Computer systems are straightforward, right? Software, hardware. But what about choosing mainframe or desktop? LAN or WAN? NT or Unix? Clearly, managing technology is only getting harder. And vendor relationships are becoming at least as much a part of the equation as cables and wires.
A wealth of technology choices means that IT departments, from the smallest to the largest financial institutions, are being faced with a slew of decisions about exactly the right technology mix for the overall company. Then there are decisions to make about the optimal number of vendor relationships: Should a firm consolidate, strike a deal with existing vendors, open the process to competitive bids, or hire outside experts in certain areas, say telecom and market data, in lieu of training existing staff?
And who is going to spend their time managing these relationships?
Some firms set up a central authority to supervise technology vendors, while others delegate the job to the business units based on their expertise. But if the second path is taken, how does the technical staff retain the power to make the final decision?
Chief technology officers are called on not only to oversee infrastructure design, cost and enterprise-wide system performance, they are often the mediators between the vendors that provide hardware, software and an array of professional technical services. They also must weigh intangible variables, such as trust against price and service levels.
On average, a large financial institution deals with anywhere from 60 to 600 vendors. Whether a firm is a large U.S.-based global custodian, a big global investment bank, a mammoth mutual fund company or a mid-sized asset manager, todays giants in financial services wrestle not only with picking the right technologies, but they must also manage a growing legion of technology suppliers. And often, the ability to manage vendor relationships determines the success of the former.
Across our hardware, software and applications platforms we utilize well over 100 vendors, says Bob Sauvageau, CIO at American Century, the Kansas City-based mutual fund giant. Vendors used by the firm range from large enterprise vendors such as IBM, HP, Microsoft and PeopleSoft, to small niche suppliers who serve a particular specialty need.
IT Experts on Demand
The Internet boom in general leaves many financial services companies with a need for more Web savvy tech folk, and many firms find it is more efficient to outsource work than to train internal staff, as outside professionals are already up to speed and require no further training.
Aside from the usual hardware and software products, says Sauvageau, American Century uses service firms to generally augment their internal IT staff with specific expertiseamong these are Web tuning, security and testing. At any given time, the company is generally involved with at least 7 to 10 providers of various IT services.
Nor are vendor offerings limited strictly to computer bits, bytes and critical expertise. Global banking and brokerage giant Brown Brothers Harriman uses somewhere in the range of 500 to 600 vendors, notes CIO Bill Anderson, And in that number, Id include fax machines and telephones and everything else.
Andersons everything else includes hardware, desktop apps and services. The bank buys consulting services, project management tools and business equipment, like the majority of firms. When it comes down to buy or build, says Anderson, It makes sense that if someone has built out a proven product, well buy it.
Old Friends or New Faces: Partnerships Count
J.P. Morgan uses as many as 1,200 vendors which provide the firm with people, software and hardware, says Jim Mazarakis, managing director, information technology. Among the services they provide are sourcing, integration and standard products, such as portfolio analytics applications and performance engines. However, says Mazarakis, the firm effectively tries to limit the consulting, body shop vendors to a manageable list of 30 for new business. J.P. Morgan still has some niche vendors for specific skills. But for other products, says Mazarakis, technology needs are determined by concentrating on firm-wide standards, rather than by specific vendor.
James Shields, CIO, Delaware Investment Management Co., notes that the firm deals most often with existing vendors to obtain software, network and PC hardware, and server hardware consulting services. We try to leverage existing relationships where possibleyou get a lot more attention and better pricing if you can manage to do so. But you have to be careful, he cautions, about sacrificing quality.
Delaware, says Shields, does, however, try to keep the number of big relationships at a manageable number. If the firm is satisfied with a particular vendor, says Shields, it saves a lot of time to go with that vendor for a particular solution that the firm needs, particularly since there is more of a chance that existing products might work together well.
You have to find and maintain some very strong vendor relationships, says Shields, and treat them, really, as partnerships. There are many times when we get stuck, and we need vendors we can depend on. Pricing is obviously an important factor in settling a contract on a certain vendor, but service and trust are probably right up there as well.
When it comes to deciding to award a new contract to a current vendor or to use a new face, We dont go out of our way to say we wont talk to anyone else, says Anderson. But we do try to consolidate whenever possible. For instance, with mainframe software, scheduling or workgroup products, the firm absolutely tries to look at one vendor, he adds. But you do need to look at several, in order to cover yourself, certainly in telecommunications, for redundancy purposes, Anderson continues.
Typically, says Anderson, Brown Brothers Harriman uses one vendor to provide key elements, on the hardware side particularly. Mainframes, for example, are not necessarily interchangeable; they are a big-ticket item. In this case, says Anderson, To really take a look at competitive bids, it helps with internal supporttotal costto stay with one vendor. You wind up supporting less product linesit can be more cost effective.
On the consulting side, says Anderson, if the firm is in the market for specialistsnetwork analysts, for exampleit makes sense to consolidate vendors. The firm engages in an open-bid process every two years, reviewing the skill sets that companies have to offer, if they are current. The firm has two established technical headquarters, but IT managers look across consulting firms for enterprise-wide services. We select our primary vendors from maybe the top five firms, explains Anderson, with a secondary tier comprised of some 5 to 10 firms, and we then flesh out those services that are not being delivered on the first and second tiers with technical professionals who are specialists in a certain niche area.
Best of Breed Wins Out
Though financial firms may trust their existing vendors, the best of breed approach often takes precedence.
While it would be easier to manage a single vendor, says American Centurys Sauvageau, the company prefers a best of breed approach when scouting out new vendor offerings. Existing vendors dont get preferential treatment, But they do have an advantage in that they understand our environment and can craft a solution that fits within our technical or applications architecture.
