So you’ve gone through the buy versus build technology decision process and opted for a third-party software provider. Job done. Now you can sit back and let your chosen partner get on with it, right?
Not quite. Your vendor selection may have made sense at that point in time, but requirements change. Your firm will grow and/or reposition. Regulations evolve. Risks shift. New technology capabilities emerge. So it’s vital you monitor and manage the systems you’ve bought. “If it ain’t broke, don’t fix it” is not a viable strategy here – at least not if you want to keep ahead of the game.
Vendor management is all about ensuring financial institutions have the proper solutions for their needs and are getting the best deal. This is not shiny object syndrome. The emphasis is on managing your vendors and internal stakeholders, without messing up your existing ecosystem. Change for the sake of it is self-defeating. But keeping legacy systems until they fall over or expose you to significant risks doesn’t cut it either.
In practice, that entails conducting ongoing reviews of your technology providers. Are you working in close partnership? Can they meet your current and future demands? Does the solution hit those KPIs? While at the same time keeping one eye on the vendor market and what other solutions are available.
Regular, reasonable RFIs
At a minimum, institutions should conduct a request for information (RFI) every three to four years. Use the RFI to benchmark your current system against the other software out there. Is it still fit for purpose? Has the technology kept up? Can you manage the risks in the event of a cyberattack or other threat? Is the price still competitive? Such periodic reviews are an opportunity to challenge incumbent providers and let them demonstrate their value against the alternatives.
The RFI process is where effective vendor management all too often comes unstuck though. Striking the right balance between comprehensiveness and viability is the key.
The RFI needs to reach a proper cross-section of system vendors. It should be sufficiently detailed and robust to weed out any sub-par offerings, leaving the solutions that actually meet your criteria. But asking a thousand pre-screening questions in the RFI, and then another 2,000 questions during the RFP could deter potential suppliers from coming forwards. Plus there’s the internal financial and opportunity cost firms incur in assessing all the vendor responses.
Effective vendor management rests on knowing the market
Along with not excluding likely vendors, an effective RFI process depends on knowing the market and targeting a meaningful universe of providers.
The vendor management function – whether it’s in the hands of a dedicated team, a product manager, relationship manager, CTO or someone else – should be aware of what solutions your peers are using to ensure vendors with proven pedigree are included. Keep an eye on industry awards and assessments by well-regarded sources (such as respected consultancies) to see which solutions rank highly.
At the same time, remain open-minded when compiling a vendor list. Don’t limit yourself to the blue-chip end of the spectrum. Smaller software firms may be doing something different, using cutting-edge technologies such as AI, or have a more flexible partnership ethos that allows for laser-like service.
Excluding innovation leaders makes it difficult to accurately benchmark other providers and determine if their product set has evolved sufficiently. And if you limit your choices to the same software everybody else is using, it can be more difficult to gain a competitive technology edge that helps you stand out.
Ask the right questions
Once you have a good cross-section of vendors to assess, next step is to choose the right one. That choice will be informed (or not) by the quality of questions you ask.
These can be bracketed into three areas. First is risk: will the system mitigate your key risks? Second is operational efficiency: will the system improve what internal users are able to do and keep all stakeholders happy? Third is price.
Asking intelligent questions requires whoever is responsible for vendor management to know the provider organisations and decision-makers. Is the vendor strong in innovation? What is their focus? What do they do well/poorly? Do they have deep pockets and a strong balance sheet to mitigate that supplier risk?
While the RFI itself may take place on a multi-year cycle, the vendor management process behind it should be an ongoing, year-round market intelligence exercise, part of your business-as-usual procedures – not one that only springs to life when a vendor comes up for reassessment. Transparent, ongoing monitoring has the added benefit of keeping your incumbent providers on their toes, knowing they must continuously impress in the service they provide, and do what they said they would when they won the tender.
The RFI, in effect, should be the audit trail to senior management confirming what you already know, providing the recommendation for whether to keep your current supplier or move forward to an RFP because you believe a better deal is available elsewhere. Then the clock resets, starting the countdown to when you do the next supplier review and RFI.
ABOUT DEEP POOL
Deep Pool is the #1 investor servicing and compliance solutions supplier, providing cutting-edge software and consulting services to the world’s leading fund administrators and asset managers. Our flexible solution suite, developed by an experienced team of accountants, business analysts and software engineers, supports offshore and onshore hedge funds, partnerships, private equity vehicles, retail funds and regulated financial firms. Deep Pool is a global organisation with offices in Dublin, Ireland, the United States, the Cayman Islands and Slovakia. For more information, visit: www.deep-pool.com.