The argument for legacy systems modernisation
Technology is not like wine. It doesn’t get better with age. And yet, many companies continue to use systems that are long past their prime.
There are many reasons for this. The simplest and most common one is that the software still works. It still copes with most of its tasks, still provides for the users’ needs. It’s the “if it ain’t broke, don’t fix it” argument. There are also economic reasons why businesses keep old systems running. These include uncertainty about return on investment (ROI), vendor lock-ins, change management challenges and concerns about system availability. For these reasons and others, owners deem the costs of redesigning or replacing the system prohibitive and/or unnecessary.
However, it is now catching on in all industries that the benefits of modernising legacy systems with new technologies far outweigh the costs. This is no doubt why a 2018 survey by Whishworks revealed that 71% of IT leaders cite legacy systems modernisation as their top priority.
Here are some of the key benefits.
Improved efficiency and productivity
New technologies can eliminate paper, non-value-added work activities and procedural steps, dated and legacy business policies etc. This enables employees to be efficient and have more time to dedicate to billable work.
Increased flexibility and agility
IT modernisation is based on agile methodologies designed to make it easier to adopt new technologies and solutions in the future. This enables businesses to evolve and expand more easily, and adapt more quickly to changing market conditions.
Happier employees and customers
Streamlined workflows mean less paperwork, data entry and routine administrative tasks for employees. Faster, more effective processes result in improved service delivery and customer satisfaction.
Lower support costs
Most modern software is hosted in the cloud on a SaaS basis, shifting the burden of maintaining it from the end-user organisation to the provider, eliminating the usual IT support costs.
Improved security and compliance
The fact that most modern software is managed in-house by the vendor significantly reduces the risk of systems failures, security breaches and problems with compliance.
Wide scope for integration
Modern software is integration-ready by default and third-party APIs make it possible to access the capabilities of other applications. This enables businesses to offer new and better solutions to their customers. Integrating the different platforms in use throughout a business allow all departments to communicate and collaborate.
Common legacy systems by vertical
Many insurance companies are constrained by inflexible legacy systems for billing, claims, policy administration, underwriting and broker/agent management. Many of these functions are facilitated by workarounds, which is why managing and operating these systems is costly, and is becoming increasingly so. In addition, many life insurers and property & casualty (P&C) insurers compete by constantly launching new products and services. However, legacy systems are hindering their speed to market, which is a critical market differentiator for those firms. There is also the problem that many life and P&C insurers are using legacy systems that date back 40 years or more, which means the IT employees with knowledge of those systems are about to retire—if they haven’t already.
Healthcare is increasingly data-driven and hospital IT leaders are under pressure to keep pace with new initiatives whilst managing a growing pool of legacy data systems. Many hospital IT leaders have chosen to keep certain legacy systems running indefinitely. This is because converting clinical data such as lab results, radiology reports and ambulatory data to new systems is expensive, time-consuming and sometimes not even possible. However, since this is a risky and costly approach, increasing numbers of hospitals are looking at active archiving solutions that allow legacy applications to be decommissioned, while still enabling hospital staff to have real-time access to records.
Most airlines still rely on IBM’s Transaction Processing Facility (TPF), introduced in the 1960s. This processes hundreds of thousands of transactions per second and is still very reliable despite its age. However, TPF is good at processing high volumes of data but nothing else. As a result, airlines rely on increasing numbers of bolt-on solutions for managing flight operations and offering customers more options. A disconnect between old and new IT systems is being blamed for the major systems failures that airlines such as Delta have experienced in the last few years. Airlines are now being encouraged to spend a lot more on their IT.
In the 1970s and 80s, banks were at the forefront of technological innovation. This was the period that brought us ATMs, BACs and international card payments. However, the sector put the brakes on innovation after that, which is why many core systems banks rely on today are ones that were built back then. For example, a lot of banks are still using systems that are written primarily in COBOL, which was introduced in the 1960s. Not many people are learning COBOL anymore and many COBOL coders have already retired. Some are being persuaded to become part-time consultants just to keep banking systems up and running. The banking industry is one that is in particular need of modernisation. However, it is also the best example of why businesses cannot simply rip out and replace their legacy systems. This is because every product banks sell is supported by a system made of thousands of interdependencies.
These are but a few...
These are just some of the industries impacted by legacy technologies. Research has consistently shown that the vast majority of IT leaders across all sectors believe that legacy systems are holding back their business.
Challenges posed by retaining outdated systems
We are living in an age of digital transformation and legacy systems are a barrier to that. The “if it ain’t broke, don’t fix it” attitude fails to take account of the following challenges.
• The cost of maintaining legacy systems is high. A 2018 report by EY revealed that banks spend 75% of their IT budgets on maintaining legacy systems, including technical patches, workarounds to augment old platforms’ limited capabilities, and maintaining old infrastructure.
• Customers expect more from their providers. Today’s customers demand faster, easier and more secure access to the things they need. They want personalised solutions based on implicit assumptions that their providers know them well from past interactions. Legacy systems make it extremely difficult to meet these ever-increasing expectations.
• Scope for integration is limited. Modern software platforms are integration-ready by default, whereas legacy systems lack compatibility and large amounts of custom code are required to connect them.
• Legacy systems are less secure. Cyber-attacks are becoming increasingly sophisticated and legacy systems are not equipped to handle them. Plus, the older a system is, the more time an attacker has had to learn the code and discover its vulnerabilities.
• Compliance is difficult. Old systems beset with process gaps and human error-prone manual interventions make it extremely difficult to comply with relevant industry laws, regulations and internal procedures.
