Archive for April, 2010

Buying Another Policy Administration System: Negotiating Tips

Thursday, April 29th, 2010

Buying Another Policy Administration System:  Negotiating Tips

We recently met with some of the senior technology people at a life insurance company here in the US.  After a long exhaustive analysis, the company was completing the selection process for a new policy administration system.  They had narrowed it down to two leading systems from a short list of 7 or 8. 

While both of the finalist systems had their attributes and selling points, it struck us that the newer of the systems had been around for almost ten years and the older of the two had been around for twice that long.  Surely, they had been re-architected and improved in that time, but for both of these systems “new” is not exactly the right description.

In terms of track record, the insurance company openly acknowledged that neither of the finalists had had much success actually implementing their solution in the past 5 years.  Their estimation was two or three truly successful implementations between the two vendors since 2005.

Anything a company can do to improve the likelihood of success with a policy administration vendor relationship is important.  From a contracting perspective, here is what we recommend:

  • Get source code.  Regardless of the administration package or the vendor-speak about not requiring source code, we strongly recommend that you negotiate rights to code (not source code escrow).   If the vendor claims that they don’t provide source code access, the vendor should be able to represent in the contract that they have not licensed source code (or given the option to buy source code) to any other client.
  • Get reasonable provisions around your rights to use third parties to maintain and configure the system.  The vendor should have to earn your business on an ongoing basis.  Most vendors will have a list of competitors that cannot access the system.  Be sure to limit this to providers of competing SOFTWARE.  You need the flexibility to contract with outside experts who can do some or all of the implementation and maintenance.
  • Do not start the project without a signed license.  However, you should have the ability to opt out (and get a refund of the license) if the services estimate exceeds a certain threshhold.  Also, to facilitate the contracting process, you should agree to a term sheet with the MAJOR deal provisions (like getting source code).
  • Get the “A team” from the vendor and get that commitment with named resources in the contract.

Obviously, a good license contract is only part of the equation, but it’s a start.

John Gorman
FAST

Why Most Successful Companies Stop Innovating and 8 Ways to Avoid the Trap

Wednesday, April 21st, 2010

“Learning and innovation go hand in hand.  The arrogance of success is to think that what you did yesterday will be sufficient for tomorrow.” William Pollard   

Most companies start out with innovative ideas around products, services, or even processes to solving problems.  Successful companies will get to that next level as a result of their implementing those innovative ideas.  Then, why do so many companies stop innovating?

Why do companies allow themselves to be a one-trick pony?

When companies are small, nimble and hungry with “nothing to lose”, they are able to come up with innovative product ideas and implement them quickly and cost effectively.  A company will spend years expanding, perfecting and selling its products.  The management will be passionate and love their products and the products define the company.  For a company to be successful, there will be a solid customer base that is happy with the product, and the company may experience significant growth based on the product.  All of this sounds good, but it can be the beginning of a trap that stifles innovation.    Here are some of the reasons companies can fall into that trap:

  • Management becomes too emotionally attached to their creation and doesn’t recognize when technologies have changed and it’s time to start over.
  • When growing the company, management often puts processes in place, geared towards “the masses”.  As such, risk taking stops being rewarded and the culture becomes more about delivering consistently rather than finding breakthroughs. 
  • The talent pool becomes significantly diluted – because the best people need to be reserved for managing the masses and “growing in their careers”. 
  • The exposure the bulk of the employees have is to their customers under the context of this product and the customer is primarily concerned with incremental enhancements for their narrow focus

As a result of this, the costs are too high and the motivation is too low.  The diluted talent pool following stringent processes drives the cost up to multiples of what things should cost and without the push from management or customer’s, it’s difficult to justify the investment.

The really successful companies end up getting acquired by a larger company who has recognized that they were unable to build something similarly innovative themselves.  Unfortunately, most acquirers “know better” and enforce “big company processes” that stifle any hope of providing innovative solutions to the problems.

8 Ways to Avoid the Trap

  1. Sounds like a cliché, but it’s true:  Recognize the problem.  Understand how you got to where you are and harness that.
  2. Allow research and development to be done in smaller groups of talented people.   Those small groups can be compartmentalized within the company or even independent of the company (partnering with other entrepreneurs).  You can even use social networking developer sites like guru.com  or topcoder.com to do proof-of-concept work. 
  3. Allow those smaller groups to work “outside the processes” in a skunk works modeRemember when you first started, it wasn’t required to write a 30 page document before you wrote a single line of code.
  4. Reward innovation – have a culture where people can share their ideas and incentives are provided to those with the groundbreaking ideas.  The career path for a great innovator and/or implementer of innovation is not necessarily management. 
  5. Every interaction with a client, prospect, or the market is an opportunity to come up new ideas on how to innovate.  Whether it’s improving what you already have or something brand new, the questions asked by others should drive those creative juices.   Have an internal forum where people are inspired to capture this information while doing their daily jobs.
  6. Try stuff – don’t be afraid to try different things to see what will stick.  If you’re following #2 and #3, you can afford to build prototypes and prove out some ideas.  Recognize that 50% of what gets started may never see the light of day. 
  7. Make it a priority to get involved with your customers at a different level than just your product.  Ideally, you want to have a good relationship with the executives so they’ll allow you access to the people on the ground (both using your products and not using your products). 
  8. Avoid building “big stuff”.  By building smaller components that are meant to be replaced and/or evolved, you can avoid it being cost prohibitive to upgrade and/or replace.  As important, it reduces the emotional attachment of the original “authors” who are usually in a power position.

Even large companies can innovate if they institute some of these practices that were mentioned.   Unfortunately, there is usually too much red tape and they may be better off partnering with a small company or a start-up to achieve the level of innovation they need.

“If you can dream it, you can do it” – Walt Disney