Managing the Vendor Set: Achieving Best Pricing and Quality Service in IT Outsourcing
Past research on IT outsourcing has focused on defining best practices, on identifying mature outsourcing attributes, and on how to best manage outsourced projects.2 However, little guidance exists on best practices of managing multiple vendors (a "Vendor Set"). Not properly managing a Vendor Set can lead to sub-optimal outcomes, such as loss of IT process knowledge, lack of innovation, over spending, and poor quality. This article draws lessons from how one multinational organization manages its Vendor Set in the outsourcing of software development and testing activities. Client managers who outsource to vendors need to establish the appropriate balance between building strong collaborative relationships and encouraging market competition among vendors to ensure best price and service quality.