Imagine doing business with suppliers who thoroughly understand your organization, can be trusted to make deals on a handshake and provide outstanding price-performance. Sound too good to be true? You’re looking at the next phase in the evolution of vendor-client relationships: true partnerships. The right vendor can help a client stay ahead of the competition, enable rapid product development and ensure the delivery of best-in-class products and services at affordable rates. This article looks at two interesting examples: Nesbitt Burns and The Bank of Montreal.
NESBITT BURNS’ SELECTIVE PARTNERING APPROACH
“We work in extremely close partnership with our internal business clients and they recognize that nothing happens around here without technology,” observes Mark Saunders, CIO of Nesbitt Burns, one of North America’s leading full-service banks. “The business also recognizes that I shouldn’t and couldn’t have all the skills that are required in-house because that would likely be too expensive and it’s probably not an optimum use of our money.”
Nesbitt Burns is recognized as a leader in the areas of personal finance, investment research, investment banking, institutional equity and capital markets. The company maintains 160 branches nationally to support its private client division. Saunders manages an information technology department of approximately 300 full-time staff, as well as special partnership arrangements with vendors and suppliers.
In the investment industry, leading-edge technology is a critical element of staying ahead of the competition, and the tools of the trade are based on client/server distributed systems. Since the rate of change in this arena is high, Nesbitt Burns tends to employ partnerships as a solution for its large strategic initiatives.
“Effectively what we wind up with is a triangulated arrangement where we (the IT organization) are the broker between the outside supplier and the internal business client,” he explains. “Collectively, the three or four parties who are involved work together as one team with the end game being the enablement of the business. By nature, these projects are very trust-oriented.”
Saunders notes that there are projects currently underway in-house where it would be impossible to distinguish whether a participant was a Nesbitt Burns employee or a representative from an outside organization. In fact, employees regularly report to or work very closely with project participants from external firms. The CIO says that this is both deliberate and desirable.
“We organize our people this way as a method for dealing with knowledge transfer. When we’re working with leading-edge technology, we can’t necessarily train our people quickly enough. The way that we achieve training is to have our people working closely with outside experts. It’s an excellent byproduct of these arrangements.”
He adds that even though he is regularly besieged with calls — sometimes 30 a day — from competing vendors who want to get into the game and who may even offer lower rates, his company determines its preferred suppliers based on previous successes with them.
“We want to work with partners that have depth and breadth,” he explains. “Because of the competitive nature of our business, we’re always needing to meet extremely tight deadlines. Therefore, we go through a rigorous evaluation process with a limited number of partners and recognize that we may be missing opportunities with others. We don’t have time to be constantly evaluating, so partnering with a few preferred suppliers is an optimum way for us to employ the right resource at the right time without paying for it the entire time.”
One of the byproducts of these relationships is that the firm has completely eliminated the use of tenders for application-development initiatives, a huge time saving at the front end of projects. Then there’s the issue of cost. As an affiliate of the Bank of Montreal, Nesbitt Burns is able to draw upon the purchasing power of the group of companies along with its long-standing relationships with vendors. With this kind of clout, Nesbitt Burns enjoys a preferred rate.
“These partners have a sense that they are real partners,” Saunders remarks, “and providing that they deliver, do a good job and the costs are reasonable, they’re probably going to be invited back. Why would they do anything to mess that up?”
He adds that another benefit is that because they have a long-term vested interest in working together, when a project does go off the rails, suppliers are ready to invest the necessary resources to revive it. Ultimately though, the buck stops in-house and at the top.
“We do not outsource accountability,” he stresses. “It resides within our organization and it must do so. The management of the budget, delivery timeframes and overall quality are always our responsibility.”
Saunders says that he structures most projects in such a way that an internal representative from the company co-partners with a very senior person from the vendor organization. Once they’ve worked together on a number of projects, the real benefits of the partnership begin to flow. He notes that risk diminishes too, because the vendor begins to learn the culture of the organization and what kind of people are appropriate to it.
Currently, the firm’s preferred technology partners include IBM for application-development initiatives and Hewlett-Packard for technical architecture at the infrastructure layer and consulting services related to it. DMC provides support in data management, data architecture and application development specializing in Oracle. In fact, Nesbitt Burns is the professional service organization’s primary client. The two firms are located in the same building in Toronto, which provides additional benefits of its own.
“If we have a space constraint on a project, DMC people can work in their own offices just an elevator ride away,” Saunders points out. “They also supply resources to help us scope the project and often get involved up front. The value-added they supply is real flexibility.”
