Rethinking Vendor Due Diligence

Changing outsourcing landscape requires new framework for assessing suppliers, Yankee Group argues

Boston  January 23, 2003  The process of vendor due diligence is becoming more complex as business processing outsourcing accelerates, and companies need a new framework for assessing their suppliers, technology consultancy The Yankee Group argued in a new report.

In the report, "The New Rules of Vendor Due Diligence," Yankee noted the increasing trend toward outsourcing various business processes and asserts that accurate vendor assessment is the key to outsourcing success.

Vendor due diligence aims to achieve the best possible return on a vendor relationship while mitigating risks. But as outsourcing services become more specialized, Yankee suggested, the opportunities and risks of working with a vendor naturally change, which means that enterprises must adjust their due-diligence process.

"Traditionally, due diligence has focused on evaluating the vendor; that is, assessing the vendor's ability to meet the expectations and needs of the enterprise in the near term," said Carrie Lewis, Yankee's senior analyst for technology management strategies.

Today, however, as the process of due diligence grows more complex in response to the increasing specialization of services, due diligence is no longer as simple and straightforward as it once was, Lewis said.

The report cites several factors driving the increased specialization of services, including the emergence of vertically focused offerings such as applications outsourcing and business process outsourcing, the increasing complexity of service delivery (i.e., offshore and remote service delivery), industry instability (i.e., consolidation, mergers and acquisition activity, deregulation) and the increasing number of vendors and offerings from which to choose.

"In addition to the central requirements for due diligence," Lewis said, "vertically focused offerings, new service delivery options, industry instability and increasing vendor choice mean that enterprises need to update their due-diligence process."

The bottom line is that when expectations are not met, it is usually the vendor that has failed to meet them rather than the technology associated with the business process, Yankee argued.

For more information on vendor due diligence in the e-business age, see "Vetting Your Vendors," the cover story in the December 2002/January 2003 issue of iSource Business.