Implementing exponential IT will require businesses to work with external vendors to facilitate the rapid adoption of cutting-edge technologies such as generative artificial intelligence. IT leaders must:
These challenges require new skills which build trust and collaboration among vendors.
Outcome-based relationships require a higher degree of trust than traditional vendor relationships. Build trust by sharing risks and rewards.
Besides the small introduction, subscribers and consulting clients within this management domain have access to:
This research walks you through how to assess your capabilities to undertake a new model of vendor relationships and drive exponential IT.
This tool will facilitate your readiness assessment.
Exponential IT brings with it an exciting new world of cutting-edge technology and increasingly accelerated growth of business and IT. But adopting and driving change through this paradigm requires new capabilities to grow impactful and meaningful partnerships with external vendors who can help implement technologies like artificial intelligence and virtual reality. Building outcome-based partnerships involves working very closely with vendors who, in many cases, will have just as much to lose as the organizations implementing these new technologies. This requires a greater degree of trust between parties than a standard vendor relationship. It also drastically increases the risks to both organizations; as each loses some control over data and outcomes, they must trust that the other organization will follow through on commitments and obligations. Outcome-based partnerships build upon traditional vendor management practices and create the potential for organizations to embrace emerging technology in new ways. Kim Osborne Rodriguez |
Exponential IT drives change |
Vendor relationships must evolve |
To deliver exponential value |
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Implementing exponential IT will require businesses to work with external vendors to facilitate the rapid adoption of cutting-edge technologies such as generative artificial intelligence. IT leaders must:
These challenges require new skills which build trust and collaboration with vendors. |
Traditional vendor management approaches are still important for organizations to develop and maintain. But exponential relationships bring new challenges:
IT leaders must adapt traditional vendor management capabilities to successfully lead this change. |
Outcome-based relationships should not be undertaken lightly as they can significantly impact the risk profile of the organization. Use this research to:
Exponential value relationships will help drive exponential IT and autonomization of the enterprise. |
Info-Tech Insight
Outcome-based partnerships require a higher degree of trust than traditional vendor relationships. Build trust by sharing risks and rewards.
An outcome-based relationship requires a higher level of mutual trust than traditional vendor relationships. This requires shared reward and shared risk.
Don’t forget about traditional vendor management relationships! Not all vendor relationships can (or should) be outcome-based.
INDUSTRY: Technology
SOURCE: Press Release
Microsoft and OpenAI partner on Azure, Teams, and Microsoft Office suite
In January 2023, Microsoft announced a $10 billion investment in OpenAI, allowing OpenAI to continue scaling its flagship large language model, ChatGPT, and giving Microsoft first access to deploy OpenAI’s products in services like GitHub, Microsoft Office, and Microsoft Teams.
Shared risk
Issues with OpenAI’s platforms could have a debilitating effect on Microsoft’s own reputation – much like Google’s $100 billion stock loss following a blunder by its AI platform Bard – not to mention the financial loss if the platform does not live up to the hype.
Shared reward
This was a particularly important strategic move by Microsoft, as its main competitors develop their own AI models in a race to the top. This investment also gave OpenAI the resources to continue scaling and evolving its services much faster than it would be capable of on its own. If OpenAI’s products succeed, there is a significant upside for both companies.
Traditional procurement |
Vendor management |
Exponential vendor relationships |
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Use this research to successfully |
Use Info-Tech’s research to Jump Start Your Vendor Management Initiative.
Eighty-seven percent of organizations are currently experiencing talent shortages or expect to within a few years.
Sixty-three percent of IT leaders plan to implement AI in their organizations by the end of 2023.
Build trust |
Successfully managing exponential relationships requires increased trust and the ability to share both risks and rewards. Outcome-based vendors typically have greater access to intellectual property, customer data, and proprietary methods, which can pose a risk to the organization if this information is used to benefit competitors. Build mutual trust by sharing both risks and rewards. |
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Manage risk |
Outcome-based relationships with external vendors can drastically affect an organization’s risk profile. Carefully consider third-party risk and shared risk, including ESG risk, as well as the business risk of losing control over capabilities and assets. Qualified risk specialists (such as legal, regulatory, contract, intellectual property law) should be consulted before entering outcome-based relationships. |
Drive outcomes |
Fostering strategic relationships can be instrumental in times of crisis, when being the customer of choice for key vendors can push your organization up the line from the vendor’s side – but be careful about relying on this too much. Vendor objectives may not align with yours, and in the end, everyone needs to protect themselves. |
Exponential Relationships Readiness Assessment
Determine your readiness to build exponential value relationships.
Our research indicates that most organizations would take months to prepare this type of assessment without using our research. That’s over 80 person-hours spent researching and gathering data to support due diligence, for a total cost of thousands of dollars. Doesn’t your staff have better things to do?
Start by answering a few brief questions, then return to this slide at the end to see how much your answers have changed.
Use Info-Tech’s research to Exponential Relationships Readiness Assessment.
