An inside look at how one insurance IT manager goes about the difficult task of keeping existing systems humming while searching for new software solutions.

By Larry Fortin

For many of us the idea of going through a vendor selection process can be a daunting task.  The day to day task of running an IT department has its own schedule with staff meetings, working with business management, and keeping the systems available for the general corporate workforce are enough to challenge a typical workday to say nothing about adding a strategic initiative on top of everything else. However, like most things in the IT management process, you have the task of getting it done. 

My goal with this article is to bring some process and methodology to the task for IT managers who may not have been through the process before, or for tried and true managers that may want to reaffirm their practice.  For a significant vendor selection process, such as searching for a claim, policy, or billing system, plan for six to eight months to do it properly. 

The first set of tasks is to establish a vendor selection committee.  In our organization, this is usually comprised of a business sponsor, a member or two from their department, other business stakeholders, and IT resources.  From this group, we select a subcommittee that will follow the vendor selection process through the selection of three vendors.  The full committee is then responsible for the final vendor selected.

The selection process begins with determining what your requirements are.  Without solid requirements generated from business stakeholders, the rest of the progression will be in vein.   This step in the process may be more challenging than originally anticipated as stakeholders may not agree on what the requirements should be.  However, getting the stakeholders on the same page is critical and fundamental to the success of the vendor selection and the final system implementation.

My preferred method for documenting high-level requirements in the vendor selection process is using Excel with the requirements in the first column, and assigning a relative point factor to the requirement in the second column.  The relative point factor is the importance placed on the requirement as it relates to the organization.  As an organization, we recently went through a vendor selection process for a Claims System.  Figure 1: Example Requirements and Point Assignment provides two examples.  First, an example of what is meant by high-level business requirements for a claims system, and second what the relative point factors are for each requirement.

The requirements shown in Figure 1 are business-related requirements.  The requirement gathering step should also take into consideration technical, financial, implementation risk, and contractual requirements.  In our claims system example, we provided technical requirements where the system must be written in .Net and support the use of SQL server.  The financial requirements were around company size (revenue), number of employees (onshore, offshore, near shore) with the proper skill set, and contract requirements (fixed vs. time and material). Lastly, we included factors that would reduce implementation risk (experience, unofficial references, and key vendor employees).

Now that a list of high-level requirements are in place with business representatives in agreement as to the relative priority to the organization,  the focus can shift to generating a list of potential vendors.  For a claims, or policy system, our goal was to identify 12-15 potential vendors.  To generate a list of potential vendors, reach out to your personal network of industry IT managers, insurance and technology conferences, research analysts, and trusted consultants.

Leveraging Social Networks

There are several social networks that you can leverage.  I belong to a couple of IT management LinkedIn groups that are specifically focused on the insurance industry.  Following a couple of groups will allow you to post questions about potential vendors as well as interact with individuals that have specific experience with different products.  The new Insurance Technology Association (ITA) group provides a forum for IT managers to interact.

Another source of generating potential vendors is insurance industry conferences.  There are NAMIC (National Association Mutual Insurance Companies), ACORD / LOMA, IASA, and RIMS (Risk Management Society) in addition to other reputable conferences.

I rely heavily on research analysts for potential vendors.  Analyst groups spend a great deal of time interacting with vendors and writing reports about various aspects of the vendor community such as technology platforms, maturity, sales in the last year, size, etc.  Unless you are a client of one of the research analysts, the reports will cost an appropriate amount.  Given that you are likely to spend, at a minimum, several hundred thousand dollars, the cost of one of these reports is minimal.  The research analysts that I’m familiar with and interact with on a regular basis are Novarica and Strategy Meets Action.   Additional sources are Gartner, Celent, and Forrester Research. 

Fill in the Names

When you have identified the 12-15 potential vendors and requirements, go back to your spreadsheet and fill in the names of the companies across the top as shown in Figure 3: Vendor List (the names of the vendors have been grayed out).  I also created a Hyperlink of the company names that are linked to another tab within the spreadsheet (Vendor Contact Tab). This provides a place to keep all contact information and dates of communication.  At the bottom of the Vendor list tab, create a summation of each vendor’s columns so the points become totaled as you move forward and as shown in Figure 2: Vendor Point Summation.

