Vendor Mismanagement

In past decades, a growing share of knowledge work has been performed not by employees of the owner organization, but by vendors and contractors. The differences between vendors and contractors can be somewhat murky. Roughly speaking, a vendor is a business that provides the owner client a result. By contrast, a contractor is a business or an individual that provides the owner client the people needed to produce the result. Vendors provide results; contractors provide services that the payer uses to achieve those results.

For example, consider the task of optimizing snow clearance efforts for a small city. Optimizing plow routes is a necessary step. Because using the needed software and hardware does require some sophistication and special knowledge, the city might hire a contractor to work with city employees to produce optimized routes. Alternatively, the city might hire a vendor to deliver the optimized routes. In simple terms, the vendor is more likely than the contractor to produce the end result without even visiting city offices.

Because both vendors and contractors must be managed, both can be mismanaged. And because the differences between them are significant, differences in patterns of mismanagement are also significant. This post examines three patterns of vendor mismanagement. In what follows, I use the term payer to refer to the organization acquiring the result from the vendor; the term vendor monitor to refer to the payer employee responsible for supervising the vendor and verifying receipt of the result; and vendor rep to refer to the representative of the vendor empowered to speak for the vendor.

Three common forms of vendor mismanagement are mission creep, mission retrenchment, and payer employee capture.

Mission creep

Some vendors have an inherent conflict of interest. They benefit from using the existing agreement with the payer to secure additional business. When the vendor allows this "meta mission" to distort performance of the existing mission, the payer can be harmed.

Often, the vendor monitor is less expert in the subject matter of the mission than is the vendor. And under pressure to complete this task and others, the vendor monitor can be tempted to accept the advice and offerings of the vendor rep without seeking independent unbiased evaluation. Moreover, because of administrative controls within the payer organization, the vendor monitor often finds that creating a new mission for the vendor already under contract is more expeditious than seeking a new vendor for the new mission.

Too often, Because both vendors and
contractors must be managed,
both can be mismanagedthen, an existing vendor is hired to provide a result that would be better achieved by another vendor.

Track the ratio of two numbers. The numerator is the value of new vendor agreements or extensions created for existing vendors. The denominator is the total value of agreements or extensions. Pay special attention to the agreements that involve vendors delivering results that are beyond their usual areas of expertise.

Mission retrenchment

Mission retrenchment is the practice of "downscoping" an existing agreement. A common often unspoken reason for retrenchment is the inability of the vendor to achieve the agreed-upon result in full. The root causes might lie anywhere — within the vendor organization, within the payer organization, or both, or neither.

With respect to vendor mismanagement, the most significant of these are causes that lie within the vendor organization, but which aren't acknowledged as such. A failure mode that can cause significant harm to the payer involves collusion between the vendor rep and vendor monitor. Such collusion need not be malicious. They might have formed a friendship that precludes either of them recognizing both the vendor's failure and the vendor monitor's failure to acknowledge the vendor's failure.

One form of mission retrenchment can be less evident than others. It involves schedule slippage and/or budget creep. By extending the schedule or increasing the budget, the vendor gains additional time or resources to achieve the previously agreed-upon result. Both vendor and payer hope that the additional time and resources are adequate. They can be, if the cause of the shortcoming was miscalculation of schedule or resource requirement. But if the cause lies elsewhere, the extensions won't help much.

Monitor incidents of mission retrenchment. Determining root causes is an essential first step for identifying both substandard vendor performance and unrealistic payer expectations.

Payer employee capture

Perhaps the process most harmful to payer objectives is payer employee capture — expecially when the employee captured is the vendor monitor. Capture occurs when the payer employee begins to feel greater loyalty to the vendor than to the payer. The captured employee then takes steps to transfer credit to the vendor while transferring risk to the payer.

For example, if someone in the payer organization requests an estimated delivery date for some component of the expected result, a captured vendor monitor might recognize that providing such an estimate might commit the vendor to meeting that date, even though it was only an estimate. The captured vendor monitor might then seek to avoid providing such an estimate by choosing not to pass the estimate request to the vendor. Instead the vendor monitor might respond to the request with delays and excuses until the requestor ceases making such requests.

In extreme cases, the vendor rep and the vendor monitor form an alliance to protect the vendor's activities from the effects of the payer organization's process controls.

The indicators of employee capture are plain, but they can develop so slowly that they escape notice until a serious problem develops. Regular status reporting might be helpful; periodic detailed review might be necessary. If capture is detected, reassignment or termination of the vendor monitor might be necessary.

Working with the same vendor over a long period of time, and over numerous efforts, does provide both comfort and efficiency. But the price of that comfort and efficiency can be elevated risk of mission creep, mission retrenchment, and most important, payer employee capture.  Top    Next Issue

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