8 Key considerations for selecting IT Vendors for Digital Transformation Projects

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In the 21st century, it’s evident that many companies are either embarking on or are already engaged in digital transformation endeavors. Some are just starting out, while others are in the midst of implementing changes for themselves and their employees. While certain companies possess the capacity to develop these systems internally, most businesses, regardless of their size, now tend to outsource transformation projects. The choice between in-house development and outsourcing depends on the nature and scope of the digital transformation planned by each organization.

Based on my experience, there are crucial points to consider when selecting an IT vendor. While there are specific regulatory guidelines for highly regulated sectors like banking and financial services, my considerations are broader and applicable across industries. These points are not confined to regulatory requirements but encompass general principles applicable to any industry.

1. In the initiation phase of a new relationship with an IT vendor, it’s typically the sales and presales teams that take the lead until the agreement is finalized. They handle product demonstrations, address customer queries, and make promises. Occasionally, there might be interactions with other team members such as hardware specialists or cloud solution experts, but most of the time, it’s the sales and presales teams driving the process. This reliance solely on the sales and presales teams can lead to issues. During demos and discussions, they might overpromise or misrepresent the capabilities of the product, creating unrealistic expectations. This gap between what’s promised and what’s deliverable can cause problems down the line. That’s why it’s crucial to involve project management teams or project managers early on in meetings with the vendor. Their input and insights are essential for ensuring alignment between what’s being promised and what can actually be delivered.
2. Incorporating penalty clauses into the agreement is crucial. These clauses should be detailed in the project management plan, which serves as an annexure or attachment to the agreement. The project plan outlines the timelines and includes buffers to accommodate any delays. If the agreed-upon timelines are not met, the penalty clauses come into effect. These clauses exert significant pressure on both parties to adhere to the schedule, as they hold each party accountable and responsible for meeting their commitments. This ensures that there are consequences for delays, motivating everyone involved to execute tasks promptly and efficiently.
3. When drafting a project plan, it’s essential to include the IT steering committee and specify the frequency of their meetings. Additionally, senior management from IT vendor side, who may have made commitments under sales pressure, should also be part of these meetings. Their attendance is crucial as they are accountable for any false promises made and need to address them directly. By involving both the IT steering committee and senior management, the project plan ensures transparency, accountability, and alignment with organizational goals. This approach facilitates effective decision-making and problem-solving throughout the project lifecycle.
4. It’s important to conduct extensive background checks on IT vendors, including gathering feedback from their existing customers. This approach provides real-time insights into the vendor’s performance and reliability. When requesting references from the IT vendor, ensure that you receive contact details directly from the vendor. However, don’t solely rely on the references provided by the vendor. Instead, reach out to these customers directly to obtain unbiased feedback. Aim to gather feedback from multiple sources, rather than limiting yourself to just a few references. This thorough approach will help you make a more informed decision about the suitability of the IT vendor for your project.
5. It’s highly recommended to visit the premises of the IT vendor to gain firsthand insights into their operations. During your visit, observe the size of their team, their workspace arrangements, and their working hours. Take note of how project management is handled for ongoing projects, including how plans are shared and meetings are conducted. Pay attention to the seating arrangements — are project leaders integrated with team members, or are there separate spaces? Assess the communication platforms they use and get a feel for the internal dynamics of the organization. Gathering this information firsthand allows you to better understand how the IT vendor operates and assess their suitability for your project.
6. When researching an IT vendor, explore online reviews and feedback platforms like Glassdoor. While positive reviews can provide some insight, it’s crucial to pay particular attention to negative feedback. Look for reviews from former employees, as they may offer candid insights into their experiences with the company. Discontented employees are more likely to leave negative reviews, which can provide valuable information about potential issues within the organization. By focusing on negative feedback, you can gain a more balanced understanding of the IT vendor’s strengths and weaknesses, helping you make a more informed decision.
7. Examining the job postings of IT vendors can provide valuable insights into their hiring practices and technical architecture. By reviewing these postings, you can ascertain the technologies the company is focusing on and the types of roles they are actively hiring for. Pay attention to whether they are hiring primarily at the project manager level or at the developer level, as this can indicate the company’s priorities and the level of technical expertise they require. Additionally, analyzing the frequency of job postings can offer insights into the company’s attrition rate and overall stability. This information can help you gauge the company’s growth trajectory and potential long-term viability as a partner.
8. One critical condition to include when starting a project with an IT vendor is the requirement for a techno-functional project manager. In many cases, especially with large IT consultancy firms, project managers are often hired after securing the project. This can be a red flag, as it may indicate a lack of dedicated attention to your project’s needs. Additionally, some vendors may assign project managers from other projects, which can lead to inefficiencies and misunderstandings. It’s crucial to insist on hiring a techno-functional professional for your project management role. Unlike purely technical individuals, techno-functional professionals possess both technical expertise and a deep understanding of functional requirements. This dual skill set enables them to grasp your project’s functional needs and effectively translate them into technical requirements for developers. By ensuring your project manager has both technical and functional knowledge, you enhance the project’s chances of success and alignment with your objectives.