The next step in the process is to issue an RFI (Request for Information) or RFP (Request for Proposal).  My personal approach is to issue an RFI and then follow the steps I’ve outlined below.  As part of the RFI, I ask for a typical license fee and professional services fee for a company our size.  The sections within the RFI need to contain what your business and technical requirements are and the vendor’s corporate information.  Be clear that you are using a point weighted system and the vendors need to provide clear answers and any gray area will get marked as zero points. 

Most vendors are good at providing answers that help the process.  Good partner-based vendors understand that they don’t want to waste your time as well as theirs and will provide concise answers.  Send the RFI request to the contacts at the various vendors with a date you need a response by.   When the RFIs come back, review the answers and enter the points into the spreadsheet as shown in Figure 3: Vendor list.

Manage the Communication

At this point in the process, there is likely to be a lot of information being communicated between you and the vendors.  To manage this step I like to use Microsoft Notes.  It is easy to set up and is nicely integrated with Microsoft Outlook.  This approach provides for multiple ways to store and search for your vendor information and communication.

Once you have the RFIs back and all the information entered into the spreadsheet, you now have an objective view into which companies you should look into further.  My approach has been to take the top five companies based on their total point values.   Each time I’ve used this methodology, I’m surprised by which companies make it to the list of five.

The next step in the process is to get a feel for the top five vendors and their systems.  You and your subcommittee have seen all the literature and probably have talked at length with respective vendor sales representatives.  The approach I like to use is to schedule an on-line corporate presentation and demo for each of the five organizations with your subcommittee. 

The agenda is for the vendor to go through their corporate presentation about who they are, how long they have been in business and their value proposition.  One of the most important goals within this step of the process is to have the demo of the vendor’s system cover the high-level requirements.  This will help clear up any miscommunication or misunderstandings about what you were looking for in a system and vendor organization.  Adjust the spreadsheet numbers if needed and if there has been significant miss communication, take the vendor out of the mix and bring your number six vendor into the mix. 

Narrow the Focus

At this time, you and your subcommittee have seen a good mix of vendor presentations and demos and the point assignments have been adjusted as needed.  It is now time to select the top three vendor candidates and shift the process to the full committee.  The selection of the top three vendors is as simple as reviewing which three vendors have the highest number of points. The subcommittee should present to the full committee the list of five companies and the details behind the points for the top three vendors and the reasons for cutting two from the list.

The next step in the process is to reduce the vendor list from three to two.  This is done by bringing in the three vendors to present to the full selection committee.  Some small subtle things that help in this step of the process are to schedule the three vendor’s presentations in the same week and when each full committee member can be present. I also like to provide a version of the selection spreadsheet to each committee member so they can see the individual requirements, and information gathered to date.

The allotted time for the presentations should be three to four hours. The vendors may invite you to dinner the night before the presentation and ask for some coaching. This is a great opportunity to get to know the key resources within the vendor organization. The fact the vendor is asking for coaching is a sign that a vendor is likely to want to work with you in the implementation.  Ask the subcommittee to keep lots of notes through the vendor onsite presentations and demos. 

At the end of each presentation, ask for a short debrief time with the full committee.  While the presentation is fresh in everyone’s mind, ask and document the pros and cons of the vendor.  Ask the full committee to rank the order of preference of the vendors that have presented to date.  Go back to the point assessment spreadsheet and adjust as needed.  Keep clear records of this information because it should be part of the official selection document you prepare.  You may rely on it heavily in the future if you need to defend your process (i.e. new corporate management, board of directors, litigation process). The points should reflect the general consensus of the full committee’s choice of the top two vendors. 

Final Choice

Undoubtedly the full committee will have questions about the two remaining vendors that surfaced as part the presentations and system demos.  The final two vendors should be brought in for a second round of discussions where answers to questions from the first round can be discussed.  It is important each of the vendors brings in members of their proposed implementation team (project manager and architect) if they didn’t during the first round of presentations and demos.   Feel free to heavily question the vendor’s implementation team members. These are the resources you are going to be working with for a lengthy period of time.  Also ask for and review resumes of the proposed team members.

