The Changing Landscape of Vendor Management

I was recently reminded of a column I wrote back in February 2008 titled “Maintaining a Vendor Relationship”, for Mortgage Banking Magazine (available here).  I’ve been working on multiple system selection efforts of late being driven by proactive customer decisions to look at options available in the marketplace. These efforts have been driven by dissatisfaction with the current vendor but without pressure of a looming deadline or need for immediate change.  In most cases, the dissatisfaction came after the vendor/product was acquired by a larger organization changing the dynamic between client and vendor.

The recommendations I outlined in that well-aged column included:

1. Identify your vendors
2. Know the contractual highlights
3. Maintain open communication
4. Leverage the partnership
5. Maintain documentation
6. Validate escrow
7. Increase internal resources
8. Do market research

And while these recommendations are still valid today, they don’t fully reflect the new landscape of the consolidated marketplace where there are few independent vendors with a single, focused product offering.  Most vendors these days are part of larger conglomerates, with seemingly deeper pockets to support innovation, who have created through acquisition a portfolio of offerings to their financial services clients.  In some cases this includes multiple solutions addressing the exact same (or very similar) functionality, possibly, but not always, targeted at different customer segments.

So what does this mean and how does it change things?

In today’s market, there are additional recommendations needed to manage the vendor relationship.  These address the more complex organizational structure, the focus of those organization (and where those deep pockets may be utilized) and looking further ahead, not only for the product you’re using, but for the overall vendor objective.   Let’s face it, your vendor’s move from a sole product offering to being a small fish in a larger pond is a culture shock not only to your relationship, but to the staff supporting the product, as well.  There is a lot of change to be managed and it’s important to stay on top of it.

• More layers of communication: While open communication is still important, there are more options for who you might communicate with.  Obviously the product support team is key to the upkeep of service levels and current enhancement plans, but there should be connections maintained up the ladder.  This group may not be fully in the know on the long-term strategic plan for the product or the organization.  Do not wait until there is an issue to figure out who the contacts outside the product group are, and do not let the relationship languish in order to avoid reaching out, only to find out that they have left the company or moved to another position.  Within a large organization, much can happen without direct communication, so keeping these lines open increases the likelihood you will begin to hear murmurs and can make plans, prior to announcements being fully communicated or distributed.
• Networking: It is more important than ever to keep your connections alive.  These can include other users of the platform, or people who developed or supported the product.  It is always good to have someone to share stories with, and ensure things are progressing in similar patterns for everyone. Working in concert with other users can help to influence the vendor towards a particular direction or implement needed enhancements.  Knowing the people who really “know” the system, provides a possible back door to address critical issues that the current support organization may be struggling with.
• Awareness of where the organization is making investments:  If the consolidated company claims four LOS’ within their portfolio, it is extremely unlikely that each LOS is receiving similar investments for future improvements.  Identify which product and/or customer segment has the focus, and determine the implications for support of your solution when it is not the focal product.
• Be modular: It is more important than ever to retain your flexibility when it comes to the ability to switch products.  Vendors being acquired and the direction new owners take a product are outside your control.  What is within the control, is the level of effort and ability to switch vendors when needed.  Within the mortgage industry, MISMO for services was lauded as a tool lenders can use to more easily switch between providers.  Similarly, the recommendation is to standardize the requirements for any feeds to your systems via a connector-based process.  Products would feed/receive data to/from the connector, rather than directly into the internal system.  This allows the system on either side to be exchanged, without a direct impact on the other system or the resources supporting it.  This reduces the risk and effort when replacing systems, as they only need to connect to the connector; the programming which directly impacts that system is unaffected.  In addition, should the vendor make a change that could impact your systems without realizing it, the data would be likely stopped at the connector and not impact your internal systems.  Today, much of the integration is directly system to system, requiring a full re-development every time either system changes.   The connector approach reduces the level of effort needed and resulting testing that will need to be completed.  The connectors also offer re-usability for different purposes.  Internal resources to develop and support the connectors are needed, but in most instances the long term peace of mind and time savings will balance that investment.
• Be Diligent:  A vendor with a wide portfolio has a lot to offer, but it is important that additional offerings are approached wisely.  With a lot of growth coming from consolidation and not organic expansion, it is important to complete a thorough due diligence of all offerings.  Do not assume anything!  Do not assume that because the same vendor offers both products, the products are tightly integrated.  Growth through acquisition results in potentially disparate solutions carrying the product name.  Don’t assume because products have same or complementary names, they are connected. Product name changes are marketing ploys to create the feel of a suite of offerings, whether the connectivity between products is in place or not.  Do not assume that because your product is well supported, that any additional platform has similar support.  Each product may have separate support staffs, with different levels of competencies and knowledge.  Do your homework and complete a due diligence exercise extending into the marketplace with competing solutions to determine if the vendor solution represents the best solution for your organization.

There can be significant benefit to you through acquisition of your vendor by a larger organization, or not.  It is a matter of what that organization’s plans are, how they are managed and where their investment is being placed. Stay informed and be proactive is the best advice.