For professional services, says Sauvageau, the firm tries to limit the number of current vendors to a roster of five to seven, fewer if feasible. This gives the company leverage with the firms, keeping them from the often time-consuming start-up process with a new service provider.
At Datek Online, says a company spokesman for the Internet brokerage, We like to approach our existing vendors first, but quality of product or service is always the main deciding factor.
Current vendors do have an advantage, says J.P. Morgans Mazarakis, only in that they are more likely to hear about new opportunities first. If were given a good first solution from them, says Mazarakis, we may stay with that particular vendor. However, even in that case, we still push them hard to be competitive in their pricing. And we still go with best of breed regardless of existing relationships.
Service Is Essential
On the issue of vendor relationships, Brown Brothers Harrimans Anderson also agrees that service is at least as important as a product price tag, perhaps more so, as firms depend on their technology in order to do business effectively. When Brown Brothers Harriman is deciding what vendor to go with, the firm will always favor a vendor that is proactive. We review existing vendors and ask ourselves if it has been a good experience working with them. The biggest factor in selecting a particular vendor is not always product or service cost, it is how well you work with them, how well they work with you.
It is possible, admits Anderson, to find the greatest product out there at the greatest price, But if the vendor is not service-oriented, they might sell you their product but you walk out the door with it and the desert winds out there are blowingthey just dont back up their products with necessary follow-up. All of us in the business have experienced that.
Business folks are easier to sell to than the technical folks sometimes, notes Anderson wryly. In fact, he notes, many times vendors will approach the business lines initially, show them a demo, and talk with them about the product. They might bring in the nicest, most impressive demo, the greatest presentation on earth. It doesnt mean youre going to wind up with a product that you can work with, he adds.
You really need to use a service model, look at the guts of it, see how the product will benefit your business, comments Anderson on why many vendor products fall by the wayside in actual usage. You have to use a certain amount of caution during the initial selection stage, says Anderson. IT managers cant just look at price or promotional flim-flam. Service is important. They have to deliver the whole package.
The final purchasing decision should rest with the technical department, in Andersons opinion, as they will best be able to gauge if the product will deliver on its intended purpose. Thats why you also have to have a good working relationship with your business side, which we do, luckily, Anderson says.
Centralize or Delegate
Firms often divvy up vendor services by department, using the rationale that each division knows best what are its particular technical needs. We use approximately 900-plus vendors, notes a Datek Online brokerage company spokesman, one being Tumbleweed Communications, which we use to provide electronic trade confirmations to our customers. Dateks vendors services differ depending on the department they have a relationship with. Datek doesnt have a specific person in place to interact with its stable of vendors. Each department is responsible for maintaining relationships with their specific vendors.
Brown Brothers Harriman also disperses responsibility for vendor relationships to specific areas of expertise, according to Anderson. Our market data units, telecom, data centersthey all, more or less, own their vendor relationships. But the paperwork does go through counsel for contractual revieware we covered for service, performance, recovery, etc?
American Century does not have a specific person in charge of all vendor relationships. However, they are considering the possibility, says Sauvageau, as a means of centralizing vendor management. Designating a single person or department to handle vendor relationships is a rare practice, but not unheard of.
J.P. Morgan has a VMOvendor management officethat handles many of its vendor relationships, says Mazarakis, not to restrict vendor access, but to standardize the way our firm interacts, delivery schedules, etc. and to handle the discounts we get from them.
On the other hand, Shields reports that although the business people own the vendor relationships with the
software vendors, it is the vice president of technical services that owns the higher-end relationships. Delaware Investment also has dedicated staff dealing with the hardware and software ordering process.
Y2k Didnt Bug Many
Surprisingly, the advent of Y2k and its attendant technical glitches impacted very little on most firm-vendor relationships, at least in regard to a rising demand for vendor products and services. At Delaware Investment, for example, the number of vendors the firm retains remains the same, according to Shields. Some firms reported a slight rise in services provision. American Centurys Sauvageau noticed a small increase for Y2k services. However, the firm concentrated its use of Y2k remediation in two primary firms.
For others, Y2k actually represented an opportunity to trim down on some outstanding contracts. The one good thing about Y2k, Anderson points out, is it helped firms get a real handle on their inventory. Its interesting. Initially, after we dug into this and verified inventory, we worked with vendors to make sure we were on top of every software package, and we wound up doing a lot of desktop consolidation. Between the firms Y2k technology redux and some of the industry consolidations going on, particularly on the telecom side, Brown Brothers Harriman actually decreased its vendor roster, over 1999, by some 50 to 60 vendors.
However, Anderson points out, since that time, we have increased our active list again because of the need for Internet products and services. Its a little bit like the rollercoaster effect: we cleaned up and consolidated, renegotiated certain things with vendors, but with everyone going over to the Internet, weve increased our vendor contracts on that side, definitely, over the past year.
At J.P. Morgan, says Mazarakis, with Y2k in the picture, the number of vendors the firm used had actually decreased. As J.P. Morgans IT core staff critically examined the firms technology portfolio, tech decision-makers used the opportunity to reduce redundancies, vendor products and product versions.
Ultimately, the real test of a vendor relationship usually comes during a serious technology meltdown. Working in a multi-vendor environment can be challenging, admits American Centurys Sauvageau. A vendor proves their worth not when everything is going well, but when there are problems. How they behave in a crisis is crucial. Some vendors become very defensive about their product or service, resulting in lots of fingerpointing. A truly valuable vendor, continues Sauvageau, is one who behaves as a business partner in the truest sense, one who digs in and helps to work through the issues regardless of the root cause.