Essentials of Vendor Management for Small Business

Each year, SMB IT organizations spend more money “outsourcing” tasks, activities, applications, functions, and other items.
Many SMBs lack the affordability of implementing a sophisticated vendor management initiative or office.
The increased spend and associated outsourcing leads to less control, and more risk for IT organizations. Managing this becomes a higher priority for IT, but many IT organizations are ill-equipped to do this proactively.

Our Advice

Critical Insight

Vendor management is not “plug and play” – each organization’s vendor management initiative (VMI) needs to fit its culture, environment, and goals. There are commonalities among vendor management initiatives, but the key is to adapt vendor management principles to fit your needs, not the other way around.
All vendors are not of equal importance to an organization. Internal resources are a scarce commodity and should be deployed so that they provide the best return on the organization’s investment. Classifying or segmenting your vendors allows you to focus your efforts on the most important vendors first, allowing your VMI to have the greatest impact possible.
Having a solid foundation is critical to the VMI’s ongoing success. Whether you will be creating a formal vendor management office or using vendor management techniques, tools, and templates “informally”, starting with the basics is essential. Make sure you understand why the VMI exists and what it hopes to achieve, what is in and out of scope for the VMI, what strengths the VMI can leverage and the obstacles it will have to address, and how it will work with other areas within your organization.

Impact and Result

Build and implement a vendor management initiative tailored to your environment.
Create a solid foundation to sustain your vendor management initiative as it evolves and matures.
Leverage vendor management-specific tools and templates to manage vendors more proactively and improve communication.
Concentrate your vendor management resources on the right vendors.
Build a roadmap and project plan for your vendor management journey to ensure you reach your destination.
Build collaborative relationships with critical vendors.

Essentials of Vendor Management for Small Business Research & Tools

Start here – read the Executive Brief

Read this Executive Brief to understand how changes in the vendor landscape and customer reliance on vendors have made a vendor management initiative indispensible.

1. Plan

This phase helps you organize your VMI and document internal processes, relationships, roles, and responsibilities. The main outcomes from this phase are organizational documents, a baseline VMI maturity level, and a desired future state for the VMI.

2. Build

This phase helps you configure and create the tools and templates that will help you run the VMI. The main outcomes from this phase are a clear understanding of which vendors are important to you, the tools to manage the vendor relationships, and an implementation plan.

3. Run

This phase helps you begin operating the VMI. The main outcomes from this phase are guidance and the steps required to implement your VMI.

4. Review

This phase helps the VMI identify what it should stop doing, start doing, and continue doing as it improves and matures. The main outcomes from this phase are ways to advance the VMI and maintain internal alignment.

Essentials of Vendor Management for Small Business

Create and implement a vendor management framework to begin obtaining measurable results in 90 days.

EXECUTIVE BRIEF

Analyst Perspective

Vendor Management Challenge

Small businesses are often challenged by the growth and complexity of their vendor ecosystem, including the degree to which the vendors control them. Vendors are increasing, obtaining more and more budget dollars, while funding for staff or headcount is decreasing as a result of cloud-based applications and an increase in our reliance on Managed Service Providers. Initiating a vendor management initiative (VMI) vs. creating a fully staffed vendor management office will get you started on the path of proactively controlling your vendors instead of consistently operating in a reactionary mode. This blueprint is designed with that very thought: to assist small businesses in creating the essentials of a vendor management initiative.

This is a picture of Steve Jeffery

Steve Jeffery
Principal Research Director, Vendor Management
Info-Tech Research Group

Executive Summary

Your Challenge

Each year, IT organizations "outsource" tasks, activities, functions, and other items. During 2021:

Spend on as-a-service providers increased 38% over 2020.*
Spend on managed service providers increased 16% over 2020.*
IT service providers increased their merger and acquisition numbers by 47% over 2020.*

This leads to more spend, less control, and more risk for IT organizations. Managing this becomes a higher priority for IT, but many IT organizations are ill-equipped to do this proactively.

Common Obstacles

As new contracts are negotiated and existing contracts are renegotiated or renewed, there is a perception that the contracts will yield certain results, output, performance, solutions, or outcomes. The hope is that these will provide a measurable expected value to IT and the organization. Oftentimes, much of the expected value is never realized. Many organizations don't have a VMI to help:

Ensure at least the expected value is achieved.
Improve on the expected value through performance management.
Significantly increase the expected value through a proactive VMI.

