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The short list: vendor selection means more than just casting a wide net.

To recap some of the topics we've discussed in this column over the past five years, core system replacement projects are risky, costly, and have large operational impact (both good and bad). These projects cost millions of dollars, take years to complete, and (still, unfortunately) fail more often than they succeed.

Core system replacement projects fail for a few common reasons which include lack of scope control; lack of executive management commitment; change in executive management; lack of project and program management; and choosing the wrong vendor or not understanding the vendor that has been chosen.

In this column I'd like to focus on the last of these reasons for failure, choosing the wrong vendor or not knowing enough about what you chose.

In previous Shop Talk columns we have discussed the idea of performance-based vendor selection: making vendors win your business by building thin-slice solutions called scripted demos and by submitting to a proof-of-concept to finally convince you that what you saw during the selection process was real and there is no "wizard behind the curtain."

We have described scripted demos and POCs in detail in prior columns and don't need to repeat it here, but how do we get around the common and reasonable objection from the vendor(s) that a scripted demo takes time and energy, i.e. costs money?

One of the key steps in running a successful vendor software search is to focus early on only a short list of vendors. In rough numbers there are 50 policy administration system vendors, 30 claims system vendors, and a dozen billing system vendors so even if a carrier wished to cast a broad net in the early stages of a search it would still have to make some choices to eliminate vendors in order to keep the selection process from grinding to a halt under its own weight.

Just as an example think about an RFP, which carriers send to vendors in order to gain certain basic information. If the original RFP is 25-pages long by the time a vendor responds it is at least 50-pages long. Who has the time to read fifty 50-page documents? More importantly who can document, organize, and score the results of 50 responses?

So if a winnowing process is required early on why not get serious about it and try to focus on only a small number of vendors, say three to five?

This step can be done and yields major benefits. So let's talk about how and why to create a vendor short-list.

Not all vendors are born equal. Some vendors have integrated solutions; some have best-of-breed. Some vendors service the lower market tiers; others play at the top end. Some vendors are stronger at commercial lines; others focus on personal lines. Some vendors have greater functionality; some have greater flexibility.

So knowing which vendors have what is of key importance. It also is critical for the carrier to know what it is, what it wants to be, and what it wants from a vendor. It is not enough to ask about business functionality, pay lip service to technology issues, and then focus on cost.

Whether the carrier realizes it at first or not, it also cares about the vendor's track record; its growth and stability; it's breadth of services both before and after implementation; and the extent to which the vendor is compatible with the carrier's culture and values.

These desired characteristics can be stated, weighted, and used as selection criteria to get to a reasonable short list of vendors. This requires the carrier to think hard about its business drivers, its stomach for risk, the size of its pocketbook, and whether it is looking for an ongoing partnership or merely to purchase and maintain the software itself.

Once the carrier gets these criteria clear in its own "head" the next step is to apply them to a long list of vendors. A long list can be found in an analyst review such as a Novarica Market Navigator Report, which forms a good starting point for a vendor list. Other analysts that can help in this regard include SMA, Celent, Gartner Group, and Forester Research. It is important to understand what criteria each of the analysts employs when formulating such a list. For example, a vendor that doesn't have a certain production installation may not be listed.

So, how does choosing a short list of vendors help mitigate the project risk of choosing the wrong vendor or not knowing enough about the vendor that has been chosen? First, and this point should be obvious, if the "right" vendor isn't on the short list then there is no chance of selecting it. Getting the short list "right" is a vital step.

Second, and touched on above, is that the carrier has more time and energy to focus on a small number of vendors. This is simple math. A carrier selection team may involve 10 to 15 staff members and may have a more or less fixed timeframe to do its work. If that finite amount of time is divided across a small number of vendors then each vendor will get more time (and therefore, attention), than if the number of vendors increases.

To state the equation another way, a viable software selection methodology includes various information-gathering steps which include drafting, issuing and reviewing the responses to an RFP; arranging vendor visits and talking with current customers of each vendor.

As we noted above, each of these steps must be multiplied by the number of vendors being considered.

Third and less obvious is the fact that not only does the carrier have more time for each vendor, but the vendor will in turn focus more energy on the carrier. One of the first questions a carrier will be asked is how many vendors are on the list? If the answer is three, the vendor will--all things being equal--assess its interest level and willingness to participate much higher than if the answer is 10 or 15. Vendors consider the odds of success in allocating their finite resources and act accordingly.

We mentioned performance-based vendor selection above, the common sense notion that a vendor should win your business by performing tasks that provide some insight into the abilities of its software and implementation approach.

This is a significant risk mitigator and while it requires extra work on the part of the carrier, it pays dividends later. The chances that a vendor will agree to perform a scripted demo if they are not on a defined short list is somewhere between slim and none.

The happy fact is that currently the insurance technology market is busy and dynamic. Vendors are making sales and doing projects. This is good for the carriers from the viewpoint that they generally have a healthy and growing vendor base from which to choose. However, the other side of the same coin is that busy vendors have to make choices so the carrier has to look serious, organized, and focused in order to attract and keep the attention of the vendors in which it is interested.

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A scripted demo is a business problem defined by the carrier and given to each vendor participating in a selection process. The scripted demo should be something of significance to the business and at the same time something "doable" by the vendors. The vendor is given the business problem definition and told to solve it in a finite amount of time, usually defined as a two- to three-week period between receipt of the specification and a pre-arranged "demo date."

Given that several members of the vendor's staff may work the solution, the carrier is asking the vendor to provide several weeks of resource to this effort. That's not something a vendor will do unless they feel they have a good chance of winning the carrier's business.

And this reasoning can be generalized across the entire selection cycle. A committed vendor will spend more time answering an RFP, will provide more information concerning terms and conditions, will work on initial sizing estimates, and generally be more responsive and comprehensive in all its dealings with a carrier if it knows it starts out as a 3:1 shot rather than 10:1 shot.

If this sounds like common sense gone hog-wild, it is. If its sounds overstated, it is not. The benefits to both the carrier and vendor of selecting a short list as early as possible in the selection life cycle are hard to overstate.

The content of "Shop Talk" is the responsibility of the author. Views and opinions are those of the author and do not necessarily represent those of Tech Decisions.

George Grieve is CEO for CastleBay Consulting. Previously a CIO and still an acting consultant, he has spent much of the past 25 years with property/casualty insurers, assisting them in the search, selection, negotiation, and implementation of mission-critical, core insurance processing systems. He can be reached at 210-887-6423.
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Title Annotation:Shop Talk
Author:Grieve, George
Publication:Tech Decisions
Date:Sep 1, 2011
Words:1499
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