Straight Talk on Software Procurement Options

Straight Talk From a Global CTO

Central Technology Services recently had the opportunity to speak with Doug Schneider who spent five years as the Global CTO of Manulife Financial. We discussed his approach to Manulife’s transition to cloud,  vendor management, software acquisition and Central’s role as a business partner. With 2017 revenues exceeding $40 Billion, Manulife Financial is ranked 250 on Fortune’s Global 500. 

Can you provide a summary of the businesses you supported and technology teams/platforms that you managed in your role as global CTO for Manulife?

Manulife was a great place to work. It was a challenge supporting five divisions and thirty-five business units across multiple zones and languages. As a company we grew by acquisition to $1 trillion in assets under management, our business was split almost equally among the US, Asia and Canada. As the Global CTO I was responsible for our cloud, digital and information strategies, architectural framework, technology procurement and traditional infrastructure services from end user services through to data centers and outsources.  To better support our  34,000 employees and rationalize 4,000 applications, in 2013 we made an early bet on cloud and aggressively moved to have majority of our private infrastructure migrated by 2018. All new build was cloud first. 

What was your strategy around vendor selection?

With aggressive timelines we couldn’t support multiple vendors on our journey. My strategy was to make bigger bets on a small number of partners who offered broad platforms, companies like Microsoft, Salesforce, IBM and ServiceNow. We had lots of open conversations around our vision and their ability to deliver on that vision. Delivery was critical, vaporware was not in our buying plans. We needed them to be aligned with our vision and leverage their platforms in both breadth and depth.  These new platforms are tremendously expensive if you use them for only one thing. But we also needed to careful because they are complex and can lead to wasting resources.

It sounds like vendor management must have been a challenge.

It was. We needed to have tough conversations with many long-term vendors, who had yet to commit to a cloud strategy in 2014. More important for us was building a strong partner model which is much different than a vendor model. Win-win, versus win-lose. To deliver lasting stakeholder value everyone needs to make money. We shared all of our plans with our partners, in return we gained important insights into their product roadmaps. Aligning their technology to serve our business strategy was important. Admittedly Manulife is a large organization, we had more power than most. But the principle for me was the right one, we needed to ensure that our partners’ executive leaders were aligned to our vision and kept their focus aligned equally on executing today and our longer term business strategy. 

How did you optimize cost when negotiating with enterprise software providers? That sometimes seems counter-intuitive in a partner model.

Good question. Many CIO’s and IT leaders play a win-lose game and often they don’t want to understand market pricing and how the partner makes money. It’s a healthy conversation to have. While I shared everything, I also wanted to understand how to negotiate the lowest price and here Central played an important role as the middleman. They have a deep understanding of the enterprise software space and provided us with great market intelligence.  Another important area that Central helped us with was negotiating the lowest cost per seat by leveraging multi-year volume purchases. 

The lowest cost per seat using volume purchases. Can you elaborate?

We all know that software publishers use quarter or year-end to offer their lowest prices. They also try to load as many licenses as possible into the offer. The problem for the customer though is that we couldn’t deploy all licenses on day one, our normal deployment period was 6 -18 months.  We were reluctant to  pay for all licenses on day one and take the OpEx hit for product not yet in use. With Central as the middleman we were able to negotiate the best volume purchase at the lowest unit price,  and use Central to build a deployment schedule. The good news was that we didn’t need to pay for licenses before they were in use and didn’t need to take the OpEx or EBITDA hit until then. Spend was aligned with use and delivery of benefits. More importantly, there was no increase in the Total Cost of Ownership versus a traditional procurement model. No software vendor we found could offer this flexibility.

In the transition to cloud, did the role of corporate and IT finance change in evaluating enterprise software purchases?

There was lots of education for both finance and IT. We needed to invest time and effort educating finance people on our strategy and direction and helping them understand the cloud OpEx paradigm shift compared to perpetual license. This was important because we were an expense focused organization at that point in time. I remember one example where I had to work closely with the Chief Accounting Officer on a business case to procure 4,000 seats from Oracle. As this was part of an enterprise transformation project we had a long deployment period. In our business case we looked at two purchasing scenarios, the first was a traditional one with annual purchases and the second was using Central as our procurement arm to pre-buy all 4,000 seats, then deploy and pay over time. It was a real win-win. Using Central we got a lower price per seat,  OpEx savings and in this case we lowered Total Cost of Ownership. 

Describe the impact to your business caused by the shift from CapEx perpetual licensing to OpEx subscription and cloud pricing models for enterprise software.

In our case the shift was manageable. As an organization we had already outsourced a large percentage of our infrastructure, so we were largely expense driven. We were able to dial up or dial down our costs more easily than many other companies. But the real challenge came after we committed to cloud and focused on the small number of partner relationships I described in an earlier question. There we needed to ensure our business case was rock solid and supported the business outcomes Manulife’s executives needed. 

What role did Central play in helping you achieve your business objectives? What value did they deliver?

No pun intended but they played a central role. CTS knew our business and how they could help us, they could point to their previous success helping other major clients with licensing flexibility not provided by mainstream software publishers. In the case of Manulife, the complexity of the transformation to subscription and cloud made their service offering very valuable to us. They helped us lower overall licensing costs and Total Cost of Ownership, deploy over time and match spend with delivery of benefits to the business. CTS also gave us the ability to adjust our license deployment when our plans changed, without them we didn’t have this flexibility. Plus they were a great partner who understood the value in our relationship.

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