Let’s Make a Deal...Now!
Shifting Focus
Like other carriers, Zurich had shifted its technology spending focus fromtransformational investments to managing unit costs of core ""keep-the-lights-on"" aspects of operations and development activities, Bostick relates. Among the basic requirements was ""more flexibility on costs, and an assurance we could do the meat-and-potatoes work of our relationship at lower costs than we used to.""
Zurich had also committed to incorporating offshore development in its delivery model, in the interest of both cost and process improvements, according to Bostick. Though CSC did not engage on the activities concerned, Zurich invited the vendor to bid on that work, even as the carrier moved to renegotiate its contract. Explains Bostick: ""Zurich Life felt that it had to act in order to address the environmental changes that had occurred in the life and annuity industry since the last contract was signed. Secondly, Zurich Life management felt that it had to develop a credible, capable alternative to signing a new contract substantially prior to its expiration. Finally, we wanted to access the skills and process maturity associated with Indian outsourcing.""
Bostick's vendor counterpart, Joe Sperrazza, CSC's global account executive for Zurich, recalls his firm's reaction to Zurich's overture. ""We could have dug in our heels and refused to consider a new contract, but there are elements in the new offer that are clearly beneficial,"" he says. ""There have to be benefits to both sides. I've been involved in some renegotiations that were not structured that way, and generally speaking, they fail.""
The actual result of Zurich's gambit was that ""Joe, through a series of dialogues, proposals and presentations, chose to re-form the whole arrangement,"" Bostick recalls. ""And that was our 'Nirvana'—'Could we cast the relationship in a way that preserved all of its best qualities but introduced some change as well?'"" The change involved the drafting of a six-year contract that would carry CSC beyond the terms of the original pact.
CSC application management work has been extended to 100 percent of Zurich Life's applications, and offshore work will be done by CSC partners in India. ""The contract also requires an upgrade in process maturity on the part of CSC, and requires Zurich to participate positively in enabling that to happen,"" Bostick says. Zurich's gains from the deal are in keeping with the range of savings research firms associate with offshore plays, he adds.
A certain maturity in the negotiation process itself was essential to its success. In Bostick's view, ""I think the essence of a positive, balanced relationship is that either party develops and feels capable of having an independent relationship, but they find it more satisfying to have one together—it's not unlike marriage in that regard.""
The quality of the CSC/Zurich relationship expressed itself through three aspects of the negotiation process, says Bostick. ""The first is that both companies came to the dialogue prepared to be flexible and creative; they were willing to change the focus of bargaining if an idea introduced was valuable.""
""Second was that both parties brought people to the table who could speak for their companies interactively,"" Bostick adds. ""Neither of us have all the rights of our company delegated to us, but this was not a negotiation where party 'A' says something, party 'B' scribbled it down, and vice versa, and they shake hands and say they'll meet in three days with answers to their questions. We came prepared to bargain for our respective companies, which not only made things go faster, it also brought trust that no games were being played.""
Lastly, Bostick dedicated time with his staff to get them to discard any bitterness or sense of victimization they had toward CSC prior to the negotiation. ""We spent some serious time talking among ourselves about being firm in asking what we wanted and not whining about things that might have disappointed us in the past,"" he says. Keeping such negative behavior from the negotiation table meant, Bostick believes, ""that CSC saw us as bargaining with sincerity as opposed to trying to kick the vendor.
---------------------
Before You Sign...
Gary Gilbert, president and CEO of IDP, a Wyncote, PA-based insurance technology consulting firm, offers the following advice to carriers looking to negotiate or renegotiate contracts:
-- Verify your potential vendor's financial stability. Before you make a purchase decision, it's wise to review the company's financials. You'll want to work with a self-sustaining company, not one that's surviving primarily because of investor money.
-- Negotiate for ""out clauses."" These protect you if the vendor cannot sustain the product. Out clauses can be triggered at specific points in the process, such as if a milestone is not met or if an event has altered the company's ability to support that piece of technology. Having out clauses at key decision points can let an insurance company withdraw from the contract without legal entanglements.
-- Evaluate the vendor's project management process. The process details the vendor's particular approach to implementing technology by defining milestones and providing measurements against those milestones along the way. Ask: Who are the people who are managing my project? How many projects will they be managing at the same time? Such questions can eliminate high-risk vendors from the mix.
-- Analyze the maintenance agreement. Your vendor should commit to a clear definition of what is included in its support contract. Many software providers charge upwards of 30 percent of the initial license fee on an annual basis.
-- Propose a rewards/penalty system. The carrot can be a great motivator for a provider. Consider entering a bonus system in your contract to reward the vendor for exceeding stated goals, as well as the reverse of the coin: Ask your potential vendor to agree to penalties for performance failure.
Anthony O'Donnell has covered technology in the insurance industry since 2000, when he joined the editorial staff of Insurance & Technology. As an editor and reporter for I&T and the InformationWeek Financial Services of TechWeb he has written on all areas of information ... View Full Bio
Tweet This