Insurance, Healthcare & Higher Ed: Is Purchasing an Entire Suite Always Sweet?

Whether in insurance, education, financial services, or any other industry, vendors want the BIG deal. Vendors are not inclined to be patient and earn your business module by module, project by project or year over year so they justify the transaction based on Present Value versus Future Value. The salesperson is paid a higher commission for an enterprise transaction and that serves as their primary motivation.

Let’s face it, we all like a deal – more functionality and more utility at a “discount”. At least that is the promise. So, when a vendor offers an enterprise solution with more bells and whistles than needed, our inclination is to buy-in. The difference between what technology companies offer and what corporate customers buy is known as the “Consumption Gap”. This is analogous to all the features and functions you could use on your smartphone but never will be able to even understand. The questions is, why buy more capability that you may never use simply because it’s priced attractively.

As a business, you must ask yourself if it is truly better to take one bite at a time, or eat the entire elephant. Sometimes it seems that the entire elephant is the only thing that makes sense. Vendors make it so attractive. And it may be. Most us at SMF are vendor alumni and our transactional experience has led us to conclude that a bite at a time is often the best approach (for both parties).

Here are a few questions that you can ask yourself and your team to determine.  

Do you truly “need” to implement the entire suite at once, or can you integrate one module at a time?
If so, this often is a higher success rate, even if at a slightly higher cost. And it certainly will reduce your risk of the HUGE losses we have seen from failed, large-scale implementations. Even when you implement one module at a time, you still need to be sure you have exits in the contract. Recently, one insurance carrier finished implemented their billing module 1.5 years late and twice the cost. Unfortunately, they had already committed to implement the policy portion and it went so poorly they cut ties with the vendor, wasted a year and lost an additional $2M. If they had only had the help of an organization to walk them through the casualties of war and made sure that their contracts had escape routes so that they could have walked away after billing went bad. They could have started a fresh policy module with no penalties and saved a year delay. But when you only purchase a certain system once every 5-10 years, can you really keep track of the current trends of vendors, their margins, and their “tricks of the trade”?

Are you replacing multiple vendors or just one?
For example, in insurance, do you have Guidewire for Policy Admin, Duck Creek for Claims and Insurity for Billing? Or are all 3 existing systems the same vendor? This can make a huge difference on your conversion costs and the overall risk of the implementation.

Does one vendor’s suite actually have the best of each of the individual modules for your needs?
For example, in higher education, would are your needs better suited for Ellucian’s ERP system and Unit4’s SIS and CRM systems? Each vendor has different strengths and weaknesses in their systems/modules. You have to figure out what you want versus what you NEED and determine can one vendor meet all those needs, then look at the costs and benefits. Not to mention that the culture of a vendor makes a difference in the ongoing relationship.

Are you replacing legacy systems?
Many insurance, higher education, manufacturing and distribution companies are replacing old, monolithic legacy systems now (mainframe, iSeries, Unix, etc.). Most of these are “home grown” and the knowledge of these systems left when the developers left the company. The benefits of replacing these systems can be very strong, but they also tend to be the riskiest because these systems have been around for up to 30 years running the core business. And the conversion costs with legacy systems are typically the highest.

Given all the above considerations, if you still decide that the financial justification to take advantage of an enterprise transaction sways your decision. If so, leverage the years of experience SMF have to reduce your risk and negotiate favorable terms, but also compare your pricing to similar purchases to give you the leverage you need.