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May 24, 2017

Are Legacy Systems an Inhibitor to Business Innovation?

In the world of Apple Pay and Google wallet, who needs a bank?

By James Nunns

For many industries, such as banking, insurance or government, computers have underpinned business processes for decades.

Over the last 50 years, there has not been an industry sector that is immune from a dependence on applications built to meet business needs of their generation. But since the Internet Boom, business processes that modelled the technological innovation of the times, find themselves short of current customer demands.

Dale Vecchio, CMO, LzLabs.

Not only have the generations of IT providers gotten older, but the consumers of commercial and government services have gotten younger, and with this generational change has come changing expectations of service delivery.

Gen X/Gen Y and millennials increasingly don’t like financial services institutions, nor see why they would need to use a system built on branch banks and automated teller machines (ATM). In the world of Apple Pay and Google wallet, who needs a bank? Does the property and casualty insurance industry expect to sell insurance to the younger generations the same way they sold it to the buyers of the last 50 years? Why would they think that! There is little about current generation buying habits that maps to the Baby Boomer generation.

Yet, many organizations have implemented business process and IT applications and infrastructure that map to the needs of previous generations. The legacy systems work, and have for several decades, but they’ve become expensive to operate. These increases are not due simply to growing IT costs. Rather, when compared to modern, lower cost environments, they look, oftentimes MUCH more expensive than they need to be.

Aging legacy systems present a problem that has been growing for decades. It’s easy to ignore when the systems work, the developers still work and the buyers, for whom the systems were designed are still working. But what happens when the systems start failing, the developers stop working and the new buyers become your primary audience?

There is no question that there are costs and risks associated with modernizing decades old legacy systems that represent yesterday’s business models. However, waiting, won’t reduce the risk.

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Waiting won’t reduce the cost. Modernization is a continuum. If an organization can begin the process, without necessarily throwing away ALL the business process that is currently in place, then they can break this monumental problem into manageable pieces. When IT has become an overwhelming cost center, with little flexibility to be modern, agile and responsive, then business process decay can’t be far behind. Generational changes are not a cliff.

Organizations must position themselves to provide business process in alignment with younger generation buying and financial needs, while continuing to manage those processes that have been the backbone of many businesses for decades.

While there are some scenarios where outsourcing IT makes sense, for other scenarios this short-term solution becomes the long-term problem. When the outsourcer, who is a profit-making concern after all, has a choice between making money and fixing your legacy system problems, you can guess which option will win! Furthermore, once you have been removed from these systems for many years, and the outsourcer knows more about them than you do, who do you suppose is now in control? This may force you to make more dramatic and risky decisions, since you know longer know WHAT these systems do.

While IT risk IS present, this is really about business risk. Outsourcers are no more immune to the challenges of maintaining legacy systems than you are; the difference is they make a profit while risk grows, and you are lulled into a false sense of security.

The world in which these legacy systems were born is very different to the world we live and work in today. As such, businesses cannot afford to let their reliance on them act as an anchor, remaining unmovable as other aspects of IT benefit from continual redevelopment.

Through a reduction of infrastructure spend, and once old processes are modernised and migrated to run seamlessly in cloud environments, there is far greater scope to innovate beyond current capabilities and be ready for the next disruption in the industry. Old APIs are exchanged for new ones, hardware is universally compatible, and business critical workloads can be delivered and monitored from anywhere in the world, when deployed in the cloud.

In this way, legacy applications can be modernised step by step, reducing costs and changing the IT department’s status from cost centre to innovator.

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