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Elite 8 2007: Keys to the Build vs. Buy Decision-making Process

Elite 8 Honorees Dennis Mehmen and George Napoles, of Grinnell Mutual Reinsurance and Jackson National Life, respectively, discuss when to build and when to buy new systems.

For many, the build vs. buy debate is really a question about control. That's certainly the case for Jackson National Life's (Lansing, Mich.) George Napoles and GMRC's Dennis Mehmen. While both recognize that purchasing a solution from a vendor is often the best approach, they are reluctant to do so if it means limiting their ability to make modifications later on. Mehmen, VP of business information services and CIO at Grinnell Mutual Reinsurance Company, says his IT environment is about 60 percent build, 40 percent buy. GMRC's online applications and agent Web site are all custom coded and its policy system for personal lines is homegrown.Mehmen, VP of business information services and CIO at Grinnell Mutual Reinsurance Company (Grinnell, Iowa), says his IT environment is about 60 percent build, 40 percent buy. GMRC's online applications and agent Web site are all custom-coded and its policy system for personal lines is homegrown.

The key, Mehmen explains, is access. GMRC's billing and claims systems, for instance, were both purchased from an outside vendor, but GMRC was given access to each systems' source code.

Source code is so important that the company is in the midst of ending a 20-year vendor relationship involving its commercial lines policy system. A long dispute over the system's source code has caused GMRC to begin to develop its own commercial processing system, Mehmen says.

"Our main philosophy here is that we want to own the code for our main processing systems -- policy, billing and claims systems. We want to be able to change it as much as we want and we want to use those systems as leverage in our marketplace," Mehmen says.

At Jackson, where George Napoles is EVP, chief administrative officer and CIO, a "buy and modify" philosophy is in place. "Where we can - and not all vendors will let us - we attempt to get source code for every system," Napoles says.

While buying is generally preferable, Napoles says that Jackson often can't find a solution in the marketplace with the capabilities it's looking for. As a result, many of the carrier's applications are built internally. "If we can find a product that satisfies our needs without a lot of modifications, it really is cheaper for us to buy," Napoles relates. "What drives us to build is the degree of modifications often required for a [vendor solution] to meet our specifications."

In a way, the key to a making the right call when it comes to build vs. buy decision is having an efficient IT team in place, with strong leadership. Even when the marketplace fails to meet your specific needs, building can still be the wrong choice if your internal builders aren't up to the task.

According to a recent Celent report, conveniently titled "The Build Vs. Buy Debate," many of the reasons not to build involve the risks inherent in an underfunded or poorly governed internal IT development shop.

So perhaps that puts CIOs like Napoles and Mehmen in a better decision-making position. It can be easier for a CIO to look at the vendor marketplace more critically, when he or she has confidence that, if the market can't deliver what's needed, the internal development team can.

After an "exhaustive" search, for example, Napoles says that his team has decided to build rules engines internally. That project, Napoles says, is being completed on time and on budget. Anticipated benefits of the project are being realized and for less than cost of an outside vendor, Napoles asserts.

"It goes back to very good and very creative people. We frequently find that we can develop internally for cheaper and for a better solution than we could purchase outside," Napoles says.Elite 8 Honorees Dennis Mehmen and George Napoles, of Grinnell Mutual Reinsurance and Jackson National Life, respectively, discuss when to build and when to buy new systems.

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