As evidenced by the accounting slights of hand at WorldCom and other public companies, income statements and balance sheets reveal only so much about a company's financial stability. And even when these documents are accurate, how do you divine which vendors' product lines are vulnerable to hostile acquisition or are expendable amid slackening demand?
There are no pat answers, so consider these "risk management" practices for evaluating and building relationships with IT vendors:
Conduct an up-front audit. Not every IT organization has a crack financial team at its disposal to gauge the health of potential vendors, but everyone can do basic due diligence on a vendor's revenue and profit history, cash position, market share, customer base and management team. Even private companies will open their books to land a key account.
Most other things being equal, gravitate toward size and stability. But don't rule out start-ups. One IT manager tells of his company's $1.25 million contract with a vendor whose assets were only a tiny fraction of that amount. "That much we could justify losing if it all went to pieces," he says. "Competitors for this type of product were in the $16 million range."
Negotiate contracts as if your company's life depends on them. Take no service guarantee, promised upgrade, price point or other contract detail for granted. For software, that means negotiating access to proprietary source code and technical documentation in the event your vendor goes bankrupt or gets knocked off in an unfriendly takeover. For hardware, it means getting the rights to mechanical drawings and production system designs. For network services, it means establishing who owns the connection. If you don't have the internal resources to support those products on your own, find a third-party vendor that could step in.