4 Keys to Vendor Risk Management when Buying Enterprise Technology

Undertaking any kind of business transformation involves change and change always introduces risk. Careers, cash and your company’s competitiveness are at stake. The key to a successful transformation is proactive risk management.

There are two areas of risk: that which you control internally, and external risk associated with vendors and partners—whom you’re buying software from, who’s implementing it, and so forth.

Internal risk can be controlled by having well-defined goals and KPIs, having strong executive sponsorship, and putting governance and change management processes in place. Everybody knows and recognizes these are good things, like motherhood and apple pie. Putting these into practice is easier said than done, but that’s a topic for another day.

Vendors and partners introduce risks you can only control by carefully selecting the companies you do business with.

Here are four considerations for vendor risk management and to finding vendors and partners capable of delivering sustained improvement, not just quick benefits that sputter away into nothingness.

1. Align on Incentives

It doesn’t matter what people say. Words are just words. Incentives drive actions. Look closely to see how prospective vendors and partners are incentivized. Do they have skin in the game? Are they equally invested in your success? They should be.

Watch out for teams that are incented around short-term goals and activities or milestones that don’t tangibly impact your success, such as billable hours, service utilization or sales revenues.

2. Proactive Support

Many firms are committed to your success while you're buying licenses and implementing their software, but once go-live comes they hand you the keys and the rest is up to you.

Sure, a lot of your success is up to you, but if you’ve aligned with your partners on success criteria and they’re incentivized right, there’s a much better chance they’ll take a more active role in making sure you achieve what you set out to.

Every company has some kind of support organization that, when asked, responds to problems. That's not proactive. Do business with companies that don’t just sit back and wait for you to call. Proactive partners reach out regularly, ask a lot of questions about what’s going on at your company, share what other customers are doing and bring suggestions to the table.

3. Adoption, Adoption, Adoption

User adoption is the only KPI that really matters. Unless the technology is dead simple to use, your initiative is just one more mandate coming out of corporate. You might get some short-term fixes, but you won’t get lasting transformation.

Every B2B software vendor these days is touting usability. So how do you find out if it’s true?

Demos are one way to get a feel for it. However, usability has many dimensions so don’t stop with demos. Or maybe I should say, don’t start with them!

There is usually a diverse set of stakeholders who will ultimately interact with the software. These could include end users, power users, customers, admin and finance. Before looking at demos you need to understand who all of these stakeholders are and what their needs are, because their buy-in is critical. Ask yourself, has this software been designed with all of them in mind?

Usability sometimes amounts to an attractive user interface that’s been slapped on at the end. Real usability is baked into the design at every interaction point, so it’s intuitive for any and all of your stakeholders to use.

4. Futureproofing

Companies make decisions based on current needs. In reality, change is the only constant. Companies get bought and sold, move into new markets, shift strategies or even change their business models. How adaptable are prospective vendors or partners when it comes to changes you might be considering? How well could they respond to unforeseeable changes? There are several ways to determine this.

First, consider the technology and how it is implemented. Specifically, how customized is it? Can it be configured by business users, or does IT need to be heavily involved?

Making changes to customized software often carries a cost in dollars and disruption equivalent to a whole new implementation. This is why companies get locked into processes driven by outdated technology—it’s just too painful to change.

Consider how the vendor is innovating. Will they respond to market changes, and how easy will it be for you to take advantage of new releases? The trend among more nimble development organizations is to release frequent small upgrades, versus a big bang every couple of years. The former can be much easier to digest; the latter may require an extensive change management process, again locking you into a version that is well past its “sell by” date.

Are they innovating by buying or building? Innovation through acquisition is not necessarily a bad thing, but it’s not usually as smooth a path as continuing to develop organically.

Finally, consider the cloud. There are very good reasons why more companies are choosing cloud solutions. They can more easily be scaled up or down in response to your business needs and supply chain disruption. And, with many users on a single platform, cloud companies are often able to leverage crowd-sourced feedback to drive a more user-centric development process.

It’s impossible to predict absolutely everything that will happen during a technology transformation. There’s a lot you can and should do internally to mitigate risk. And by picking partners and vendors that are in it for the long term, and paying attention to incentives, support during go-live and beyond, user adoption and futureproofing, you can go a long way toward mitigating external vendor risk as well.

A version of this article previously appeared in WiredInnovationInsights.