4 Tips to Increase the Effectiveness of Your Third-Party IT Service Providers

It’s no longer enough for IT service providers – whether internal or outsourced – to just be reliable. Instead, they need to be agile and scalable – ensuring they’re flexible enough to meet the changing demands of your business.

However, in terms of outsourced suppliers, the discipline (or required corporate capability) of vendor management often isn’t that well understood. Or, if it is, it isn’t widely adopted/implemented. And, with the advent of the service and integration management (SIAM) model, there’s an extra dimension of ensuring that disparate service providers are working well together.

Nonetheless, effective vendor management brings with it a host of benefits, such as:

• Risk mitigation
• Performance optimization
• Cost reduction
• Administrative efficiencies
• Increased supplier onboarding speed
• Brand protection.

This blog offers up four tips that will help you to successfully manage your third-party IT service providers and have them work alongside other service providers in an optimal way.

1. Incentivize collective success

As IT teams outsource a larger amount of their IT – including IT service management (ITSM) – needs out to more than one vendor, the chance of numerous suppliers needing to cooperate, especially to tackle issues, increases.

When this happens, you’ll likely find that suppliers might be hesitant to work together or will take a default approach of pointing the finger at others when there are issues. But, by incentivizing and holding each vendor accountable it creates a sense of responsibility and understanding that it’s in their best interest to work together – including fixing issues together – rather than delaying progress by “passing the buck.”

Good incentives should give the suppliers a stake in business outcomes. For example, let’s say you’ve agreed goals regarding uptime for the service and the supplier exceeds these goals over a quarter, look at what additional business could be committed based on them exceeding performance goals.

2. Ensure supplier penalties for non-performance reflect the business impact

You need to consider the impact that a supplier who fails to deliver on a contracted performance objective will have on your business. And what you have in place to protect your business if a supplier fails to accomplish something that they said they would.

The ways of quantifying a supplier’s effectiveness are usually incorporated into the provider contract – with both rewards and penalties for success and failure to meet agreed objectives. However, a key factor that you also need to think about is the actual cost to your business (of supplier failures). Plus, flipping this, check that the supplier isn’t in a position where it’s cheaper to fail than to deliver against the agreed service target(s).

So, when agreeing contracts, ensure that if a supplier fails to deliver what was agreed the contract penalties reflect the cost to the business.

3. Ensure vendor management personnel are suitably skilled and capable

One of the biggest outsourcing mistakes you can make is putting someone in charge of managing a service provider who is inexperienced and doesn’t understand the associated risks. This can have a detrimental effect on an otherwise sound outsourcing decision.

So, before putting someone in charge of managing a supplier, take the time to figure out what skills are going to be needed given the service-level agreement (SLA). For example:

• Relationship skills – These are essential for working with suppliers and stakeholders. And managing a service provider involves using a broad range of communication skills, leadership, flexibility, negotiation, empathy, and more).
• Problem-solving capabilities – There will always be issues that need problem-solving capabilities, whether the issues are internal, external, or jointly-affecting.
• Analytical skills – Service management creates a lot of data. Often this data is incomplete or conflicting, and problem solving will enable the person in charge of managing the vendor to filter out the irrelevant data and focus on the information that is relevant).
• Documenting and reporting capabilities – On information such as results, changes, costs, meetings, agreements, and problems and resolutions.
• Financial skills – This is the ability to analyze and compare budgets and costs, the reasons for deviation, etc.
• Risk management capabilities – Risk can occur in several areas across service delivery, so it’s important to understand how to mitigate risk by identifying, assessing, and balancing the known and unknown risks.

The final factor to take into consideration, when choosing someone to manage the supplier, is personality. They need to be confident enough to ensure that the vendor is meeting the SLA and in enforcing penalties for failure, but also be able to understand the boundary between the supplier staff being contracted by the business and not directly employed within the business.

4. Create a relationship with open and honest communication

Regular contact with your suppliers doesn’t necessarily mean that you have good communication. Importantly, if you can actively foster a relationship that welcomes openness and honesty, then you greatly reduce the risk of miscommunication.

Let suppliers know you want to hear their feedback and ideas about how they think things can be changed or improved. Remember, you’re hiring them for their expertise.

Creating this type of open relationship gives your business and its suppliers a chance to catch potential issues before they arise, saving you all time and money.

Even if you feel like you’ve reached a good point in your business/supplier relationship, make sure that you don’t let it fall by the wayside. So, keep track of how your relationship is progressing.

Maintain regular contact and stick to scheduled update meetings with suppliers. They’re a great chance to conduct management reviews – where progress is discussed, mistakes are acknowledged (not in a “point the finger” way though), milestones are recognized, and the quality of the relationship is continually assessed.

Maintaining strong service provider relationships goes a long way to achieving success (when certain aspects of IT service delivery and support are outsourced). Good vendor management is all about keeping communication open, clear, and maintained, such that your suppliers are happy, and you get the services you require, when you require them.