How to Address Risk and Sustainability Among HR Vendors

Earlier this week we addressed a growing concern surrounding sustainability of HR vendors.  Issues such as financial solvency, management turnover, ongoing investment into product portfolios, backwards compatibility and support, legal action, and acquisitions (among others) can cause significant disruptions to both near and long term value propositions.  So how should one address these concerns, and does a system exist that can quantify the risk portfolio of an HR vendor prior to purchase?

The short answer is no.  Inflexion has yet to find an appropriate single source mechanism or formulaic that combines risk mitigation and sustainability with deep functional domain expertise.  That being said, we believe there is tremendous opportunity in the development and deployment of an impartial decision support tool to aid HR buyers in assessing these and other risk factors.  Several existing assets, if properly leveraged and supplemented, could help to solve some portion of this significant industry problem:

• Dun & Bradstreet:  This is perhaps the most obvious, as most large procurement departments will require a DUNS review prior to contract execution.  D&B will provide visibility into the credit risk of the provider, locations, ownership structure and financial solvency.  One can also get a sense of fraud, supplier codependency (i.e., does the contemplated contract mean you would represent a disproportionate share of ongoing revenues) and other helpful metrics.  However, it really addresses risk with no domain expertise, thus a great tool for procurement but less so for HR executives.
• CERT’s V-RATE:  The Vendor Risk Assessment and Threat Evaluation taxonomy was developed by the good people at CERT, the federally funded R&D center of Carnegie Mellon University.  CERT is widely known for being five to ten years ahead of the market (as was the case with now-renowned CMM model), and V-RATE is no exception.  This early-stage tool provides an important framework for not only assessing the “survivability” of your vendors solutions, but also helps to assess your organizations preparedness in dealing with anticipated and unanticipated vendor risk.  The goal is not to attain a single overriding score, but instead to capture all internal and external factors which may contribute to ones sustainability and likelihood of mission critical application.  If configured for the unique circumstances of HR, one could see great promise in this instrument.
• LexisNexis:  The Accurint line of products offers an interesting supplement for bankruptcy filings, liens, civil judgments, individual background checks on specific executives, licensing and Better Business Bureau reports.  It also can incorporate much of the DUNS data from D&B.  Again, a great toolkit for looking at that information which is publicly documented on a potential vendor.
• Analyst Reports:  Many industry analysts do some limited due diligence on sustainability, but most of their value comes from the ability to assess one’s position in the marketplace relative to competition, feature functionality, market penetration, globalization and likelihood of successful implementation on time and within budget.  These are all critical factors in your choice of providers, but still leaves a gap to be filled.

So what’s the answer?  For the time being, leverage all the market intelligence you can capture.  Assess whether vendors in your domain of interest are being acquired, if venture firms are backing them, if IPOs are occurring, if lawsuits are flying or impropriety is dominating the space.  Leverage the tools we’ve listed and most importantly, talk to your peers and subject matter experts.  Until someone derives a more transparent mechanism of applying these instruments to the specific needs of our HR community, we must do the best we can with what we have.

Let’s keep the conversation going.