A Time to Change
The world is moving towards the adoption of new technologies at a lightning speed, driven by the promise of agility and operational efficiency. Yet most businesses face a flared discrepancy between the IT infrastructure necessitated by the emerging business trends and the infrastructure they’ve established over generations.
The majority of businesses envision and implement strategic imperatives to build rich applications, adopt cloud services, or simply reduce long-term costs by modernizing existing assets. However, the information facilitating these initiatives—specifically data and processes—is tied up in legacy systems. Such a scenario is one of the principal impediments to innovation. If not dealt with at the proper time, it can diminish business growth and ultimately lead to decline.
Even as per a recent Gartner survey, 45% of respondents indicated that one of their current top-five IT project priorities is “modernization of legacy core enterprise applications,” and a further 41% indicated that “extending capabilities of core enterprise applications” is a top-five priority.
The Situation Today – Key Challenges
Over time, it is becoming increasingly challenging to maintain and integrate legacy systems with new solutions. Here is a list of certain primary challenges that most businesses might face while modernizing their legacy systems and software:
- The expensive efforts of managing core administrative systems
- Increasingly complex regulatory compliance standards
- Leveraging legacy software, systems, and processes to drive next-generation consumer-driven low-cost plans
- Improving business agility
The Mutual Approaches
Typically, every other business follows these common practices for addressing the challenges posed by legacy systems:
Among these options, modernization is considered to be more distinctive than others. It is widely accepted as the least intrusive and less risky approach to deal with the troubles of legacy systems. Yet it also necessitates the adoption of innovative technologies for driving a seamless integration.
Overview – Modernization Solutions
Here is an overview of the most prevalent modernization solutions adopted by large-scale organizations:
There is no denying that legacy modernization initiatives are essential for driving numerous business benefits. However, the majority of modernization programs are focused towards certain critical technology-based objectives as well. Typically, they aim towards:
- Minimizing the complexity/cost of the IT environment through consolidation and migration
- Enhancing data consistency and availability through application integration
- Facilitating collaboration by web-enabling access to cross-platform data
- Boosting process flexibility by supporting the renovation of legacy applications
- Moderating risks by leveraging the experience of global legacy transformations
Despite being focused and rationalized, most modernization programs fail in the execution stage. The primary reason accounting for such a failure would be a limited understanding and analysis of the current system’s complexity. For instance, here’s a case study of a major insurer in Asia.
Case Study: 1
|Action||Undertook a transformation program to modernize the policy administration and claims systems for life, health, and group insurance businesses|
|Outcome||Exceeded the budget and timeline from 18 months to over 48 months|
|Oversight||Underestimation of the complexity of legacy modernization and the huge rework that resulted from changing requirements|
As evident from the above scenario, choosing the right solution is critical to the success of a modernization program. The solution must be evaluated considering the objectives of modernization, the complexity, and constraints of the existing system and the environment.
Overcoming the Legacy Barriers
Legacy modernization is a long-term process that requires the setup of a metrics-based approach with multiple innovative solutions and execution methods moving incrementally in a phased manner. The following recommended approach below is based on metrics and applies design thinking principles, in addition to agile practices. This approach reduces the risk of failure through frequent measurement of metrics, takes corrective actions, and allows for recourse of the program, if required.
A. Business Outcome-Based Metrics
The first and foremost step in a legacy modernization program is to identify the business impact of the legacy systems and their modernization efforts. A suitably defined framework of relevant business metrics is more likely to get a strong buy-in from executive management and business stakeholders. Such an analysis helps in ascertaining the return on investment (ROI) for legacy modernization. The table below highlights some key sample metrics aligned with business drivers.
B. Selecting the Right Modernization Solution & Approach
The process of modernizing legacy systems involves multiple possibilities and approaches. Every business must evaluate the complexity of the legacy system and the objectives to be achieved, and then apply design thinking principles to choose the right solution and approach. This figure illustrates the framework for selecting the right modernization approach.
- Objectives: Organizations with growth objectives are more likely to use legacy modernization to reduce operational costs and enhance customer experience. Thus, goal identification and prioritization helps in evaluating the need for legacy modernization.
- System Complexity: Legacy systems commonly have monolithic designs. Thus, timely identification and assessment of complexities—while using multiple legacy systems for the same functionality—different database models, and integration limits will help to explore the best possible solutions and execution risks.
- Constraints: Limitations and constraints such as resource availability, security, external systems dependencies, and integration complexities play a crucial role in the success of modernization programs.
Applying Design Thinking Principles
Implementation of design thinking principles requires an organization to consider the enterprise benefits, future strategies, complexity, and risks prior to choosing a solution that is fit for the purpose. Though design thinking doesn’t have any predefined standards, it is about applying the art of design to identify the best possible solutions, allowing for all constraints and dependencies. Modernization programs can run for several years. Thus, the architecture and design should be flexible, and organizations must practice design thinking continuously aligned with the ongoing vision of the enterprise. For instance, here is a case study of a utility company based in the APAC region.
Case Study: 2
|Challenges||High operational costs and manageability of legacy systems|
|Action||Opted for a hosted solution on cloud. The organization leveraged the service on a usage-based pricing model.|
|Outcome||This out-of-the-box solution helped in modernization, system migration, and manageability.|
C. Execution and Governance with Lean and Agile Principles
Predominantly, organizations that embark on legacy modernization programs take multiple years to complete them. However, by the time they complete these programs, either the business drivers become irrelevant or the major business objectives change. Thus, to counter this effect, it is feasible to delineate the modernization program into smaller initiatives, as sprints. Delivering them through agile practices can help organizations realize the true benefits of modernization. Metric measurement for each sprint is more likely to help in rectifying the gaps and revise the planning, whenever required.
Moreover, businesses can apply lean principles or build the fit-for-purpose accelerators for modernization. These economic approaches will ensure that the tools and efforts are readily aligned to business requirements.
Post-implementation, legacy modernization programs require a robust governance framework aligned to the execution methodology, and having well-defined processes within a responsibility, accountability, contribution, and informed (RACI) matrix.
Benefits of Legacy Modernization
Legacy modernization has emerged as a very feasible option for most organizations, considering the benefits that can be derived from the existing applications without incurring the time, cost, and risk of a total replacement. Some prominent benefits that can be reaped from such a conversion to modernized technology include:
|Reduced cost||Modernization projects costs about 70% less than a total redesign.|
|Access to new technologies and innovation||Using up-to-date languages and platforms minimizes operational risk.|
|Faster ROI||A legacy modernization process is 30% faster than a total rewrite project.|
|Minimal impact||Conversion of legacy applications is less disruptive to end-users.|
|Improved user experience||Migrations extend easy accessibility to user interface and data.|
|Reduced license fees||Consolidation of redundant, expensive legacy database licenses and proprietary hardware lowers operating costs.|
|Less hardware||Modernization reduces the use of costly hardware.|
In their endeavor to deliver a differentiated customer experience, organizations will continue to explore the benefits of digital technologies and more sophisticated legacy modernization programs. To this end, businesses must practice legacy modernization at an enterprise level, and introduce an execution strategy that is more likely to deliver incremental benefits.
However, there is no single approach that suits all companies and various modernization scenarios. Each organization is different when it comes to its modernization drivers, the complexity of existing systems, stakeholders, and organizational maturity. Companies must consider other components, such as the organizational culture, stakeholders, and change management to have an enterprise-wide impact and to realize the real value of legacy modernization initiatives.