How to Choose an IT Vendor

Computerworld - An IT manager was negotiating a big software deal at lunch with the president of a vendor company. The manager wasn't getting his way, so he walked away from the table in a huff. The vendor caved in, lowered the price 40% and made the sale. Later, the IT manager said he never understood why that vendor's service was consistently terrible.

"We negotiate so hard with suppliers that they don't make any money, and then we wonder why service is so poor," says Bart Perkins. "You've got to let the other guy make a profit."

IT managers have a lot to learn about the process of choosing an IT vendor, says Perkins, former CIO at Dole Food Co. and Tricon Global Restaurants Inc. who is now managing partner at Leverage Partners Inc., a consulting firm that splits its headquarters between Louisville, Ky., and Washington. Leverage Partners helps companies acquire IT products and services.

"Vendor buys" account for more than 60% of a typical IT budget outside of personnel costs, Perkins says. In a Fortune 500 company, there may be as many as 400 people buying IT products, and very few are giving the process much thought, he adds. Some are following architectural standards, others are just buying what's cool and expensing it.

Some IT sales sneak in like Trojan horses, buried in plant equipment or taken on through mergers and acquisitions; others evolve - you bought telecommunications services from New England Telephone, which became Nynex and then Bell Atlantic, and now you're dealing with Verizon.

"This is the real blocking and tackling of IT, and we put it on autopilot and nobody thinks about it," Perkins says. But a few IT leaders have given the vendor selection process a lot of thought, and they share some ideas about what makes their approaches work.

1. Establish the need. "The day of deep pockets is gone," says Jim Thannum, director of Internet engineering and communications at FedEx Services Corp. in Memphis. "The technology should advance the business. It's not there to entertain us."

2. Select a team, "not just the tech people," says Colleen Mahoney, director of vendor relations for information resources at Marriott International Inc. in Bethesda, Md. An all-tech vendor-selection team is a disaster waiting to happen because members may get blinded by the technology.

Include end users and people from finance, training, application development, vendor relations, legal and privacy/security, says Mahoney. At The Coca-Cola Co. in Atlanta, a team works with its Minority/Women-Owned Business Enterprise Program to keep minority firms in the selection loop.