He cites the example of a partnership arrangement used to support an Internet development initiative currently underway. DMC is supporting data and IBM is supplying application-development expertise to the project. Members of the IT department bring process knowledge and technical architecture to the table and the business partner provides a clear understanding of the business need and content. Saunders says the initiative is running smoothly, requiring only an occasional need to tweak the boundaries.
Another winning example was recently completed. “We just finished the roll-out of 1,100 PCs in our branches across the country in four weeks,” he remarks. “The real success factor for this initiative was finding a supplier with a national presence who understood our needs. The project was so seamless that large parts of our organization didn’t even realize that our partner was providing the services. That’s the acid test.”
Listening to Saunders, these relationships sound almost idyllic. Real service and value delivered on time seamlessly. Surely there’s a price for this kind of support.
“Our challenge is that you can’t fix all three of scope, time and cost at once. One of these conditions has to be flexible and with the competitive nature of our industry, it tends to be price,” he concedes. “Consequently, we’re still striving to be timely, responsive deliverers of enablement to the business strategies at the most efficient cost that we can provide.”
He adds that the “first-mover” advantage to the organization often makes up for the premium it pays for getting there fast. As well, these partnerships enable the firm to expand and contract as the need arises, even if it pays a bit more for that flexibility.
“These arrangements began to evolve when it became clear that we in IT couldn’t deliver what the business needed in the necessary timeframe by doing it in-house. We needed to look outside and wanted to work with some trusted partners. For us, the key to the game is leverage, leverage, leverage.”
They appear to be playing the game well.
THE BANK OF MONTREAL’S STRATEGIC SOURCING INITIATIVE
Leveraging purchasing power and relationships is precisely the strategy employed by Karen Rubin, Vice President of Strategic Sourcing, the three-year-old relationship management department for the entire Bank of Montreal group of companies. Rubin’s organization resides within the Bank’s operations and technology group, EMFISYS.
“The idea was to look at purchasing from an aggregate perspective across the organization,” she explains. “The mandate for Strategic Sourcing is to reinvent the way the bank and its affiliates purchase. Together they spend over $1.7 billion in goods and services annually. That includes some $590 million in technology each year.”
Ironically, Strategic Sourcing does no actual purchasing; rather, it provides its clients with a competitive advantage by offering them access to preferred pricing and high quality for goods and services that they purchase themselves. The department’s role is to create vendor relationships, write the contracts that underpin them, and actively manage them.
“On behalf of our clients, we try to establish innovative relationships, lead the negotiations with the suppliers and improve overall supplier performance,” Rubin adds.
One example of these special arrangements is in the travel sector. Air Canada and United Airlines are the Bank of Montreal’s two preferred airlines, and Rubin says that they provide her clients with some of the deepest discounts available to any corporation in Canada. The bank also has a preferred relationship with Rider-BTI Travel, which channels all travel purchasing across the entire group of companies.
“We had to do a very intensive spend analysis from our accounts payable databases to make this happen,” she observes. “First we had to look at our spending habits and then examine best practices in the industry to determine what kind of impact we could get for our investment dollars. We had to analyse our spending for travel consulting, meeting management, hotels, airlines, car rental and much more. It’s a very complex process.”
Strategic Sourcing features teams of specialists in four basic categories: technology; services; electronic media & print; and commodities & logistics. The department is populated by a number of niche-market specialists as well as experienced bank personnel. Clients subsequently handle their own purchasing at the rate and conditions negotiated by Rubin’s department.
“In voice-data, LAN lines and cells, we did the same thing as with travel,” Rubin notes. “We conducted a thorough analysis of what we were purchasing and how much we were spending for it. We determined that there was a variety of different rates because it was all based on different volume levels. The more aggregation of the volume levels you can get, the better the negotiating position with the vendor, so we improved the bank’s situation substantially.”
She says that just by focusing on that particular category, her organization was able to reduce telecommunications expenditures by $12 million to $20 million annually.
Providing clients with a competitive advantage isn’t as easy as it sounds. To identify or create economies of scale that can yield serious vendor discounts, Strategic Sourcing must analyse and understand what cheques were issued in each spending category — examining what clients purchased and the rate they paid for them. There’s also the complexity of understanding what level the client is working with within the vendor organization and whether any special considerations are involved, such as other relationships with the bank or its affiliates. This intelligence is subsequently compared to best practices across other large-scale organizations until a strategy is established.
“In all the categories we’ve tackled, we’ve established a list of preferred suppliers,” Rubin says. “Our focus is always price and quality together. In just three years, we’ve taken $154 million out of that $1.7 billion budget.”
BMO’s Strategic Sourcing department is proving the value of paying close attention to vendor relationship management. The department is providing stunning results where it matters most: on the bottom line.
Pat Atkinson is a freelance writer based in Oakville, Ont.