the last few weeks.  I’ve exposed the errors in the much celebrated Black Book of Outsourcing, shown that the business of outsourcing certification is big business, and explained why vendor management organizations are a bad idea.  This much skepticism could be a bit karmically unhealthy, so let’s turn the attention onto something you actually really need: a vendor governance organization.

Simply put, you need a vendor governance organization to centralize the biggest decisions confronting companies that chose to outsource.  The type of decisions that you shouldn’t decentralize.  For example, aligning outsourcing with corporate strategy, identifying outsourcing opportunities, sourcing vendors and negotiating ensuring outsourcing projects deliver their intended value, mitigating outsourcing risks, and driving innovation.  All the local, day-to-day decisions should be made by resources tasked with vendor management in operations and IT departments (not VMOs, for these reasons).  Here is a table that compares the responsibilities of a VGO and vendor management resources based on Bain’s RAPID decision making model, published in the Harvard Business Review:

Vendor Governance Roles and Responsibilities

As you can see, a vendor governance organization should be fairly small, as the activities it manages are relatively small.  In larger organizations, where there are numerous vendors and regular RFPs, the VGO could be moderate in size.  Still, the operations teams should take the primary responsibility for a wide variety of activities.

Thoughts on the Vendor Governance Organization

• Leadership – Despite the small size, the vendor governance organization should be run by a very experienced, very senior leader.  At minimum, this is a senior director role, but should more properly be a vice president role.  The seniority is necessary due to the interface with senior leaders, interface with operations leaders who are often directors and vice presidents themselves, external perception of the vendors, and external communications/networking organizations.
• Structure – The team should be also fairly flat, filled with senior level individual contributors, except where multiple sourcing functions exist (ITO, BPO, F&A, HRO), where leads may represent governance of each of these functions.
• Organization Size – Generally speaking, a single senior individual contributor can manage 1 large vendor’s single outsourcing function or 2 moderately-sized vendors (if the vendors have been established for a reasonable period of time).  If there are multiple outsourcing functions with a single large vendor, one FTE should be assigned for each function.  If there are numerous small vendors, consider limiting span of governance to 1 FTE  to 3-4 vendors, assuming there is little effort required to govern the vendors and the vendors are of inconsequential importance to the company and have longer tenure.  Newer vendors require more attention.
• Organization Reporting Structure – A vendor governance organization should report to a direct report of the CEO.  In other words, it should report to a COO, CFO, or other CxO, except in very large organizations which have regional or product line structures without matrix support (e.g., North American Operations is self contained with its own finance, HR, and legal function and directly reports to the CEO).
• When Other Organizations Lack Skills – In situations where the internal organizations lack certain skills, it makes sense for a governance organization to temporarily provide the necessary talent.  This can be done using outside resources (advisory firms, outside law firms, consulting companies) or by hiring talent with the right skills.  If using outside resources, be sure to obtain buy-in from partner organizations you are supplementing.  For example, if your procurement team lacks the skills to run an outsourcing RFP, check with them first – it may be that the talent is there, but you’re not aware of it.  If you’re hiring talent, be sure there is a long term career objective that the resource and the company agree upon.  For example, hiring a skilled resource that wants to run RFPs, but there are no RFPs in the future, it doesn’t make sense to bring that resource onboard.

Do you have feedback or thoughts?  Share them with the thousands of other vendor managers and outsourcing governance professionals that visit our site by leaving a comment below.

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Related posts:

1. Another Tale from “When You Don’t Have Vendor Management Governance”
2. In the Absence of Outsoucing Governance or Vendor Management
3. Vendor Management Organizations Are a Bad Design

Right from the horse’s mouth, as one would say.

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3. Vendors or Partners?

Does Your Vendor Management Organization's Design Serve the Enterprise?

For some, vendor management organizations are a silver bullet that solve all problems.  For others, vendor management organizations are the source of internal strife.  Bottom line, for many organizations, they are a terrible solution.  They hoard decision-making ability, distance ownership of execution and delivery from stakeholders, and focus on narrow contractual goals instead of broader strategic objectives.

An Artifact of Historical Scarcity

There was a time, a long time ago, when the challenges of outsourcing required a specialized vendor management organization.  Your procurement organization lacked the skills to source outsourcing suppliers, and they rarely displayed the ability to partner with suppliers to achieve long term organizational objectives.  Your operations team had sufficient conflicts of interest that a team with the incentive to make outsourcing succeed was needed.  Your IT and operations team didn’t know how to work with outsourcing vendors.  The complexity and effort required to transition operations required dedicated staff, lest you not achieve your other business objectives.  Your leadership team wanted closer line of sight to management decisions.  You didn’t have sufficient vendor management process or skills.  Maybe there was organizational conflict where the CIO and the CPO didn’t agree.

