Making Smarter IT Partner Selections

Businesses face a multitude of IT partner selections, from software applications to the related services to implement and manage those applications.  Some companies will go through multiple IT partner selection processes in just a couple of years.  Since enterprises are continuously looking for ways to improve productivity and the customer experience, more IT partner selections are on the horizon.

Additionally, some poor prior IT partner decisions might need to be revisited, leading to even more selections.  These types are particularly troubling and costly, as nobody enjoys having to acknowledge sunken costs and then a re-work, as a result of failing to get it right at the outset.  So how do you get it right the first time?

Here are some recommendations for improving your sourcing and IT partner selection process:

Gain consensus on your overall objective

This might sound simple, but individuals on selection teams often have differing goals and priorities.  Some want the solution with the most features, others prioritize speed to implementation and ROI realization, while others want the lowest cost solution.

In my experience, companies that have achieved the best long-term results had a common initial goal to identify the best partner for their organization. This entails taking a holistic approach, establishing a cross-functional evaluation team, and having this team develop a robust evaluation process and scoring system that reflects the top priorities of the organization for this initiative.

Evaluation process – what to consider?

Most evaluation teams agree they want to select the best partner.  The challenge they face is how to go about achieving this so that at the end of the process they feel they have conducted the necessary due diligence to make a highly informed, educated decision.

Successful teams have found it helpful to have an overall evaluation structure that allows them to conceptualize the process and compartmentalize all the information received during the evaluation.

I recommend breaking it down into 3 buckets:

• Capabilities
• Cultural
• Commercial

Much like hiring an individual employee, all three should be evaluated holistically before making a final decision.  IT partner selections are really similar to hiring employees — both represent an extension of your organization and values.  They’ll have an impact on your ability to achieve performance objectives and making poor hiring decisions can be costly and difficult to terminate.

Here are some considerations for each of these areas:

1. Capabilities

Capabilities should be the first priority in your evaluation process.  If an IT supplier cannot meet your requirements, or you feel may be lacking the necessary skills and experience to be successful, then the other two buckets really don’t matter.  Further, focusing on capabilities first sends a strong message to your potential suppliers that you value their services and a long-term partnership.

Think of it this way — if you were interviewing a new hire prospect and at the beginning of the meeting the prospect asked:

• What is the starting salary?
• What is the makeup of the benefits package?
• Can I work from home on Fridays?

Would you feel they valued a long-term partnership?

Those things are certainly important in making a final decision for both parties, but the prospect would fare much better if they focused on the job requirements and demonstrating they had the expertise and experience to be successful before inquiring about the compensation plan and other perks.

Capabilities is a broad bucket, but it can be broken down into specific subcomponents that are more tangible and specific to the initiative, such as the breadth of the solution offering or the technical resource skills and bench depth.

Having the cross-functional evaluation team meet to discuss and develop, or revise, a pre-existing scorecard can be a very valuable exercise to prepare for the evaluation process.  Team members will feel more confident in what they need to do and how they need to do it, rather than just winging it and going with a gut feel. This leads to the evaluation team feeling empowered and knowing what information to seek in evaluating a supplier’s capabilities.  It also gives them confidence in expressing their opinions to the group and engaging in meaningful discussions within the evaluation team.

2. Cultural Alignment

Culture, by far, is the toughest to evaluate since it is much more subjective.  You gain a sense of cultural fit throughout the entire evaluation process, from the very first interactions with the suppliers to their ability to follow direction and provide concise and complete responses to an RFP.  You will get a sense of engagement and commitment during onsite presentations and to their ease of doing business as part of the commercial negotiations.  The evaluation should be two-fold – the overall supplier organization and the actual team leads who would be providing the services.

The cultural fit is a critical component that often gets overlooked, but if you have ever experienced personality clashes with a partner or communication issues by employees within a team, you know how important culture alignment is to achieving business objectives, value realization, and team morale.

Sports provides many great examples of the importance of culture and team chemistry.  Think about some of the most talented teams you have seen, loaded with the top players in their respective positions, but unable to work collectively as a team. These are the teams that leave everyone shaking their heads as to how they could possibly fail so miserably because on paper they had all the talent in the world.  If a team lacks chemistry you will never be able to extract the perceived paper value.

On the flip side, I have seen teams that are Cinderella stories, reaching heights nobody could have dreamed.  The things all Cinderella teams have are a deep commitment to a single goal and great team chemistry and communication.  The cultural fit of these teams enables them to overcome many shortcomings in talent and experience.  Consider the 1980 U.S. Men’s Olympic Hockey Team — do you believe in miracles?

3. Commercial

The final focus should be on the financial and commercial deal constructs proposed by your suppliers.  I am not suggesting waiting until the very end of the process to obtain this information, as it is necessary and customary to solicit it as part of the RFP, but the focus on commercial negotiations should come after the more detailed capabilities and cultural evaluation.

Using the employee hiring example, it is customary to negotiate the specifics of a compensation package after an offer is made or just prior to tendering an offer, depending on the level of the position.  In some cases, it is perfectly acceptable to discuss salary requirements at a high level during the interview process just to make sure there is not a huge discrepancy in expectations.

Take a similar approach in IT supplier evaluations by soliciting a comprehensive commercial proposal as part of the RFP, but then holding off on the detailed negotiations until you have down-selected to your top two providers, based on capabilities and cultural fit. This approach demonstrates your commitment to selecting the right partner to achieve your business goals and objectives, while also taking into consideration the cost/value equation.

Facets to consider within the commercial bucket include cost, but more importantly, transparency into how pricing is determined.

Other themes to focus on are:

• Predictability
• Accountability
• Flexibility in the commercial construct

The specific commercial terms will vary depending on the nature of the initiative, but they should reflect a long-term partnership and provide a foundation that will enable success.  The terms should also be balanced and well aligned with the roles and responsibilities of each party.

As an example, if a supplier can hold you accountable by issuing a change order for your failure to meet a deadline, how are you able to hold your supplier accountable for their failure to meet their deadlines?

There are simply too many commercial terms to discuss specifics, but a balanced, transparent, and flexible commercial construct should be conceptually locked down before making a final IT partner selection.  Suppliers would rather wait until they are selected as your partner before negotiating the commercial terms, but evaluation teams would be foolish not to do so.

Think about it — would you quit your job and tell all prospective companies you interviewed with that you have selected a new employer before knowing and agreeing to the material terms of your compensation plan? 

If you wouldn’t do this in your personal life, then you shouldn’t do this in representing your organization either.

You are not looking to have the contractual documents prepared and ready to sign, but there should be a term sheet or some other document that captures what the parties have conceptually agreed to in terms of price and related commercial terms, prior to making your IT partner selection.  Then you can move into exclusive negotiations on the contractual documents.

While every organization is unique, incorporating this process will provide your team with the tools to conduct an effective evaluation and enable your organization to make smarter IT partner selections.

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