It is important to have the final two vendor meetings in close proximity date wise to keep all the information fresh for committee members.  Likewise, get the full committee together shortly after the two meetings and make the final decision on who the primary selected vendor is.

The final step in the process is to get a detailed proposal and contracts from the final two vendors.  I’ve been clear to each vendor who is the primary recommended vendor and the secondary vendor.  Through the contract analysis, you should feel confident in your primary recommendation, if not, or if something breaks downs in the negotiation process, you have the secondary vendor to fall back on.

As the IT Manager or leader in this process, I’ve always written up the official selection document. This document includes the process you went through, who the vendors were, and why the primary vendor was selected.  It is also just as important to document why certain vendors were not selected. 

Lessons Learned

Some of the lessons I’ve learned throughout the years with this process is to make sure you have your stakeholders identified and involved in the process.  Be sure to communicate the process to your stakeholders before you begin.  The vendor community will naturally gravitate to demoing what shows well with their systems; be sure to communicate that you also want to see how their system addresses your specific requirements. 

As one of the corporate leaders, be sure that you understand your company’s short-term and long-term goals and objectives and take both into account when searching for the right vendor.  And finally, when it comes to contracts make sure that license agreements and professional services agreements are tied together if the vendor is going to provide both services; this will help in future litigation if you were to have implementation issues.  For most contract reviews, I leverage a law group that specializes in software-based contracts (Marzouk & Parry, Washington, D.C.).

The vendor selection process is meant to act like a funnel where a significant number of vendors are brought into the process at the beginning and through a series of conscious steps, one primary and one secondary vendor comes out the end.  This roadmap is an unbiased, collaborative, requirement-weighted approach that will yield vendors that best meet your objectives and requirements.  Good luck with the process and may all your future strategic implementations be successful.

(Larry Fortin is CIO of Millers Mutual Insurance and a member of the Insurance Technology Association advisory board.)

When you have identified the 12-15 potential vendors and requirements, go back to your spreadsheet and fill in the names of the companies across the top as shown in Figure 3: Vendor List (the names of the vendors have been grayed out).  I also created a Hyperlink of the company names that are linked to another tab within the spreadsheet (Vendor Contact Tab). This provides a place to keep all contact information and dates of communication.  At the bottom of the Vendor list tab, create a summation of each vendor’s columns so the points become totaled as you move forward and as shown in Figure 2: Vendor Point Summation.

The next step in the process is to issue an RFI (Request for Information) or RFP (Request for Proposal).  My personal approach is to issue an RFI and then follow the steps I’ve outlined below.  As part of the RFI, I ask for a typical license fee and professional services fee for a company our size.  The sections within the RFI need to contain what your business and technical requirements are and the vendor’s corporate information.  Be clear that you are using a point weighted system and the vendors need to provide clear answers and any gray area will get marked as zero points. 

Most vendors are good at providing answers that help the process.  Good partner-based vendors understand that they don’t want to waste your time as well as theirs and will provide concise answers.  Send the RFI request to the contacts at the various vendors with a date you need a response by.   When the RFIs come back, review the answers and enter the points into the spreadsheet as shown in Figure 3: Vendor list.

Manage the Communication

At this point in the process, there is likely to be a lot of information being communicated between you and the vendors.  To manage this step I like to use Microsoft Notes.  It is easy to set up and is nicely integrated with Microsoft Outlook.  This approach provides for multiple ways to store and search for your vendor information and communication.

Once you have the RFIs back and all the information entered into the spreadsheet, you now have an objective view into which companies you should look into further.  My approach has been to take the top five companies based on their total point values.   Each time I’ve used this methodology, I’m surprised by which companies make it to the list of five.

The next step in the process is to get a feel for the top five vendors and their systems.  You and your subcommittee have seen all the literature and probably have talked at length with respective vendor sales representatives.  The approach I like to use is to schedule an on-line corporate presentation and demo for each of the five organizations with your subcommittee. 

The agenda is for the vendor to go through their corporate presentation about who they are, how long they have been in business and their value proposition.  One of the most important goals within this step of the process is to have the demo of the vendor’s system cover the high-level requirements.  This will help clear up any miscommunication or misunderstandings about what you were looking for in a system and vendor organization.  Adjust the spreadsheet numbers if needed and if there has been significant miss communication, take the vendor out of the mix and bring your number six vendor into the mix. 