So, vendor management organizations were an artifact of experience and knowledge scarcity and the need to control decision-making.  Born was an organization that needed it’s own sourcing, contracting, project management, vendor management, strategy, financial analysis, and operational management skills.  It’s objectives could be defined by vendor achievement of contractual service level agreements and, more strategically, the achievement of corporate EBITA and innovation objectives.  It managed a broad group of internal stakeholders, including human resources, IT, procurement, legal, operations, public affairs, corporate communication, sales, and finance.  All groups leveraged the centralized VMO to facilitate decision-making and execution of outsourcing decisions.

Listen to Forrester Research’s Vice President John McCarthy’s comments on “best practice case studies for vendor management” durin the 2007 Services And Sourcing Forum in Orlando:

Wow, these are complex jobs.  Listen to John list all the reasons for VMOs and the stakeholders they serve.  And that was before politicking began…

Let Internal Warfare Begin

How aligned are your stakeholders with your VMO organizational design?

Where the VMO resided was a subject of major corporate politicking.  Initially, it was easy.  CIOs wanted to own IT VMOs.  COOs wanted to own BPO and supply chain VMOs.  CFOs wanted to own F&A and indirect procurement VMOs.  HR leaders wanted to own HRO VMOs.  At a more lower level, call center executives, application development and maintenance, IT infrastructure, and every sub-organization created their own VMOs.  The politicking began when the COO or CIO had more than one VMO.  Who would own it?  The app dev VP or the infrastructure VP?  Or would they create a standalone VMO to “rule them all”?  Or  one governing VMO to manage the sub VMOs?

It became more complex when the COO and CIO shared the same vendors.  Companies, like Accenture, with their strong back-door selling (you’ve seen this excellent back-door selling training company, right?) ran circles around CIOs and COOs whose teams couldn’t get organizationally on the same page regarding strategic initiatives.  They had better information than their competitors and limited companies’ decisions by plying this information with internal stakeholders to influence outcomes.  Companies realized this was going on, and sought enterprise VMOs to centralized decision-making.

And then organizations that shared the same functional sub-responsibilities clamored for centralization.  Procurement asked to source and contract outsourcing vendors.  Legal asked to own the outside counsel relationships that supported outsourcing contacts.  Global workforce management teams asked for management of vendor call center personnel.  Contingent labor vendor management organizations wanted to leverage offshore IT labor, too.  Project management offices asked to lead the outsourcing transitions.  Operations leaders, on the line for service levels, performance, innovation, and customer service, asked for greater control over vendor management decisions related to their organizations.

At this point, the VMO was in an impossible position.  It’s once strategic role was being challenged by operations and IT executives who were directly responsible for execution – the problems outsourcing vendors were experiencing, in part due to the internal communication challenges of independently operated VMOs, were causing operations and IT executives to miss goals.  Functional organizations had evolved, bringing more outsourcing experience to HR, Legal, Finance, and Procurement – and these groups wanted to own their functional responsibilities for the entire enterprise, without exceptions for VMOs.

Applying Organizational Design Theory

First, it’s important to realize that organization structure is made-up of 4 key elements (John Child, Organization: A Guide to Problems and Practice, 1994):

1. Assignment of tasks and responsibilities that define jobs
2. Clustering of positions into groups and groups into departments and departments into the broader organizational structure
3. Mechanisms to facilitate top-down and bottom-up communication
4. Mechanisms to facilitate cross-functional coordination

One can quickly see that compromises in clustering (step 2) require more cross-functional coordination.  Structurally, this coordination is created by matrix organization structures.  These matrix organizations go through several structural stages (Richard Hackman and Greg Oldham, Work Redesign, 1980):

1. Traditional structure (the starting point)
2. Temporary overlay, which managerial roles are created to run particular projects, like transitions and implementations
3. Permanent overlay, in which the managerial roles created in the 2nd step become permanent
4. Mature matrix, in which the roles permanently created in step 3 have equal power to the traditional structure

The organizational problems arise in step #3 when the VMO becomes permanent and then shift to a mature model, which requires power sharing.  Traditional structure leaders are challenged to share power, which takes the eye off the strategic objectives of the company.  Also, as outsourcing becomes more pervasive in an organization, matrix designs become more widely adopted by an organization.