• Legacy systems inhibit productivity. Administrative work required to fill in process gaps and augment system limitations stop staff from doing billable work. • It’s difficult to take advantage of new business opportunities. The more money and time you spend on maintaining legacy systems, the less you have for innovation.
• It’s difficult to respond to new market challenges. Businesses bound to legacy systems lack organisational agility to adapt quickly to changes in their market.
• There is often a lack of support. A lot of outdated software is no longer supported or maintained by the vendor, which means there is no one to provide patches or fixes when problems arise. There is also a shortage of engineers skilled in legacy programs because most are reaching retirement age.
• Legacy systems offer a fragmented view of the customer. Customer experiences are disjointed and unsatisfying when customer service representatives are unable to answer their questions due to data silos.
So, in today’s world, the fact that your legacy systems work is not enough. They need to work better. They may not be broken, but they still need fixing.
Cost of modernisation versus cost of inaction
Assessing much it will cost to modernise your legacy systems versus how much it will cost if you do nothing is a great way of deciding whether modernisation is worth investing in.
Cost of modernisation
The cost of modernisation depends on a variety of factors. The first is how much modernising you intend to do. Some companies will simply opt to improve their legacy infrastructure with minor additions and new code, extending its lifespan for a few more years. Others will take a sticky plaster approach, using new technology to address specific issues while the core architecture remains the same.
Both of these approaches are only a stop-gap (and can cost more in the long run). Most firms eventually need to rebuild their systems in their entirety, either gradually or all at once. This approach requires the biggest investment, but it also delivers the biggest returns.
If you opt for a total replacement with new, custom-built software, the next factor to have a bearing on the cost is the size of that software. The more screens/pages you have, the more expensive the application will be to deliver. The same goes for the level of complexity (which affects how much coding and testing will need to be done) and the level of creative design.
If you intend to integrate your application with other systems, this will also affect the project cost. Integrations with payment providers like PayPal are typically very easy, but older or lesser-known systems could pose a challenge and drive up the cost.
A major part of most legacy systems modernisation projects is data migration. This involves writing custom scripts that lift data from your old system and reshape it to fit the new one. Test runs of migration data will need to be performed once the software is finished to ensure that the new system is using the data properly, and adjustments made if something hasn’t translated correctly. These actions add time and cost to modernisation projects.
Cost of inaction
The most obvious and easiest-to-calculate cost of keeping your systems as they are the maintenance costs. According to a 2018 report by EY, banks spend 75% of their IT budgets on maintaining legacy systems, a potentially enormous sum that leaves little room for anything else.
The next cost to consider stems from the fact that most legacy systems are beset with manual processes. Find out how much time could be saved if those processes were automated and you will see how much they are costing your business.
Then there are the costs that are incurred when legacy systems fail. When Delta Airlines’ systems crashed in 2016, its whole fleet was grounded. This cost the airline $150m.
Legacy systems can also have a significant negative impact on competitiveness. Today’s customers are mobile, interface with IT systems constantly, and expect increasingly interactive and personalised experiences. New technologies are appearing all the time to meet and drive these expectations. If your business is using outdated systems, you may not be able to deliver the experience customers expect, and eventually they will turn to a competitor.
In most cases, however, the biggest overall cost is that the existing system is simply unable to support the growth of the business. It cannot handle the volume and frequency of data required for a growing customer base or support the direction the business wants to take. Being constrained from pursuing new customers and new growth opportunities is a cost that most businesses cannot afford, particularly ones in competitive markets.
Here are 7 possible approaches to modernising your legacy systems. As touched on in the previous section, how much modernising you decide to do will have the biggest bearing on the resources you will need to fund the project.
• Total transformation
As it sounds, this involves replacing your old system with an entirely new one and migrating all your data to the new platform. Although risky, it is the most rewarding in the long run.
• Gradual replacement
The entire system is rebuilt in blocks, which is lower risk, easier on budgets and delivers results quicker. Although success rates are high, systems can become disjointed if the project isn’t monitored carefully.
• Sticky plaster approach
Your system is patched using new technology to address specific issues, but the core architecture remains the same. This can offer big returns when done properly, though it can lead to a jumbled and poorly designed system if used too much.
Your technology remains the same but is improved using new code. This extends the lifespan of the technology and doesn’t require procurement of new apps; however, it is only a stopgap.
• As-you-were approach
You decide that your firm does not need to modernise, or is not ready or able to—yet. You decide that you are going to ‘wait and watch’.
You forge your own path to modernisation, adapting one or more of the aforementioned approaches.
You partner with an IT services provider like QBA, who will design and manage the entire modernisation process for you. The provider will shoulder the burden of deciding which modernisation approach will work best, taking the pressure off your IT teams. Firms like QBA will then give unadulterated advice and guidance from a technology-agnostic perspective and coordinate a modernisation project that is tailor-made to suit your needs, priorities and budgets.
Proven steps for modernisation project success
Legacy systems modernisation projects are highly rewarding if they are carefully planned and monitored. Here is a checklist to help you engineer a successful and future-proof transformation.
1. Build your business case as early as possible, involving your key stakeholders and looking carefully at the benefits, costs and risks.
2. Make sure all impacted parties are committed, particularly as modernisation projects can take years to complete.
3. Free up your experts to focus exclusively on the transformation, hiring temporary resources to cover their day-to-day activities.
4. Assess the current state of your legacy systems, looking at problems, process gaps and potential future issues.
5. Find partners and vendors you can rely on and take advantage of their expertise.
6. Choose the best-fit modernisation approach, one that will empower you to deliver results fast.
7. Appraise technology stacks, looking at the most optimal solutions for your purposes, both now and in the future.
8. Make a plan that sets out everybody’s responsibilities, details a strong quality assurance and testing process, and maps out a retirement schedule for your legacy apps.