Optimizing VMO – Strategic Vendor Management

This is the first in a five part series about optimizing VMO for modern IT organizations.

Vendor management is increasingly becoming the primary role of IT. As the cost effectiveness, reliability, and flexibility of third party services increase, more applications, infrastructure, and platforms are moving from in-house to the cloud. This is driving a fundamental restructuring of IT with a greater focus on building relationships with providers, and working with them to deliver IT services to support the business. As this transformation takes place, IT leaders need to optimize their VMO and implement initiatives for better strategic vendor management.

Why better IT governance is critical

Today, IT services are increasingly being fulfilled across a wide network of providers. In order to ensure that these providers can effectively perform their functions, IT organizations must make certain their providers are transparent, coordinated, reliable and consistently delivering business value. This means that the IT organization must implement a framework for quick and efficient decision making that optimizes IT service delivery across all operating units and maximizes the business value of IT investments.

Optimizing Your Strategic Vendor Management Strategy

In order to better manage vendors in the modern IT era, it is important for your organization to understand what an optimal strategy is and the roadmap to get there. The organizations at lower maturity levels will need to fundamentally restructure their approach to vendor management and build new teams and initiatives to ensure that providers are delivering the best business value.

Initial stage – Those IT organizations that do not actively manage vendors and instead leave oversight to operational staff will suffer from inefficient and uncoordinated IT services. Performance management will be purely ad hoc and reactive, rather than strategic and according to an overall business strategy. Organizations at this stage must immediately begin building teams and systems to consolidate vendor management and gather coordinated performance metrics.

Managed Stage – At this stage, IT has a VMO staff that actively manages vendors and measures performance in a range of metrics. This represents a major leap from the initial maturity level but is limited in multiple ways. In order to further optimize VMO, organizations must expand their performance metrics beyond simply measuring contract SLAs and move towards more business goal oriented metrics. Organizations must also be expanding the scope of VMO and further consolidating vendor management from operational staff.

Defined – The core characteristic of this stage will be the definition of more concrete vendor engagement plans to drive business goals. At this point, VMO staff will be matrixed to strategic vendors and performance metrics will be focused on continuous improvement.

Optimized – This represents a high maturity level with VMO staff dedicated to strategic vendors. Performance metrics will be linked to other vendors and tied directly to business goals. This provides a means of comparing vendors, finding problem areas and ensuring that they are delivering real business value. VMO staff should be continuously looking for ways to optimize vendor relationships and deliver better service and value to the business. This means regularly reviewing vendor performance and ensuring that there is always a rationalization for their service. These decisions must be supported with real facts and data collected rigorously by the VMO staff.


The future of strategic vendor management lies in a comprehensive business oriented approach to sourcing and vendor relationships. The VMO must consolidate vendor management away from operational staff and integrate cross-vendor, business driven metrics to replace those tied only to cost or SLAs. This will help ensure that services from a wide range of providers are better coordinated and better support business goals.

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