Info-Tech's Approach

Vendor Management is a proactive, cross-functional lifecycle. It can be broken down into four phases:

Plan
Build
Run
Review

The Info-Tech process addresses all four phases and provides a step-by-step approach to configure and operate your VMI. The content in this blueprint helps you quickly establish your VMI and sets a solid foundation for its growth and maturity.

Info-Tech Insight

Vendor management is not a one-size-fits-all initiative. It must be configured:

For your environment, culture, and goals.
To leverage the strengths of your organization and personnel.
To focus your energy and resources on your critical vendors.

Executive Summary

Your challenge

Spend on managed service providers and as-a-service providers continues to increase. In addition, IT services vendors continue to be active in the mergers and acquisitions arena. This increases the need for a VMI to help with the changing IT vendor landscape.

38% 2021	16% 2021	47% 2021
Spend on as-a-service providers	Spend on managed services providers	IT services merger & acquisition growth (transactions)

38%

2021

16%

2021

47%

2021

Spend on as-a-service providers

Spend on managed services providers

IT services merger & acquisition growth (transactions)

Source: Information Services Group, Inc., 2022.

Executive Summary

Common obstacles

When organizations execute, renew, or renegotiate a contract, there is an "expected value" associated with that contract. Without a robust VMI, most of the expected value will never be realized. With a robust VMI, the realized value significantly exceeds the expected value during the contract term.

A contract's realized value with and without a vendor management initiative

This is an image of a bar graph showing the difference in value between those with and without a VMI, with and for those with a VMI, with Vendor Collaboration and with Vendor Performance Management. The data for those with a VMI have substantially more value.

Source: Based on findings from Geller & Company, 2003.

Executive Summary

Info-Tech's approach

A sound, cyclical approach to vendor management will help you create a VMI that meets your needs and stays in alignment with your organization as they both change (i.e. mature and grow).

This is an image of the 4 Step Vendor Management Process. The four steps are: 1. Plan; 2. Build; 3. Run; 4. Review.

Info-Tech's methodology for creating and operating your vmi

	Phase 1 - Plan	Phase 2 - Build	Phase 3 - Run	Phase 4 - Review
Phase Steps	1.1 Mission Statement and Goals 1.2 Scope 1.3 Strengths and Obstacles 1.4 Roles and Responsibilities	2.1 Classification Model 2.2 Risk Assessment Tool 2.3 Scorecards and Feedback 2.4 Business Alignment Meeting Agenda 2.5 Relationship Alignment Document 2.6 Vendor Orientation 2.7 3-Year Roadmap 2.8 90-Day Plan 2.9 Quick Wins2.10 Reports	3.1 Classify Vendors 3.2 Compile Scorecards 3.3 Conduct Business Alignment Meetings 3.4 Work the 90-Day Plan 3.5 Manage the 3-Year Roadmap 3.6 Develop/Improve Vendor Relationships	4.1 Incorporate Leading Practices 4.2 Leverage Lessons Learned 4.3 Maintain Internal Alignment
Phase Outcomes	This phase helps you organize your VMI and document internal processes, relationships, roles, and responsibilities. The main outcomes from this phase are organizational documents, a baseline VMI maturity level, and a desired future state for the VMI.	This phase helps you configure and create the tools and templates that will help you run the VMI. The main outcomes from this phase are a clear understanding of which vendors are important to you, the tools to manage the vendor relationships, and an implementation plan.	This phase helps you begin operating the VMI. The main outcomes from this phase are guidance and the steps required to implement your VMI.	This phase helps the VMI identify what it should stop doing, start doing, and continue doing as it improves and matures. The main outcomes from this phase are ways to advance the VMI and maintain internal alignment.

