Why CIOs Secretly Hate Procurement And Other VMO Tales (Part 2)

In the first part of this essay, I tried to provide a first-person account of the evolving world of IT spend from both a CIO and procurement perspective from roughly 1995 through the mid-2000s (don't nail me down to an exact date -- after all, the margin of successful go-live errors for ERP implementations and large upgrades at the time could be measured in multi-year spans, not quarters or months). Hopefully I succeeded in explaining the spend evolution of the era and how, at least to some degree, procurement started down the path toward IT influence.

Yet the untold story I completely glossed over was the rise of a stealth procurement organization within IT that came to be known as the "vendor management office," or VMO. I sometimes refer to it "Vichy procurement" when I'm in good company, although don't let my politically incorrect (though somewhat accurate) description of the legitimized puppet organization cost you your job (or spend influence!)

Over the past decade (or so), the vendor management office has probably been the best decentralized counter to centralized procurement influence as any across all of organizational spend. VMOs have succeeded, in part, because they've shifted the influence away from the identification and sourcing of strategic categories to the management of strategic suppliers. How a supplier become strategic to IT and placed into the "you can never fire us" category I'll never fully understand, but once you're in the upper right hand VMO quadrant, you're safely in the IT camp with full diplomatic procurement immunity. Even if you're strategically sourced by a consultancy or a centralized procurement organization, don't worry, as the CIO or IT director who is your customer will find a way of keeping you on board. Just play along and make concessions on unit price (you can always find ways of up-charging later).

Apologies for the facetiousness on my part, but as all CPOs are keenly aware, even the most procurement-aware IT leaders have found ways to protect a set of their suppliers from outside influence, whether it's in sourcing or supplier development areas (aside from invoice/statement auditing and management, especially in the telecom area). Even the term "strategic sourcing" was usurped by IT-types for their own usage to describe technology and services vendor-specific negotiations and management. In fact, a decade ago, if you searched "strategic sourcing" on the Gartner or Forrester websites, all you got back was a bunch of research articles dedicated to IT procurement and vendor management.

On a more serious note, vendor management offices often started out with good intentions. A vintage CIO article from 2007 captures some of the thinking at the time. Titled "Why You Should Create a Vendor Management Office," the article captures the shift in IT thinking requiring a greater IT focus on procurement: "At many enterprises, the CIO has de facto responsibility for managing IT vendors, but the day-to-day reality is that individual departments, technology platform owners and project offices manage vendors for their local needs, perhaps tapping into corporate procurement and legal staff for some of the tactical contracts and pricing analysis ... [however] The changing nature of technology procurement -- from hardware and packaged software to provisioning of infrastructure, software and business processes as services -- also supports the use of a more formal vendor management approach that crosses departmental boundaries."

Unfortunately, that last statement, "cross departmental boundaries," has really meant that IT maintains control over IT sourcing and vendor decisions with procurement, legal and other "influence" rather than the other way around, at least in far too many cases we've observed over the years. Sure, why not give procurement a "pricing analysis" exercise? But when it comes to making a vendor selection decision, you can be sure that "VMO-led" supplier performance analysis -- with cherry-picked IT KPIs -- will rule the selection day.

Stay tuned as our story continues. Next up: the secret as to why lesser-performing CIOs really hate centralized procurement, especially when a strong team is leading it.

- Jason Busch

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