Legacy Core Replacement Under Budget Pressure
You are the CTO of a mid-sized insurance company. The 18-year-old policy administration system (PAS) runs on COBOL and handles 70% of premium volume. Maintenance costs $4.2M annually, and the vendor has announced end-of-support in 30 months. The board approved $12M for a three-year modernization but expects no increase in IT headcount (currently 45 FTEs). The business wants new digital products within 12 months. A cloud-native SaaS PAS would cost $3M/year in subscription and require 18 months of parallel running. A phased re-platforming to Java microservices would cost $9M over 24 months but needs 8 additional developers. The CFO favors SaaS for predictability; the COO fears operational disruption. The head of distribution threatens to leave if digital products slip.
1. What decision framework should the CTO use to choose between SaaS and re-platforming, and what recommendation would you make?
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Use a weighted decision matrix covering total cost of ownership (TCO) over 5 years, time-to-market for digital products, operational risk, and strategic flexibility.
- SaaS TCO: $3M/yr × 5 = $15M subscription + $2M migration = $17M, with predictable costs but vendor lock-in and limited customization. Time-to-market for new products: 18–24 months due to parallel running. Operational risk: moderate during transition, low thereafter. Strategic flexibility: low.
- Re-platforming TCO: $9M build + $1.5M/yr run = $16.5M over 5 years, but requires 8 additional developers (headcount constraint) or contractors at ~$1.2M/yr, raising TCO to ~$19M. Time-to-market: 12–18 months for first microservices, enabling digital products sooner. Operational risk: high due to in-house skills gap and dual running. Strategic flexibility: high.
Given the 30-month end-of-support deadline, both are feasible. However, the headcount freeze makes re-platforming risky unless contractors are allowed. The COO’s disruption fear is valid, but SaaS’s 18-month parallel run also disrupts. A hybrid approach-SaaS for core policy admin while building a digital API layer in-house-could meet the 12-month digital product goal and reduce risk. Recommend SaaS with a robust API management layer and a 24-month exit plan from legacy, while negotiating a cap on subscription escalation and data portability clauses. This aligns with CFO’s predictability and addresses COO’s concerns via a detailed transition plan and early wins.
2. How should the CTO address the COO’s operational disruption concerns and the head of distribution’s digital product timeline?
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Separate the two issues: operational stability vs. digital innovation. For the COO, propose a phased migration with a pilot on a low-risk product line, a detailed runbook, and a rollback plan. Establish a joint operations-transformation steering committee with weekly risk reviews. For distribution, decouple digital product delivery from core replacement by building an API gateway that exposes legacy functions as services. This enables a minimum viable digital product within 9–12 months using the legacy core, while the core replacement proceeds in parallel. Communicate a clear roadmap with quarterly milestones and involve distribution in product design to maintain engagement. This addresses both concerns without forcing a premature core cutover.