Vendor Relationship Management

Jan 25, 2009

In a previous post I mentioned that, in my view, there’s a lot of nascent innovation out there at present which isn’t getting much attention due to the current economic situation - people are not ready to hear about innovation when survival feels like a higher priority. However, in this post I’d like to look at something that I think might have a huge impact over the next few years: Vendor Relationship Management.

What is it?

The simplest way to explain VRM is to compare it with CRM - Customer Relationship Management. Organisations use CRM systems to keep information about their customers - who they are, what their tastes and preferences are, how they can be contacted and marketed to and so on. As an example, a retailer may retain data about your past purchasing habits and response to marketing material (are you the kind of person who is tempted by a discount or promotion?). Increasingly, arms of government are using CRM systems to attempt to respond better to individual needs, with mixed results. In short, CRM systems hold all of the knowledge that an organisation has about its customers. There’s no guarantee that the information is accurate, and keeping this information up to date is a costly and difficult challenge that has spawned a multi-billion dollar industry.

VRM can be understood simply as the radical decentralisation of CRM. Instead of organisations attempting to scrape together information about the people who the organisation might want to deal with, VRM allows individuals to submit their data to the vendors on their own terms. So, instead of businesses trying to glean my preferences from the limited shopping history that I have with them, I could offer a much more comprehensive set of preferences, built up over years. I could also include information of a much more transient nature - the fact that right now, my main priority is to buy a certain kind of product, and my key concern is price. When I carry out a search or visit a site that sells relevant products, this information could be made available to the vendors assuming that I authorise this.

Those with privacy concerns might object here - if we’re worried (and many people are) about the amount of information that organisations have about us already, why should we want to give more data over? The answer to this is simple: any information given via VRM would be given on the terms that the owner (that is, the subject of the information) dictates. This would allow for reasonably robust enforcement of basic data protection rules - for example, to prevent the data being shared with or sold to third parties. In return for providing high quality, accurate data, individuals would receive all of the benefits of an informed response to their needs, and also control over what happens to the data they provided at a later date. A VRM system should give individuals the ability to revoke permission to access their data, and to require the destruction of any copies taken.

Will businesses really agree to this kind of system though? Many large businesses have profited greatly from amassing large databases of information about us; Tesco have one of the UK’s best data-gathering operations, and it’s no surprise that they’re now the UK’s #1 retail operation. This question, however, is to conflate ‘business’ with 'big business’. Big business certainly likes the status quo. It’s almost a tautology, as the status quo is what has made them as successful as they are. The potential business benefit of VRM could be for smaller companies which cannot afford the costs of massive data-gathering and CRM operations, but could trade off ownership of the data in exchange for access to it. Many smaller companies, most likely internet-based startups, would be very happy to allow individuals to maintain control and ownership of data, since they could never gain access to it any other way. Even for large businesses, the costs of data gathering are often immense, and there’s the not inconsiderable challenge of ensuring the continuing accuracy of this data. The savings from no longer having to do this could be dramatic.

Another body (or set of bodies) which would be affected by VRM is the government. We’re currently required to provide information to various government bodies and to keep that information up-to-date. VRM offers a solution to the problem of having to contact several different organisations to make them aware of a change in your personal data. The most obvious and simplest example is the change of address: as well as commercial organisations (banks, credit cards, utilities, insurance, telecoms, any magazine/periodical subscriptions and so on) you are at the minimum required to notify the local council(s) affected and the inland revenue; if you drive a car you need to notify the DVLA. There’s also the NHS, who may need to assign you a new GP. If you have children, the LEA may need to know, and so forth. With a VRM system, you would simply allow each of these organisations to 'subscribe’ to (some of) your VRM data and they would be automatically notified of the changes as they happen.

This is by no means a comprehensive explanation of VRM, and I hope to return to the subject again soon. In particular, the implications for locating and maintaining relationships with vendors, and rating and reviewing these relationships, could have an even bigger impact on business than the factors mentioned above. And if you’re starting to recognise some parallels with eBay, then you’re thinking along the right lines.