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CIO Unplugged 5/12/10

The views and opinions expressed in this blog are mine personally, and are not necessarily representative of Texas Health Resources or its subsidiaries.

Maximizing Vendor Relationships
By Ed Marx

Vendor management can frustrate even the most elite organization. You can love ’em or hate ’em, but you can’t live without them.

Over the years, I’ve learned to take a proactive approach that allows both the organization and the vendor to achieve their goals while providing maximum benefits for the health system. Here is our simple structure.

Categorize Vendors

First, stratify vendors into four categories. You may find a better framework than what is presented below, but the point is to define how you team up with each vendor. The following categories and principles work for us:

Strategic. Out of hundreds, the vendors that qualify as strategic can be counted on one hand. Elevate these relationships to partnership status at an enterprise level. Consider them health system partners, not merely IT strategic partners. Our C-suite partakes in the selection and then personally invests time in relationship maintenance. Strategic partners identified: transformational, high-dependence, high-cost exposure vendors, and those with whom we wish to increase business. As CIO, I’m the primary relationship manager. I devote my time and energy exclusively to our strategic partnerships.

Tactical. We work with two dozen tactical suppliers. We’re similarly intentional on how we screen and invite these vendors. Tactical suppliers are typically smaller in cost and exposure and are transactional, yet they’re critical to the success of our organization. My direct reports divvy up ownership responsibilities for these important, exclusive relationships.

General. Given the existing business relationship, there’s nothing negative about this category. On average, however, these vendors supply commodities that provide little opportunity to differentiate. Therefore, we spend less time and energy with them. While we expect to maximize this relationship, we continually remind general vendors that maximization will not reach the same level as with strategic / tactical vendors. Our managers and directors own these general vendor relationships.

Emerging. This finite category of vendors has a small initial presence that we expect to build over time due to great potential. Emerging suppliers may come from our tactical or general relationships or may be a net new entrant. My direct reports manage these relationships closely.

Identify Vendors

As a Baldrige-oriented organization, we have a recognized and practiced process by which we discriminate between vendors.

Manage Relationships Proactively

Each strategic, tactical, and emerging relationship is managed intentionally and includes formal controls. We also have codified rules of engagement:

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Next month, I will lead members of our C-suite on site visits to our strategic partners’ corporate headquarters to enhance the executive relationships. My hope is to bring about opportunities that will help fulfill our mission and vision. Although we are unable to devote equal amounts of energy to all suppliers, we do scorecard every strategic, tactical, and emerging vendor annually.

Measure Outcomes

To measure benefits differently for each level of supplier, consider the following: quality of product and service, shared value, maximization of investment, branding, influence, price points, and innovation. Assessed annually, these outcomes are part of the scorecard process as well as topics of discussion among executives on both sides. This forum for transparency and accountability leads to a win-win collaborative approach.

On a practical note

Suppliers persistently seek the CIO’s attention. I wish I had the energy to meet with each one. Having a structure and proactively managing vendor relationships allows me to treat all vendors fairly and frees me up to focus on what matters most.

By concentrating exclusively on our strategic partners, I can ensure that we exploit both investment and commitment. The described process above values vendor interests while optimizing benefits for our health system, clinicians, and patients.

To encourage comments, I will send a generic version of our strategic partnership framework to all who post. The framework contains significantly more detail.

Update: Response to Comments Posted Through 5/14/10

I appreciate the richness of the responses!

A couple of comments. As stated in the post, we work with hundreds of vendors. By definition this implies that we do not have a single vendor solution. There are so many variables to consider and it comes down to the uniqueness of each institution and culture. For us, we have found that a hybrid approach works well. A handful of broad based vendors and BoB. That said, the point of the post was not a position on either but rather the advice that you must maximize your vendor relationships. One way this can be achieved is with structure. It is not a new concept, but it is yet largely unpracticed.

With vendor partnerships, especially with those that are considered strategic, you need to build in formal controls so that the relationship does not go sideways and either party gets scarred. These controls and rules of engagement address things like kickbacks and do not allow for discounts for “talking up vendors”. I touched on this briefly and those of you who left your e-mail, you will get more detail shortly via the generic framework.

In fact if you like what you receive, let HIStalk know and I will send out our very detailed scorecard and review system. It is hard for me to believe that vendors and customers do not sit down together at least annually and score one another. It leads to some tough conversations that are crucial for shared benefit and success. You are what you measure.

I happen to agree with the sentiment that healthcare IT is so far behind and other industries are more customer-centric. You need to read my post Why Healthcare IT Lags.

One of the things we analyze when considering a vendor relationship is the leadership. I believe our strategic partners have had the same CEOs in place for many years. We look for consistency in leadership, so we have not hit the revolving door issue that someone asked about. All of our strategic, tactical, and emerging vendors have made these reciprocal relationships. If they don’t, it is not a relationship and we will end it.

I smiled when I read the comment that our vendor framework is flawed for lack of physician input. I am fortunate to have three physicians in IT and, trust me, they are not shy and I am thankful for this. In fact, they are one of the main reasons we have been so successful with leveraging IT. We have an IT governance council made up of many other clinicians and our C-suite includes an additional three docs.

I am wise enough to know that customer input is a key success factor. I shed my office 15 months ago so I would not become too comfortable. Instead, I spend more time with my customers in their environments. You don’t know me. Keep reading and you will.

You know, I am not sure on the question about inadvertently creating an internal hierarchy based on which vendor you might work with. I can see the point. None of my team has mentioned this as an issue, nor have I seen any behaviors to be concerned with. But I also know that despite my direct team engagement, I can be sheltered. I will need to watch out for this.

So for my IT colleagues, either manage your vendors or be managed. For my vendor readers, if your customer does not have a framework, recommend one. The benefits are mutual. We need one another. I am fortunate to work with many incredible vendors and feel good that we have a fair and equitable framework from which we can build on.

edmarx

Ed Marx is senior vice president and CIO at Texas Health Resources in Dallas-Fort Worth, TX. Ed encourages your interaction through this blog. Add a comment by clicking the link at the bottom of this post. You can also connect with him directly through his profile pages on social networking sites LinkedIn and Facebook, and you can follow him via Twitter – User Name “marxists.”