Questions |
Before |
After |
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To what extent are you satisfied with your current vendor management approach? |
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How many of your current vendors would you describe as being of strategic importance? |
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How much do you spend on vendors annually? |
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How much value do you derive from your vendor relationships annually? |
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Do you have a vendor management strategy? |
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What outcomes are you looking to achieve through your vendor relationships? |
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How well do you understand the core capabilities needed to drive successful vendor management? |
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How well do you understand your current readiness to engage in outcome-based vendor relationships? |
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Do you feel comfortable managing the risks when working with organizations to implement artificial intelligence and other autonomous capabilities? |
Manage your budget and spending to stay on track throughout your relationship.
“Most organizations underestimate the amount of time, money, and skill required to build and maintain a successful relationship with another organization. The investment in exponential relationships is exponential in itself – as are the returns.”
This step involves the following participants:
Activities:
Why is this important?
Build it into your practice:
Budget procedures |
Financial alignment |
Adaptability |
Financial analysis |
Reporting & compliance |
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Clearly articulate and communicate budgets, with proactive analysis and reporting. |
There is a strong, direct alignment between financial outcomes and organizational strategy and goals. |
Financial structures can manage many different types of relationships and structures without major overhaul. |
Proactive financial analysis is conducted regularly, with actionable insights. |
This exceeds legal requirements and includes proactive and actionable reporting. |
Drive exponential value by becoming a customer of choice.
“The more complex the business environment becomes — for instance, as new technologies emerge or as innovation cycles get faster — the more such relationships make sense. And the better companies get at managing individual relationships, the more likely it is that they will become “partners of choice” and be able to build entire portfolios of practical and value-creating partnerships.”
This step involves the following participants:
Activities:
Why is this important?
Build it into your practice:
Strategic alignment |
Follow-through |
Information sharing |
Shared risk & rewards |
Communication |
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Work with vendors to create roadmaps and strategies to drive mutual success. |
Ensure demands are reasonable and consistently follow through on commitments. |
Proactively and freely share relevant information between parties. |
Equitably share responsibility for outcomes and benefits from success. |
Ensure clear, proactive, and frequent communication occurs between parties. |
Outcomes management focuses on results, not methods.
According to Jennifer Robinson, senior editor at Gallup, “This approach focuses people and teams on a concrete result, not the process required to achieve it. Leaders define outcomes and, along with managers, set parameters and guidelines. Employees, then, have a high degree of autonomy to use their own unique talents to reach goals their own way.” (Forbes, 2023)
In the context of exponential relationships, vendors can be given a high degree of autonomy provided they meet their objectives.
This step involves the following participants:
Activities:
Why is this important?
Build it into your practice:
Goal setting |
Negotiation |
Performance tracking |
Issue |
Scope management |
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Set specific, measurable and actionable goals, and communicate them with stakeholders. |
Clearly articulate and agree upon measurable outcomes between all parties. |
Proactively track progress toward goals/outcomes and discuss results with vendors regularly. |
Openly discuss potential issues and challenges on a regular basis. Find collaborative solutions to problems. |
Proactively manage scope and discuss with vendors on a regular basis. |
Exponential IT means exponential risk – and exponential rewards.
One of the key differentiators between traditional vendor relationships and exponential relationships is the degree to which risk is shared between parties. This is not possible in all industries, which may limit companies’ ability to participate in this type of exponential relationship.
This step involves the following participants:
Activities:
Why is this important?
Build it into your practice:
Info-Tech Insight
Some highly regulated industries (such as finance) are prevented from transferring certain types of risk. In these industries, it may be much more difficult to form vendor relationships.
Customers care about ESG. You should too.
Protect yourself against third-party ESG risks by considering the environmental and social impacts of your vendors.
Third-party ESG risks can include the following:
Working with vendors that have a poor record of ESG carries a very real reputational risk for organizations who do not undertake appropriate due diligence.
Seventy-seven percent of customers believe companies have a responsibility to manufacture sustainably.
Sixty-eight percent of customers believe businesses should ensure their suppliers meet high social and environmental standards.
Fifty-five percent of customers consider the environmental impact of production in their purchasing decisions.
Third-party risk |
Value chain |
Data management |
Regulatory & compliance |
Monitoring & reporting |
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Understand and assess third-party risk, including ESG risk, in potential relationships. |
Assess risk throughout the value chain for all parties and balance risk among parties. |
Proactively assess and manage potential data risks, including intellectual property and strategic data. |
Manage regulatory and compliance risks, including understanding risk transfer and ultimate risk holder. |
Proactive and open monitoring and reporting of risks, including regular communication among stakeholders. |
Contract management is a critical part of vendor management.
Well-managed contracts include clearly defined pricing, performance-based outcomes, clear roles and responsibilities, and appropriate remedies for failure to meet requirements. In outcome-based relationships, contracts are generally used as a secondary method of enforcing performance, with relationship management being the primary method of addressing challenges and ensuring performance.
