Key factors for designing an IT vendor selection strategy

12 January, 2021 | reading 4 min.

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Discover the keys of effective IT vendor selection to meet your objectives within your organization’s digital transformation agenda and reduce IT costs

There are many information-intensive sectors such as the financial , insurance or Telco, where IT departments are seen as the crown jewels, the only ones capable not only to symbolize progress and innovation but also to grow the business.

Therefore, many organizations are embracing new technologies such as cloud services, data analysis, AI, etc. The implementation of these technologies results in a very complex IT environment, unlike anything we have seen before, which covers various delivery models, vendors, processes and data. However, things get complicated when in uncertain times such as the ones we are living, these same organizations that prioritize technological development, establish fixed IT budgets or increasingly reduced and inflexible IT systems. Many organizations trying to manage these complex hybrid environments simply cannot meet the digital transformation agendas their business requires.

Drivers for development outsourcing  

As a result, all organizations, regardless of size, are now testing their strategies to see if the IT services they design and deliver internally can be more valuable, effective and efficient when delivered by a managed service provider. And this is where the reasons for doing so fit in.

1/ Cost reduction. It is self-explanatory and does not need to go into detail. The vendors are able to offer an optimal cost.

2/ Efficiency increase. A vendor can bring added value from best practices, standardization, and automation to the point where IT areas can reach a level of industrialization that results in greater efficiency and more robust IT controls.

3/ Access to new skills. They are not available within the organization, but are accessed through specialized vendors on demand, when needed.

4/ Risk reduction. Service vendors have an experience that is difficult to achieve at home. They have the ability to see problems that companies locally could only rarely see and the vendors already know how to solve them or even better how to proactively anticipate and prevent them.

Avoiding the failure of outsourcing

Being confident about your need for outsourcing does not mean that you can always do it successfully. According to a study by CMMI (2010), 20 to 25 percent of large IT procurement projects fail within two years of their startup and up to 50 percent fail within five years. The question is clear, why?

There are several factors contributing to this disaster, the most important of them being inadequate selection and contracting of vendors. Therefore, having a guide when making such selection becomes an essential asset.

Keys to effective supplier selection

1/ Size does not always matter. Many companies choose to hire a large technology consulting company that, by definition, should meet the needs of these company’s IT departments, but it is at this point that we should reflect and question whether this large technology companies are the most suitable for our business. It is likely that there are other consulting companies, perhaps not as big, but more specialized, that can offer us a certain type of service with the same level of quality as the big consulting company, but at a lower cost. A benchmarking of IT vendors would allow an evaluation of objective parameters that could help us to validate these assumptions and thus reduce IT costs.

2/ Look at the forest, not just at the trees. CEOs must be involved in vendor selection and management because, while some organizations see outsourcing as an opportunity to shift risk, in practice such risk shifting is merely illusory. The fact is that organizations are left very exposed when the wrong supplier is chosen. Outsourcing is more successful when it is managed as a life cycle rather than a single transaction.

3/ Product is king. It is important to focus on capabilities, competencies, and above all, product delivery, not resources. When evaluating suppliers, clients tend to focus on rates as these are highly visible during visits, balance sheets or summaries. However, and thanks to our extensive experience, at Leda we have been feeding a study for years that proves that low rates are not directly related to product delivery and therefore to the efficiency of the developments. Moreover, this practice is directly related to quality detriment and many times to the failure of these software development outsourcing processes.

If you would like to know more or even try one of our services, you have the Benchmarking eSolution available. An online service of one of our most demanded services that will help you understand how much you can win in efficiency and quality of your developments, whether they are outsourced or not, and thus reduce IT costs.

Benchmarking is the first step towards a solution

A benchmarking is a tool that helps you to know how your software development teams or the development teams of a vendor are doing compared to the market.

To make this comparison we will first make the functional estimation of the projects, that is to say, we will determine the amount of software product delivered by them. Then with the amount of software product determined and the effort estimation that the development teams (internal or external) have delivered to you, we will determine their productivity and compare it with the market.

Based on a factor as objective as the functional size of the delivered product and thanks to our Estimation App, Quanter, you can check which of your vendors presents a better efficiency, both productive and economic, allowing you to save on costs when selecting it to develop new software projects or to renegotiate current contracts and thus, reduce your IT costs.

If you want more information we are available at