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Share risks and rewards with suppliers, CIOs told

IT directors looking to manage their relationships with suppliers should begin by deciding how best to make the tendering process competitive, regardless of the number of bidders, according to David Copland, global head of IT at Man Investments.

He said IT chiefs should encourage their suppliers to share the rewards on offer from contracts and, if possible, the risks too.

Copland, who was speaking at the City IT financial services technology forum on board the cruise ship Oriana, told delegates that IT directors should take steps to frame the business needs to be addressed by contracts.

He said relationships should be managed so that extra resources could be called upon where necessary and exit strategies worked out before contracts were signed.

Copland said he had learnt a lot from managing the supplier relationships at Man Investments, a FTSE 100 investment company.

"We always go down the multiple bidder route. We only use preferred suppliers for long-term relationships and commodity IT sourcing," he said.

Copland shared the stage with Mark Turner, a partner at law firm Herbert Smith. Turner told delegates of one financial services company that employed consultants to create a shadow bid for comparison when its biggest incumbent supplier became preferred bidder for a business transformation project.

"But my view is that it does not replace the competitive tension of having multiple bidders," Turner said.

Copland said Man Investments wanted to share both risks and rewards with its suppliers, but passing on risk was still rare.

He said, "I think the appetite among suppliers is very low for sharing the risk and we have only used this approach once. Reward is definitely something we have used more often."

He said one of Man Investments' smaller suppliers was given the right to resell jointly developed software components provided that it did not infringe the company's proprietary rights.

Turner warned firms against securing too low a price for their suppliers because they ran the risk of failing to deliver in the long term.

And Copland said IT directors should understand their business needs because suppliers would try to change those needs to fit their own products.

"Suppliers have a hammer and they try to make your business needs resemble a nail," he warned.

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