This step involves the following participants:
Activities:
Pricing |
Performance outcomes |
Roles and responsibilities |
Remedies |
Payment |
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Pricing is clearly defined in contracts so that the total cost is understood including all fees, optional pricing, and set caps on increases. |
Contracts are performance-based whenever possible, including deliverables, milestones, service levels, due dates, and outcomes. |
Each party's roles and responsibilities are clearly defined in the contract documents with adequate detail. |
Contracts contain appropriate remedies for a vendor's failure to meet SLAs, due dates, and other obligations. |
Payment is made after performance targets are met, approved, or accepted. |
1-3 hours
Download the Exponential Relationships Readiness Assessment tool.
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This step involves the following participants:
Activities:
Consider the following recommendations based on your readiness assessment scores:
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Jump Start Your Vendor Management Initiative
Create and implement a vendor management framework to begin obtaining measurable results in 90 days.
Elevate Your Vendor Management Initiative
Transform your VMI from tactical to strategic to maximize its impact and value
Evaluate Your Vendor Account Team to Optimize Vendor Relations
Understand the value of knowing your account team’s influence in the organization, and your influence, to drive results.
Build an IT Risk Management Program
Mitigate the IT risks that could negatively impact your organization.
Build an IT Budget
Effective IT budgets are more than a spreadsheet. They tell a story.
Adopt an Exponential IT Mindset
Thrive through the next paradigm shift..
Kim Osborne Rodriguez |
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Kim is a professional engineer and Registered Communications Distribution Designer (RCDD) with over a decade of experience in management and engineering consulting spanning healthcare, higher education, and commercial sectors. She has worked on some of the largest hospital construction projects in Canada, from early visioning and IT strategy through to design, specifications, and construction administration. She brings a practical and evidence-based approach, with a track record of supporting successful projects. Kim holds a Bachelor’s degree in Honours Mechatronics Engineering and an option in Management Sciences from the University of Waterloo. |
Jack Hakimian Jack has more than 25 years of technology and management consulting experience. He has served multibillion-dollar organizations in multiple industries including financial services and telecommunications. Jack also served several large public sector institutions. He is a frequent speaker and panelist at technology and innovation conferences and events and holds a Master’s degree in Computer Engineering as well as an MBA from the ESCP-EAP European School of Management. |
Michael Tweedie Mike Tweedie brings over 25 years as a technology executive. He’s led several large transformation projects across core infrastructure, application and IT services as the head of Technology at ADP Canada. He was also the Head of Engineering and Service Offerings for a large French IT services firm, focused on cloud adoption and complex ERP deployment and management. Mike holds a Bachelor’s degree in Architecture from Ryerson University. |
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Scott Bickley Scott Bickley is a Practice Lead & Principal Research Director at Info-Tech Research Group, focused on Vendor Management and Contract Review. He also has experience in the areas of IT Asset Management (ITAM), Software Asset Management (SAM), and technology procurement along with a deep background in operations, engineering, and quality systems management. Scott holds a B.S. in Justice Studies from Frostburg State University. He also holds active IAITAM certification designations of CSAM and CMAM and is a Certified Scrum Master (SCM). |
Donna Bales Donna Bales is a Principal Research Director in the CIO Practice at Info-Tech Research Group, specializing in research and advisory services in IT risk, governance, and compliance. She brings over 25 years of experience in strategic consulting and product development and has a history of success in leading complex, multistakeholder industry initiatives. Donna has a bachelor’s degree in economics from the University of Western Ontario. |
Jennifer Perrier Jennifer has 25 years of experience in the information technology and human resources research space, joining Info-Tech in 1998 as the first research analyst with the company. Over the years, she has served as a research analyst and research manager, as well as in a range of roles leading the development and delivery of offerings across Info-Tech’s product and service portfolio, including workshops and the launch of industry roundtables and benchmarking. She was also Research Lead for McLean & Company, the HR advisory division of Info-Tech, during its start-up years. Jennifer’s research expertise spans the areas of IT strategic planning, governance, policy and process management, people management, leadership, organizational change management, performance benchmarking, and cross-industry IT comparative analysis. She has produced and overseen the development of hundreds of publications across the full breadth of both the IT and HR domains in multiple industries. In 2022, Jennifer joined Info-Tech’s IT Financial Management Practice with a focus on developing financial transparency to foster meaningful dialogue between IT and its stakeholders and drive better technology investment decisions. |
Phil Bode Phil has 30+ years of experience with IT procurement-related topics: contract drafting and review, negotiations, RFXs, procurement processes, and vendor management. Phil has been a frequent speaker at conferences, a contributor to magazine articles in CIO Magazine and ComputerWorld, and quoted in many other magazines. He is a co-author of the book The Art of Creating a Quality RFP. Phil has a Bachelor of Science in Business Administration with a double major of Finance and Entrepreneurship and a Bachelor of Science in Business Administration with a major of Accounting, both from the University of Arizona. |
Erin Morgan |
Renee Stanley |
Note: Additional contributors did not wish to be identified.
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