Vendor Selection and Management Failures

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Vendor-related failures encompass both poor initial selection decisions and inadequate ongoing relationship management, representing critical risks that can single-handedly destroy transformation initiatives regardless of other project strengths.  CIOs and carriers are often inexperienced with vendor selections, overlooking key criteria and failing to realize their negotiating power. 

According to McKinsey research, large IT projects run 45% over budget and 7% over time, while delivering 56% less value than predicted.   How can this happen?  Many core platform vendors overpromise during the sales process, only to underdeliver and leave insurers over-budget and beyond deadlines.  Common vendor characteristics that happen across the industry to close a deal:

1. Make product delivery promises without committed dates to close a deal | You should document new functions and delivery commitments in the SOW
2. State that they will add a function required for your business without specificity or signoff | You should have the vendor create a business requirement for alignment and inclusion in the SOW
3. Fail to deliver the promised function on the expected date, deliver the function after your go-live date, or deliver the function with the capabilities you expect | You should include financial penalties against the vendor for failing to deliver on time or as documented.   

Additionally, a vendor may push to close your deal by the end of the vendor's fiscal quarter.  This is often where your modernization project begins to fail.  Like a poor building foundation, the cracks will begin to appear at this decision point.  Vendors will offer financial incentives to sign the contract, and the buyer will forget to secure the commitments outlined above, creating a "pay me now or pay me later" scenario.  

The vendor selection process often prioritizes existing relationships, price, or timeline over crucial factors like culture fit, business need matching, and specific product requirements.  Property & Casualty insurance is very complex and competitive.  Vendors often lack experienced staff to have detailed conversations with carriers about innovative capabilities or new requirements; they rely on creatively selling the systems as they are.  Adding to the challenge, vendors may often be inadequately staffed to support the products they deliver and staff implementations.  Resources are moved around as vendors manage competing internal R&D priorities, product priorities, tech debt, sales targets, and financial expectations from their owners.