What to Consider When Outsourcing to Third-Party Vendors

Legal operations and managing your company’s vendors
Third-party vendors that assume responsibility for a business’ essential – but non-core – functions have become a vital part of most organizations’ day-to-day operations. As a growing number and variety of vendors can increase the potential risks to a company, the management of vendor relationships and risks associated with them has increased in importance. The task of managing third-party vendor risks is typically given to in-house legal departments. In order for an organization to operate a successful vendor management program, in-house teams need to have a clear understanding of the costs and value related to these vendors and what they bring to the company.

Cost is important
The most obvious thing in-house teams look at when considering a third-party vendor is cost. All departments within an organization have budgets they need to work within and quite often organizations don’t have a budget dedicated to risk management. As a result, vendors can often be chosen based mostly on cost-considerations.

But it’s not the only thing
Another vital factor in an organization’s decision to bring on a third-party vendor is its data security protections. There is growing concern surrounding cybersecurity, both in the U.S. and abroad, and corporations are understandably anxious about data protection risk associated with vendor relationships. This brings about challenges – not just for the organization, which needs identify vendors whose compliance processes match with their own – but also for the vendors themselves, who have to balance their data protection efforts among hundreds or thousands of organizations.

Don’t forget about communication
The relationship between an organization and its vendors is only as good as its communications with those vendors. When an organization is considering a vendor for use in an initiative or project, it’s important for the company to communicate its purpose clearly so the vendor has a solid understanding of what is expected of it. Continuing to check in with the vendor after the fact is also vital, and establishing a process for providing updates to both the organization and the vendor, ensures all parties remain on the same page.

Develop metrics to measure performance
Establishing a set of metrics or a scorecard to measure performance can go a long way to ensuring success in an organization’s ongoing relationship with a vendor. Establishing measurable criteria such as cost, quality of work, time management and frequency of communications, gives an organization a tool through which it can identify areas of improvement for a vendor, as well as qualities that make them good partners. The scorecard can also be used to show vendors how they compare to other firms that work for the same organization, thus encouraging both the organization and vendor to improve performance.

This legal market briefing was created by the analysts at ShiftCentral and is presented through an exclusive news and analysis partnership with Big Law Business. ShiftCentral’s team helps law firms, practice groups, and legal departments keep up with fast-changing developments in the business of law. Learn more here.