This is exactly where the largest strategic problem lies.  Danny Miller matched strategies similar to Porter’s strategies with the best organizational structure:

Matching Vendor Management Organization Structure with Organization Strategy

As few organizations have innovation as their primary corporate strategy, they aren’t structured into a matrix organization.  Pervasive use of outsourcing using VMOs arranged in matrix organizations create significant problems because they cause the company to inadvertently change  structures, taking away focus from corporate strategy.

What You Should Do

The bottom line is that vendor management organizations should only be created when the skills and experience don’t exist in a company at the beginning of an outsourcing initiative.  It should be temporary, designed to develop the skills and experience necessary to implement outsourcing projects and manage vendors.  At some point, the day-to-day line responsibilities of the VMO should be shifted back into line organizations, where line managers take responsibility for delivery of objectives by managing vendors to achieve the goals.  Since the service level agreements in the contracts should meet the needs of these organizations, there should be little concern – these organizations should be managing performance and reporting on results already.  The staff responsibilities should be shifted back to the staff functions (procurement, legal, HR, and finance).

The only responsibility that should remain centralized is outsourcing governance.  This governance function, as described in the IAOP OPBOK, should focus on rules of engagement, encouraging cross-functional communication, project prioritization, initial project implementation tracking, high level interdependent planning among divisions/departments and vendors, evaluating enterprise-wide vendor performance, and the sharing of outsourcing best practices.  That means the other 9 categories of responsibilities defined by the IAOP should be temporary or distributed through other organizations.

Counter Arguments

Outsourcing advisors and experienced clients may disagree with the recommendation above.

There may be situations where outsourcing for cost reduction reasons is an imperative and such should be centrally managed to ensure EBITA objectives are achieved.  I wouldn’t argue against this, except to suggest that even this should be temporary and that, at some future point, the organization work toward developing the vendor management competency in all parts of its organization in order to deliver on its new reality – outsourcing isn’t just a project, it is a long term manner of delivering, and decentralizing the management of its delivery mechanism outside of the delivery leadership makes little long term sense for the reasons listed above.

There may be situations where the focus of outsourcing is sufficiently large such that few internal operations remain.  For example, I worked for a west coast savings and loan bank fifteen years ago that had exactly six IT employees – the CIO, his admin, his VP of strategy, and some assorted junior staff members.  The rest, including most leaders, were entirely outsourced.  In this case, staff functions should still be allocated to procurement, HR, and legal organizations, but the day-to-day line vendor management responsibilities should be centralized.

Some people may argue that managing a matrix organization is the role of an outsourcing VMO.  That’s great, but see all the problems listed above.  Why go through that if you don’t need to?

Finally, some people would simply argue that outsourcing management and vendor management skills are insufficiently available within an organization to distribute the responsibilities.  Well, it is absolutely the responsibility of any organization undergoing an outsourcing transformation to take this internal development opportunity seriously.  Upgrade talent, use training organizations to build skills, and seek professional development at major organizations to develop your staff.  Simply housing the talent in a single organization is destined to failure in the long run.

Related posts:

1. Offshore Outsourcing Vendor Governance Organizations
2. Outsourcing Vendor Management Organizations
3. Outsourcing Governance and “Who Owns Supplier Performance Management?”

Outsourcing Education is a Big Business

It is highly likely that you’ve sought professional development to improve your vendor management and outsourcing management skills. There are very, very few resources available to vendor management and outsourcing professionals.  As a result, you’ve probably encountered a few companies out there that specialize in training for vendor management professions.  Have you noticed the pricing?  Developing certifications for outsourcing professionals is definitely a big business.  Is it worth the investment?  If so, which should you select?  Let’s delve into what’s available and whether it is worth the money.

There are a two primary professional outsourcing certifications available: the International Association of Outsourcing Professionals’ (IAOP) Certified Outsourcing Professional (COP) and the Customer Operations Performance Center’s (COPC) Vendor Management Vendor Management Organization Coordinator (referred to as the VMO coordinator).

