The recent article on the role that SLAs play in the relationship style between two organizations made me think. For some relationships, SLAs replace or even reduce the effort that an organization puts into managing the strategic development of opportunities between client and contractor.
If the contractor is seen to be achieving their SLAs then they are considered to be doing their job effectively. If they are missing their SLAs then there is a large focus on understanding why they have failed and potentially much discussion around any mitigating circumstances the contractor puts forward.
SLAs definitely have their place as they allow the client and contractor to look at service development and continuous performance improvement through stretch targets based on the existing contractual agreement.
However, supplier relationship management (SRM) comes into effect when you want to truly transform the way in which you work with your suppliers.
So first up, how should we define SRM?
In our recently launched SRM training course, the IACCM defines SRM as:
“The function that seeks to develop successful, collaborative relationships with key suppliers for the delivery of significant tangible business benefits for both parties”.
Why is SRM important?
The average tenure of a CIO is about 4.5 years. Most IT Service Management contracts (be it for any of the ITIL disciplines, applications or data centre outsourcing) are for between 5 and 10 years, with public sector contracts often reaching and even exceeding the upper end of that range. Therefore it follows that those people who were in place at the outset, and developing the IT strategy, may not be there further down the contract lifecycle, yet the contractual relationship continues to exist and needs the right management practices to bring the expected benefit to both sides.
Furthermore, with the cost of IT services re-procurement often being around 30% of the annual contract cost (once transition, exit and procurement time has been taken into consideration), implementing a successful contract extension becomes a financial KPI.
Keld Jensen, Chairman of the Centre for Negotiation at the Copenhagen Business School, has identified that 42% of contract value is left on the table and not even addressed or even recognised by either party during the initial negotiations. This means that in ITSM contracts there is great opportunity for both parties to access that 42% once the negotiation and procurement teams have left the room. The supplier relationship manager is part of the mechanism to enable that.
What does a Supplier Relationship Manager do?
First, we must remember that IT Service contracts can incorporate a number of inter-related disciplines (especially if we take the ITIL view). Each of those teams is going to be heavily focussed on their immediate needs and how their portion of the supply chain is delivering to them. They will also be interested in where there are process hand-offs, but my experience has shown me that often there is a poor, singular joined up view across IT disciplines.
If this is the case, a weak supplier will maximise this to their advantage, especially where they are delivering many facets of ITSM. They will minimise exposure to their service shortcomings and keep their network of relationships separate and distinct. A good supplier though may just accept the frustration of dealing with a discordant IT department and focus its development opportunities on its other customers, the “customers of choice”.
In both scenarios the client does not access the 42% of value that Keld Jensen discusses, it may be from fire-fighting performance issues or an inability to properly interact with the supplier through a lack of focal point. This is where the supplier relationship manager steps in, because they are there to:
- Manage all aspects of the inter-company relationship, especially where the supplier’s remit goes beyond ITSM
- They look to build trust through open communications, both internally and with the supply chain
- They understand the full capability of the supply chain and will seek to develop successful, collaborative relationships with key, strategic suppliers
- They share company strategy, mission and values with the suppliers
- They ensure that the relationship follows appropriate governance requirements
- They have ready access to, and influence from the top levels of management
By understanding not only the strategy of IT but also of the company as a whole, they are in a position to create a collaborative relationship with the strategic suppliers where mutual win-win opportunities are developed and encouraged. Innovation can be targeted at the right teams, process efficiency can be realised and cross fertilisation of ideas can occur between teams who may not have realised they were working towards similar outcomes.
The supplier is turned into a strategic asset that can positively affect your organisations success, rather than an entity whose invoices are paid each month if service targets were met.
Through the conversations that the IACCM is having with its membership, we see that SRM is an emerging discipline which is becoming more important in these times of austerity. There needs to be value for every pound, dollar or euro an organisation spends. Effective SRM is there to ensure that value is realised.