IT Vendor Governance the Key to Realizing Value from IT Supplier Relationships

August, 2022

IT vendor governance is a function and set of practices that guide the selection, management, and assessment of IT suppliers to ensure that all parties comply with the terms of their contracts. IT supplier management has been a best practice for many years, but the disciplines have evolved. Traditional IT supplier management practices are now inadequate to navigate the changing ecosystem of vendors and increasingly complex business relationships.

Why? Because an increasing focus on business outcomes and transformation initiatives present significant challenges to traditional vendor governance practices. IT vendor governance is a maturing best practice, but business leaders need to understand the value that can be realized by embracing it.

Figure 3 from our full report, IT Vendor Governance Best Practices, shows where organizations are at each level of adoption. The three green bars make up the practice rate: 15% have an informal IT vendor governance practice, 35% have a formal one but apply it inconsistently, and 24% are formal and consistent in their use of this practice (the maturity level).

Practice Adopotion Stages 1030x687 - IT Vendor Governance the Key to Realizing Value from IT Supplier Relationships

The upshot is that most organizations need to transform their vendor governance programs from reactive, control-oriented functions to programs that are proactive, strategic, and value-driven. But how do companies approach this? In some cases, IT organizations can do it all in-house. But in other cases, governance systems and third-party governance services can be used as force multipliers to provide the needed capabilities and maturity required to establish a robust IT vendor governance practice.

“IT leaders spend a lot of time and effort selecting suppliers but then fail to establish a good governance program for the ongoing relationship,” said Avasant Vice President Jim Lee. “IT vendor governance is an essential element in stopping value leakage and getting the most from IT vendors and service providers.”

IT vendor governance is part of a larger governance function that overlaps with other best practices, including cloud governance, another new best practice in our annual study, IT Management Best Practices. IT vendor governance has a high maturity rating this year. Its maturity rating is relative to the 32 other best practices studied in our annual study. However, the number of survey respondents consistently and formally applying IT vendor governance falls short of the number practicing it to some degree. Thus, vendor governance programs should be evaluated to determine where they can be improved.

In our full report, we study the adoption and practice levels for IT vendor governance and examine those by organization size and sector. We conclude with practical recommendations for implementing and getting the most out of vendor governance programs and describe the benefits of outsourcing them, in whole or in part.

This Research Byte is a brief overview of our report, IT Vendor Governance Best Practices.