IAOP Certified Outsourcing Professional

The IAOP touts itself as the leading outsourcing certification organization.  Indeed, they are the only organization with significant reach within the advisor, client, and vendor community (over 40,000 members).  The organization is young, founded in 2005, and is run by a single chairman, Michael Corbett, and a strategic advisory board made up of a who’s who of advisors, vendors, and clients, including Booz, CB Richard Ellis, American Express, Accenture, Liberty Mutual Insurance, PWC, and Accenture. There are also a wide variety of official committees devoted to developing the IAOP’s reach and goals with a similar footprint of big name firms.  These networking opportunities provide outstanding value.

The COP certification requires a professional experience, education/training, and completion of an exam – 150 points must be earned.  In terms of professional experience, the application requires the candidate detail experience in 10 end-to-end aspects of managing and outsourcing engagement.  In each of these 10 categories, the candidate earns 5, 10, or 15 points based on the number of projects and companies at which the category’s experience has been earned (5 for one project, 10 for two projects, and 15 for 3 projects and two companies).  Earning the 50 minimum required points is relatively easy if you have worked in the vendor management or outsourcing space for a year or two.  The requirement to demonstrate experience gained at more than one company to earn the 15 point award in each category means that most people who have earned their experience at a single company will be limited to 100 points.

Earning education points (up to 100) is far more difficult.  A post-graduated degree in a business-related field is worth 25 points.  Completing the “COP Master Class” is worth 75 points.  Passing the COP exam is with 25 points – something you’ll need to do anyway if you want the certification.  In short, many people will be required to take the COP Master Class unless your outsourcing experience is broad and deep.  It is important to note that vendors, advisors, and clients all take the same exam and master class.

The COP Master class is offered in two formats: a four day $3,500 ($3,000 for members and less for member’s with corporate status) in-person training class or an online $2,995 training class requiring 35-40 hours of work.  No doubt, the “budget” online training class is more popular because of the lower cost, especially given the cost of travel expenses.  Of course, those who forgo the in-person class lose the greatest value of the class: networking.

The COP exam is a 200-question, 3.5 hour online exam requiring that you get 70% of the questions correct.  Material is taken directly from the Outsourcing Professional Body of Knowledge (OPBOK), a 321 page PDF available to members that covers end-to-end outsourcing from client, vendor, and advisor perspectives.  Th OPBOK was last published in January 2008 and is on version 8.

The COP certification is costly to earn.  Here is a rundown of costs

1. $395 – Membership in IAOP
2. $600 – Application and Exam
3. $3,000 – COP Master Class (in the USA, prices vary in other countries) – required if you don’t earn sufficient points in other areas
4. $800 – Governance Workshop (optional), provides 15 more points to toward the COP certification
5. $250 – Online Exam Prep Workshop

(Note: the IAOP offers a bundle of the Master Class, Governance Workshop, and Online Exam Prep Workshop for $4,300)

So, here’s how it breaks down assuming all candidates take the Online Exam Prep Workshop and a post graduate degree:

If you can earn 100 points through a combination of experience, you will not take any additional classes and will pay $395 + $600 + $250 = $1,245.

If you can earn 85-99 points through a combination of experience, you will take the governance workshop and pay $395 + $600 + $250 + $800 = $2,045.  You could take the master class instead, for an additional $2,200.

If you can earn 50-84 points through a combination of experience, you will take the master class and pay $395 + $600 + $250 + $3,000 = $4,245.

If you have experience worth less than 50 points, you can’t qualify for certification because the combination of post graduate experience, classwork, and the exam cannot exceed 100 points.

If you do not have a graduate degree, here’s how it looks:

If you can earn 125 points through a combination of experience, you will not take any additional classes and will pay $395 + $600 + $250 = $1,245.

If you can earn 110-124 points through a combination of experience, you will take the governance workshop and pay $395 + $600 + $250 + $800 = $2,045

If you can earn 50-109 points through a combination of experience, you will take the master class and pay $395 + $600 + $250 + $3,000 = $4,245

If you earn less than 50 points, you can’t qualify for certification because the combination of post graduate experience, classwork, and the exam cannot exceed 100 points.

Of course, the IAOP has certified other organizations to provide training through it’s Bridge Program.  Colleges, companies, and private trainers pay the IAOP to first assess their classes for $1,500 for the first 3 courses and $250 for each course thereafter.  Courses must be recertified every 3 years.  So far, Duke offers 2 courses (only one provides 25 COP designation points), the University of St. Thomas in Houston offers 1 class worth 25 COP designation points, and Open Source Development LTD offers 3 classes, none of which count toward COP certification.  Luckily, the IAOP provides points if you attend one of their conferences.  The World  Summit ($1,400 in 2010) is worth 8 points and the Asia-Pacific ($1,200 in 2009) and Europeans ($? in 2009) summits are worth 6 points each.  The Global Human Capital Forum ($700 in 2009) provides 3 points.

