Companies that outsource IT services are increasingly focusing on establishing a vendor management organisation within their own operations. They have come to realise that simply selecting the right service provider is not enough to ensure high-quality IT services. Service providers do not operate “automatically”; they require a continuous interface with the client company and must be properly managed.
In the following, we outline the current state and challenges of provider management in Germany—that is, we sketch out where German companies currently stand in setting up their provider management structures and what is still missing for success.
Basis for the following assessments of the current situation in IT-outsourcing companies are the results of the itSMF survey conducted in 2022 – we were involved in both the design and analysis of the survey – as well as discussions held during consulting projects and training sessions with representatives from various German companies.
1. Vendor Management in Germany – Current Status in Companies
Many companies have realised that when outsourcing IT services, it is not enough to simply specify external services clearly and conclude solid contracts. Increasingly, they are also defining how collaboration with service providers should be structured and how providers should be managed. To shape this collaboration, companies are establishing processes, tools, SLA reporting, and governance structures, and implementing them jointly with providers. They also define roles for managing service providers and assign them to internal staff. This lays the foundation for clear responsibilities and effective collaboration with service providers.
Nevertheless, many companies remain dissatisfied with the performance of their service providers and the quality of collaboration. Why is that?
2. Causes of Problems
Poor provider performance and strained collaboration can usually be traced back to a few recurring causes:
2.1 Service Prices Too Low
In outsourcing projects, companies often negotiate prices too aggressively. Especially when large service volumes are involved and multiple bidders have submitted proposals, sales teams at service providers are highly motivated to win the contract—often because their commission is based on the contract value. As a result, they may concede significant discounts under pressure from procurement.
Once the contract is signed, responsibility shifts to the provider’s operations team. If the negotiated prices leave the provider with a very narrow margin, the operations team may try to reduce costs to make the engagement financially viable. This often comes at the expense of service quality. Wherever possible, effort is minimised, and only the bare minimum is delivered. Providers may also look for contractual grey areas to charge additional fees and boost revenue. These behaviours lead to frequent disputes, increased effort, and dissatisfaction on both sides—ultimately compromising service quality.
2.2 Poorly Defined Services
The services to be delivered by the provider are often poorly structured. This means the provider cannot apply its standardised services developed for other clients. In many cases, the service scope involves numerous interfaces with internal and/or external stakeholders.
Both factors create friction in service delivery. The provider must build a custom service organisation and cannot rely on the efficiency and quality of its well-established, optimised standard processes.
As provider staff must learn new service procedures, initial errors and seemingly simple mistakes occur—making the provider appear less competent compared to the internally delivered services that evolved over decades.
This leads to dissatisfaction among the client’s internal IT users. The resulting pressure is passed on to the provider via the vendor management team. However, the provider’s ability and motivation to improve service delivery quickly are limited due to the learning curve and economic constraints. Unplanned improvement efforts further reduce their margin.
2.3 Culture of Mistrust
Provider representatives are often perceived by the client’s IT staff as adversaries who must be “motivated” through strict control and pressure to deliver agreed services. A culture of mistrust quickly develops, replacing one of collaborative partnership. Questions arise such as: Has the provider really delivered the agreed service? Is it using underqualified staff to cut costs? Are penalties enforceable due to poor performance?
In such an environment, both parties try to maximise their own benefit—often at the expense of the other. This inevitably creates a loser and makes collaboration more difficult.
A shift toward mistrust is especially likely when other problems occur simultaneously. For example, if the provider makes several simple mistakes during the onboarding phase, service quality suffers.
If the provider frequently ends up on the losing side, it may withdraw and do only the bare minimum. This leads to poor service and increased effort for blame-shifting and consequence management.
3. Vendor Management in Germany – Conclusion
Most companies have learned that IT outsourcing must be carefully planned and executed, and that a vendor management organisation must be established as part of this process.
However, this alone is often not enough to ensure high-quality external services. The root causes of poor performance and difficult collaboration with service providers often include unprofitable pricing, poorly defined services, and a culture of mistrust. Frequently, one problem triggers others, leading to a downward spiral in the service relationship. Many companies initially resign themselves to such situations, as no clear way out is apparent.
Yet even if the problems are not easily resolved, both parties can jointly plan and implement appropriate measures to gradually improve the situation. The key prerequisite is a mutual commitment to constructive cooperation. Especially when a culture of mistrust has taken hold, this becomes a challenging and long-term task that requires ongoing, active involvement from the management teams on both sides.
