It's conference season again, and insurance CIOs and their staffs are spending much of the ACORD/LOMA and IASA conference meetings with current vendors and evaluating potential new ones.

The "buy vs. build" pendulum has swung to the "buy" side, where it has stayed for the past decade. The accelerated pace of change in technology means that few insurers have the capability to build, deploy, maintain and enhance systems that can keep pace with their evolving technology needs. At the same time, advances in systems configurability and agile deployment methodologies have reduced customization costs, total cost of ownership and project risk for many important solutions.

As more business capabilities are delivered, and even maintained, by external solutions providers, evaluating and managing vendors has become a critical capability for IT organizations, and though some may disagree, vendors are often a CIO's most important partners.

Evaluating and selecting vendors can be a real challenge, but since insurer IT organizations may not evaluate solution providers more than once every couple years, few have strong internal capabilities in this area and many need to develop this as a core competency. Most insurers can benefit from working with advisory firms that specialize in these types of evaluations. These external advisory firms can bring existing knowledge, methodologies, and independent relationships with referenceable clients to assist in this process.

However, nearly all insurers need to manage and develop relationships with their current vendors. Keeping them close and invested in your success can make the difference between delivering business capabilities and failure.


Ways to Improve Relationships

Join their client advisory board. Most software vendors have a client advisory board to help them prioritize the development of their offerings. While some CIOs are skeptical of their value, perhaps having endured poorly run groups in the past, well-run client advisory boards not only offer an opportunity to influence the vendor's direction, and feature function set, they also offer an opportunity to build relationships with the organization's leaders. As a client, it's much better to have your vendors personally invested in your success.

Serve as a reference. Some CIOs see this as a waste of time. They may have corporate policies that forbid placing the company name on vendor client lists. But even in that case, insurer CIOs could serve as direct reference. Vendors will be more invested in your success and satisfaction if they know they can count on you to help them communicate with new prospects. And in many cases, a willingness to serve as a reference can be traded for pricing concessions.

Make sure pricing negotiations are win-win. Some insurers, and especially their purchasing departments, believe their mission is to wring as many concessions from vendors as possible. But focusing on "winning" the price negotiation is short-sighted in longer-term vendor relationships. Vendors need a reason to nurture the relationship as well. If the relationship isn't profitable, they will short-change it in favor of more-profitable customers.

Don't fail to communicate. Regular meetings and communications, as well as frequently updated performance and project metrics, are important for making sure that relationships stay productive. In most cases, the onus is on the client to make sure that the right level of communication is maintained, although savvy vendors will invest in this as well.

Bring all your vendors to the table. One of the best practices I've seen is for insurer IT groups to hold their own annual vendor meetings. This serves several purposes. First, it allows you to make your staff available to strategic vendors in a single day. Second, it enables you to communicate your strategic plan to all of your vendors at the same time. Third, it provides an opportunity for your vendors to explore opportunities for synergy and collaboration to better serve your needs. And finally, it reminds your vendors that they're part of your team and that you have similar relationships with lots of vendors, some of whom are ready to step in should another fail.

Managing vendor relationships may not be in your comfort zone. After all, most IT groups are composedof engineers who prioritize technical capabilities over relationships, but in a world of increased interdependency, insurers must develop these capabilities and maintain strong technical perspectives in order to be successful. With the business of insurance more dependent than ever on information technology-enabled capabilities, information technology teams must make sure their skills and abilities are adapted to their modern roles.

 

Matthew Josefowicz is a partner and managing director at Novarica, a research and advisory firm that works with insurer CIOs and their teams on a wide range of issues from organizational strategy to vendor evaluation and selection.

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