Once a member, 20 continuing education credits are required each year.  You can do so by taking the classes (why you would retake classes, I don’t know) or attending the conferences above, as well as attending IAOP chapter meetings.  So, unless you can also speak or teach classes, which is worth 2x the normal 1 credit per hour rate, you’re going to need to take a class or two each year to keep your COP certification.

Phew.  That’s complex.

The IAOP COP certification all quickly adds up to a pretty spendy proposition if your company isn’t sponsoring.  Essentially, count on spending $395/year + continuing education credits you need + certification and, ever two years, recertification for another $50.  Throw-in some travel to attend conferences and classes, and you’re talking a pretty significant investment.

If your company is sponsoring you and not taking a corporate sponsorship, it adds up if a number of people need certification – after all, how many people manage outsourcing vendors at your company?  If you work for a reasonably large company too stingy to take out corporate membership (price is negotiable), then you could easily be talking $60,000+ for the first year for 15-20 people, and another $20,000-$30,000/year thereafter.  And then, what do you have?  A group of people who understand outsourcing 101?

Have no doubt this: The business of outsourcing certification is big business.  Take 40,000 members (the current stats are “100,000+ members and affiliates”) spending $2,000/year annually, and you’re talking about IAOP being a $80M business.  And, that’s just the member dues, fees, and classes.  Add to that master COP training (for train the trainer) and, as any impartial observer would note, vendor sponsorship fees.

That’s right, vendor sponsorship fees.  Look at the 2010 World Summit Agenda and note that the opening is sponsored by Accenture, numerous networking events are included (where vendors, at least at other events, pay for the opportunity to mingle), and the event itself is prominently sponsored by Accenture, CBRE, Colliers International, and Booz in the literature.  Browse the IAOP website, and you’ll find advertisements from a number of vendors.  On my screen right now, there’s NCS, Insigma, DataPipe, North Dakota Chamber of Commerce, Infosys, and DNL Global.  Each time I browse another page, another group of vendors’ ads revolve.  The IAOP takes the most bizarre move in actually rating the top 100 vendors.  Why bizarre?  They are supposed to support the industry, so why do they only rate vendors and not their other constituents?  Why not customers or advisors?  Oddly, comparing the Black Book’s top 50 in 2009 (which, as we’ve analyzed, is fairly unbiased, although a poor example of a good analysis) to the IAOP’s top 50 in 2008, 30 of the Black Book’s vendors are not in the top 50.  Why are the ratings so different?  I don’t know, but could it be that a leadership partially made-up of vendors has some biases that cannot be removed?

COPC’s VMO Coordinator

The COPC takes a completely different tack and a more narrow niche.  The COPC focuses on customer transaction processing, including call center and backoffice processing.  It would not be appropriate to apply to IT outsourcing categories.  The focus is actually on certifying an organization to one of two standards: the Customer Service Provider (CSP, for vendors and internally run operations) or Vendor Management Organization (VMO, for vendor managers).

The COPC was founded in 1996 and built it initial CSP standards in collaboration with a number of companies who saw a mutual need for a performance standard.  They are based on the United States’ Malcolm Baldrige National Quality Award.  It is an independent, privately run company that does consulting-type work.  In 2001, when outsourcing began to influence how operations were managed, the COPC developed the VMO standard.  The standards address the specific processes that CSPs and VMOs must use to meet the expectations of internal stakeholders, vendors, and customers.  So, unlike the IAOP COP, which focuses on high-level outsourcing “what’s”, the COPC’s CSP and VMO standards address the detailed “how’s”.  For example, the COPC addresses how to audit vendor quality, how to forecast transaction volumes, and how to handle business continuity events.  In short, the COPC focuses on operation process excellence and the activities that clients and vendors must take to be successful.  The list of clients is impressive, although not as broad as the IAOP.

In terms of individual “membership”, it is not a professional development model, like the IAOP, the PMI, or other organization.  There are no annual dues, no complex certification calculations, or continuing education obligations.  Instead, you simply need to attend a COPC VMO or CSP Coordinator training class ($3,800), which is a five day class that concludes with a lengthy exam.

The COPC doesn’t hold conferences, so the networking opportunities are fairly limited.  There are also no vendor sponsorships.

