Managing Vendor Management

Vendor management has been a hot and growing topic of bank focus in recent years. By my estimation, we are turning the corner into the third phase of vendor management evolution.

The first phase of the process of vendor management and supporting systems was prevalent when I was in my bank Information Technology (IT)/operations years. It was centered on this piece of technology called a Rolodex. When we needed to talk to one of the vendors we used (and there were far fewer in those days), we would spin it until we saw the right name. Then we would call them. Then … well, there was no more then. That was really about it.

However, system complexity, the number of systems supported, and the prodding of our esteemed regulators combined to produce a real focus on vendor management in the last few years. To be sure, the process and the supporting systems have improved vastly. We have more and better information about vendor stability, financials, contract terms/expirations, SAS 70 data, disaster recovery plans/results, client base, and many other things that are a necessary part of managing a relationship.

Banks have also used this information to avoid the dreaded auto-renewal on contracts and have obtained better renewal pricing as a result. But, upon closer inspection, it is clear that much of the information we have gathered and the effort put forth has focused on things that, while necessary, are largely statistical. I would refer to this as “quantitative” vendor management. It centers on costs, dates, checklists, required reports (SAS) and the like.

The next phase of vendor management needs to focus on what I would call “qualitative” issues, issues that pertain to how well the vendor is meeting the strategic and delivery needs of the client. Key considerations under a qualitative vendor management program include the following:

• Are new systems (e.g. a browser front end) delivered on time?
• Are new releases and upgrades delivered when promised? Do releases occur on the original commitment date?
• Do releases have all of the breadth and depth of new capabilities that were originally announced? Or, how often does a release scale back on what was originally contemplated?
• Are interfaces to/from third party systems delivered on time, fully completed, and are they maintained?
• Are vendor resources available when needed – for example, if an acquisition needs to be completed quickly?
• Is the vendor proactive in making sure the bank uses all features of the system for maximum efficiency and delivery? This can be through a combination of training and system use audits. Personally, I’d go for this even if there’s a charge.
• Does the vendor proactively migrate the bank from its older systems to newer ones?
• Is the vendor monitoring new technology trends and taking the required steps to help the bank meet them? Did the vendor come to the bank to discuss its view of and response to P2P, or social networking, or online lending, or Durbin, or 50 other things we could list here? Or did the bank go to the vendor and start the conversation?

These are not simple checklist items. They are key issues that will ultimately make the difference in how effective a bank’s systems will be.

We see far too many cases where a bank and a vendor do not track and discuss these qualitative issues unless it is for the obligatory annual meeting with the bank or when a contract is approaching renewal. But this can’t just be laid at the vendors’ feet. If banks want vendor management programs to achieve results, banks need to start pushing the agenda. It’s on the bank’s plate as much as the vendor’s.

And, for bankers who think this is a “leave it to IT” project – nyet. The next phase of vendor management will need to be collaboration between IT and the lines of business that are the primary users of the system. The new vendor management tools and methodologies are a good way to start that next-stage push.

It’s time.

Mr. Roche is a principal with Cornerstone Advisors, Inc., a Scottsdale, Ariz., based consulting firm specializing in bank management, strategy and technology advisory services. He can be reached at [email protected].