Phase 1 - Plan

Phase 2 - Build

Phase 3 - Run

Phase 4 - Review

Phase Steps

1.1 Mission Statement and Goals

1.2 Scope

1.3 Strengths and Obstacles

1.4 Roles and Responsibilities

2.1 Classification Model

2.2 Risk Assessment Tool

2.3 Scorecards and Feedback

2.4 Business Alignment Meeting Agenda

2.5 Relationship Alignment Document

2.6 Vendor Orientation

2.7 3-Year Roadmap

2.8 90-Day Plan

2.9 Quick Wins2.10 Reports

3.1 Classify Vendors

3.2 Compile Scorecards

3.3 Conduct Business Alignment Meetings

3.4 Work the 90-Day Plan

3.5 Manage the 3-Year Roadmap

3.6 Develop/Improve Vendor Relationships

4.1 Incorporate Leading Practices

4.2 Leverage Lessons Learned

4.3 Maintain Internal Alignment

Phase Outcomes

This phase helps you begin operating the VMI. The main outcomes from this phase are guidance and the steps required to implement your VMI.

Insight Summary

Insight 1

Vendor management is not "plug and play" – each organization's vendor management initiative (VMI) needs to fit its culture, environment, and goals. While there are commonalities and leading practices associated with vendor management, your initiative won't look exactly like another organization's. The key is to adapt vendor management principles to fit your needs.

Insight 2

All vendors are not of equal importance to your organization. Internal resources are a scarce commodity and should be deployed so that they provide the best return on the organization's investment. Classifying or segmenting your vendors allows you to focus your efforts on the most important vendors first, allowing your VMI to have the greatest impact possible.

Insight 3

Having a solid foundation is critical to the VMI's ongoing success. Whether you will be creating a formal vendor management office or using vendor management techniques, tools, and templates "informally", starting with the basics is essential. Make sure you understand why the VMI exists and what it hopes to achieve, what is in and out of scope for the VMI, what strengths the VMI can leverage and the obstacles it will have to address, and how it will work with other areas within your organization.

Blueprint benefits

IT benefits

Identify and manage risk proactively.
Reduce costs and maximize value.
Increase visibility with your critical vendors.
Improve vendor performance.
Create a collaborative environment with key vendors.
Segment vendors to allocate resources more effectively and more efficiently.

Business benefits

Improve vendor accountability.
Increase collaboration between departments.
Improve working relationships with your vendors.
Create a feedback loop to address vendor/customer issues before they get out of hand or are more costly to resolve.
Increase access to meaningful data and information regarding important vendors.

Phase 1 - Plan

Phase 1	Phase 2	Phase 3	Phase 4
1.1 Mission Statement and Goals 1.2 Scope 1.3 Strengths and Obstacles 1.4 Roles and Responsibilities	2.1 Classification Model 2.2 Risk Assessment Tool 2.3 Scorecards and Feedback 2.4 Business Alignment Meeting Agenda 2.5 Relationship Alignment Document 2.6 Vendor Orientation 2.7 3-Year Roadmap 2.8 90-Day Plan 2.9 Quick Wins 2.10 Reports	3.1 Classify Vendors 3.2 Compile Scorecards 3.3 Conduct Business Alignment Meetings 3.4 Work the 90-Day Plan 3.5 Manage the 3-Year Roadmap 3.6 Develop/Improve Vendor Relationships	4.1 Incorporate Leading Practices 4.2 Leverage Lessons Learned 4.3 Maintain Internal Alignment

Phase 1

Phase 2

Phase 3

Phase 4

1.1 Mission Statement and Goals

1.2 Scope

1.3 Strengths and Obstacles

1.4 Roles and Responsibilities

2.1 Classification Model

2.2 Risk Assessment Tool

2.3 Scorecards and Feedback

2.4 Business Alignment Meeting Agenda

2.5 Relationship Alignment Document

2.6 Vendor Orientation

2.7 3-Year Roadmap

2.8 90-Day Plan

2.9 Quick Wins

2.10 Reports

3.1 Classify Vendors

3.2 Compile Scorecards

3.3 Conduct Business Alignment Meetings

3.4 Work the 90-Day Plan

3.5 Manage the 3-Year Roadmap

3.6 Develop/Improve Vendor Relationships

4.1 Incorporate Leading Practices

4.2 Leverage Lessons Learned

4.3 Maintain Internal Alignment

This phase will walk you through the following activity:

Organizing your VMI and document internal processes, relationships, roles, and responsibilities. The main outcomes from this phase are organizational documents, and a desired future state for the VMI.