The COPC also tends to push it’s auditing services, which ensure your organization meets the the COPC standards.  Many companies achieve the certification and some take the learning and don’t bother with the certification (and probably don’t get the same results, either).  The auditing process takes more than a year for most companies, which begins with an initial analysis of the company’s/vendor’s performance against the standard, and then continues with improvements that are necessary until the organization passes an audit.

The cost of certifying an organization?  It probably runs north of $100,000, plus the need to train most vendor managers or vendor resources. That excludes internal efforts to reengineer processes to meet the standard.  However, that small amount of money pales against the cost of a large BPO operation and operational benefits it can gain.

Other Options

Carnegie Mellon University’s IT Services Qualification Center (ITSqc) recently released a standard that is akin to the legendary CMM models for which it is famous.  The development of the new standard is likely due to the increased nature of outsourcing in the IT area, which has eliminated the need for clients to seek CMM certification, but also challenged vendors who deal in a many-to-one model with clients, who frequently have little desire for CMM restrictions The new standards are the eSCM-SP (for vendors) and the eSCM-CL (for clients).  The list of certified vendors isn’t very long, and there are no CL certifications.  It is also an organizational certification, not an individual certification.

Frankly, given the apparent complexity of graphics like the one below, it is hard to believe client organizations will be clamoring for it:

Can certification models get more complex?

Final Analysis

To some, this is an apples and oranges comparison.

The IAOP’s individual membership focused on outsourcing basics, along with its broad networking opportunities definitely creates some advantages.  The COP master class teaches something taught nowhere else (except the school of hard knocks), but focus on the client-advisor-vendor more than the operations.  Modeled after PMI, ISM, or CPA organizations, it’s high initial cost and recurring costs are hard to digest ($2,995 for an online class?).  Also, the IAOP’s decision to dip into vendor sponsorships indicates some bias.  I am currently a member without the COP certification, and I can say that without little doubt, most chapter meetings are vendor presentations, not client discussions.  It’s terribly difficult to have a balanced discussion with so much vendor marketing surrounding you – something the IAOP is finally realizing as the create customer-only networking events during the conferences.  However, there is no resource like the IAOP.

The COPC’s VMO and CSP coordinator certifications are focused on how to manage operations effectively and efficiently.  They create results, but only if the organization embraces the broader certification, which is far from cheap and can require extensive reengineering, something the some clients or internal stakeholders may have little appetite for.  I am a registered COPC VMO Coordinator and think extremely highly of the COPC and the standards.  I believe the COPC standards should be adopted by any medium-to-large operation focused on BPO activities because they create processes for vendor management, something that most VMO’s completely lack.  However, the lack of networking opportunities and the COPC’s self-interest in auditing against standards can be a turn-off to some.

Either way, there is no doubt that individuals working in the outsourcing space need development opportunities.  Both organizations bring tremendous value to their members and the industry.

So, here’s my recommendation:

1. If you’re part of an organization of any size with IT outsourcing responsibilities with sufficient budget, require your VMO and vendor account personnel to obtain IAOP COP certification.  Best yet, host a class and have your vendor managers and vendor account teams take the classes together!  That’s a meaningful investment.
2. If you’re part of an organization of substantial size with BPO responsibilities and sufficient budget, implement the COPC VMO standard and require your vendors to achieve the CSP standard as part of the RFP/negotiation process. Also, require key personnel to obtain their CPO certification.  Not all at once, clearly.  Your governance resources should take the IAOP governance workshop and the IAOP CPO certification, while your vendor managers should focus on the COPC VMO, and later cross-train everyone.
3. If you’re part of an organization of moderate size with BPO responsibilities and moderate budget availability, require your VMO and vendors to take the COPC training classes, but don’t bother with the certification unless you really want to excel and have the budget/time.  Again, require personnel to obtain their CPO certification.
4. If you’re part of an organization of small size with BPO responsibilities, or simple an individual looking for outsourcing skill development without company financial support, the IAOP courses are ideal.  Get membership and look for ways to take the COP Master Class.
5. If you’re an individual looking for vendor management skill development, the COPC’s VMO class is the one for you.

What are your thoughts?  Leave your comments below and share your knowledge with others.

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Related posts:

1. Offshore Outsourcing Vendor Governance Organizations
2. Outsourcing DIY: Less Expensive, Less Scary, More Effective
3. Vendor Management Organizations Are a Bad Design