Narrow the Focus

At this time, you and your subcommittee have seen a good mix of vendor presentations and demos and the point assignments have been adjusted as needed.  It is now time to select the top three vendor candidates and shift the process to the full committee.  The selection of the top three vendors is as simple as reviewing which three vendors have the highest number of points. The subcommittee should present to the full committee the list of five companies and the details behind the points for the top three vendors and the reasons for cutting two from the list.

The next step in the process is to reduce the vendor list from three to two.  This is done by bringing in the three vendors to present to the full selection committee.  Some small subtle things that help in this step of the process are to schedule the three vendor’s presentations in the same week and when each full committee member can be present. I also like to provide a version of the selection spreadsheet to each committee member so they can see the individual requirements, and information gathered to date.

The allotted time for the presentations should be three to four hours. The vendors may invite you to dinner the night before the presentation and ask for some coaching. This is a great opportunity to get to know the key resources within the vendor organization. The fact the vendor is asking for coaching is a sign that a vendor is likely to want to work with you in the implementation.  Ask the subcommittee to keep lots of notes through the vendor onsite presentations and demos. 

At the end of each presentation, ask for a short debrief time with the full committee.  While the presentation is fresh in everyone’s mind, ask and document the pros and cons of the vendor.  Ask the full committee to rank the order of preference of the vendors that have presented to date.  Go back to the point assessment spreadsheet and adjust as needed.  Keep clear records of this information because it should be part of the official selection document you prepare.  You may rely on it heavily in the future if you need to defend your process (i.e. new corporate management, board of directors, litigation process). The points should reflect the general consensus of the full committee’s choice of the top two vendors. 

Final Choice

Undoubtedly the full committee will have questions about the two remaining vendors that surfaced as part the presentations and system demos.  The final two vendors should be brought in for a second round of discussions where answers to questions from the first round can be discussed.  It is important each of the vendors brings in members of their proposed implementation team (project manager and architect) if they didn’t during the first round of presentations and demos.   Feel free to heavily question the vendor’s implementation team members. These are the resources you are going to be working with for a lengthy period of time.  Also ask for and review resumes of the proposed team members.

It is important to have the final two vendor meetings in close proximity date wise to keep all the information fresh for committee members.  Likewise, get the full committee together shortly after the two meetings and make the final decision on who the primary selected vendor is.

The final step in the process is to get a detailed proposal and contracts from the final two vendors.  I’ve been clear to each vendor who is the primary recommended vendor and the secondary vendor.  Through the contract analysis, you should feel confident in your primary recommendation, if not, or if something breaks downs in the negotiation process, you have the secondary vendor to fall back on.

As the IT Manager or leader in this process, I’ve always written up the official selection document. This document includes the process you went through, who the vendors were, and why the primary vendor was selected.  It is also just as important to document why certain vendors were not selected. 

Lessons Learned

Some of the lessons I’ve learned throughout the years with this process is to make sure you have your stakeholders identified and involved in the process.  Be sure to communicate the process to your stakeholders before you begin.  The vendor community will naturally gravitate to demoing what shows well with their systems; be sure to communicate that you also want to see how their system addresses your specific requirements. 

As one of the corporate leaders, be sure that you understand your company’s short-term and long-term goals and objectives and take both into account when searching for the right vendor.  And finally, when it comes to contracts make sure that license agreements and professional services agreements are tied together if the vendor is going to provide both services; this will help in future litigation if you were to have implementation issues.  For most contract reviews, I leverage a law group that specializes in software-based contracts (Marzouk & Parry, Washington, D.C.).

The vendor selection process is meant to act like a funnel where a significant number of vendors are brought into the process at the beginning and through a series of conscious steps, one primary and one secondary vendor comes out the end.  This roadmap is an unbiased, collaborative, requirement-weighted approach that will yield vendors that best meet your objectives and requirements.  Good luck with the process and may all your future strategic implementations be successful.

(Larry Fortin is CIO of Millers Mutual Insurance and a member of the Insurance Technology Association advisory board.)