Can you imagine interviewing a new IT security employee and letting them know that you want to pay the lowest salary possible, you expect them to have leading knowledge on IT security and you need them to be available 24 hours a day and seven days a week?
Good luck finding someone who’ll take that job!
But that’s exactly what many financial institutions do when they go through the vendor selection process. Rather than view third-party vendors as strategic relationships that can help the organization achieve its goals, they view them in the same light as they do their office supplies: necessities that should be purchased at as low a cost as possible.
Common Vendor Misperceptions
This is a short-sighted approach. Service vendors aren’t paperclips—they are valuable resources that should be carefully managed. In fact, vendor management and human resources have much in common. Successful financial institutions are finding that managing their vendors like their personnel leads to mutual success.
Vendors provide unique services that would be impractical or impossible for each community financial institution to provide on their own. Most financial institutions couldn’t survive without their vendors.
Yet some financial institutions suspect that every vendor is there to rip them off, sell them something they don’t need, charge them as much as possible, or provide as little service after the sale as possible. Those banks view vendors as a necessary evil.
It’s true that there are vendors like that. There are predatory vendors, ones that overcharge and those that provide poor service. Sometimes, though, it is a self-fulfilling prophecy. The financial institution’s personnel negotiated the lowest price. They are disrespectful in the sales process. Their personnel are demanding—and sometimes unreasonable—in working with their vendor. They then expect great service and follow through.
For the record, that doesn’t make sense. Yet it happens all too frequently.
Then there are those financial institutions that realize they need vendors to survive. They realize that vendors provide a valuable source of information on competitors, new developments and other vendors.
Combining Best Practices
Regulators have spelled out specific due diligence for high-risk vendors—not unlike the background check an institution performs on new personnel. But I recommend we take it one step further, combining best practices from human resource management with vendor management processes to create an area I like to call Vendor Resource Management.
Here’s how to do it.
Most financial institutions can do a better job selecting and working with vendors. The effort of treating vendor selection like employee hiring is worth the time.