Legacy System Modernization: Transforming Enterprises for a Digital Future

Legacy System Modernization: Transforming Enterprises for a Digital Future
Last Updated: January 10, 2024


Enjoying a meal at a high-end restaurant, one often relishes quality time with great food and drinks. In this setting, many would opt for a fine, aged wine, as it's widely acknowledged that old wine and old friends are the best. However, this principle doesn't apply to software, which unlike wine and friends, does not improve with age.


Consider this: Your new computer likely runs Windows 10, not Windows XP, for a reason. Just as your computer has evolved over the years, so has your business. Therefore, relying on outdated software to manage a modern business is akin to using Windows XP on the latest ZenBook.


What is a legacy system?

Think back to the last time you used a pager, possibly in the late '90s. This technology isn't as obsolete as you may think. Pagers are still crucial in healthcare, being a primary communication tool. While countries like Japan and the UK are phasing them out, many US organizations continue to support pagers.


Pagers, though outdated, are costly and still widely used. This is because replacing certain systems, especially those integral to business operations, is challenging.


Pagers in healthcare represent a broader issue of “legacy” systems/technologies, common in industries like banking, finance, insurance, and transportation.


Gartner defines a legacy application as an information system that might rely on older technologies but is essential for daily operations.


Many federal organizations use legacy systems on outdated mainframes for critical functions such as high-volume data processing. These systems have been refined over years to provide specific functionalities. So why modernize them?


The US Government Accountability Office (GAO) identified ten federal legacy systems urgently needing modernization, some dating back to the 1970s. The full list included 65 systems, many relying on old programming languages like COBOL, facing support issues, and harboring security vulnerabilities.


Legacy systems require software modernization services - Sombra to avoid risks like crashes. For example, on Tax Day 2018, the Internal Revenue Service faced issues processing e-filed returns, possibly due to their outdated IT systems, some nearly sixty years old.


Flexera's Product EOL/EOS 2018 Report indicates most products have a five-year lifecycle.


A legacy system's age isn't its only defining factor. It could also be due to lack of support or inability to meet current business needs. Such systems are often challenging to maintain, support, improve, or integrate due to their architecture, technology, or design. A Logicalis survey revealed that over half of CIOs spend 40-60% of their time managing legacy IT, hindering the shift towards strategic activities and digital transformation.


The Overlooked Expenses of Outdated Software

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Despite their age or the condition of the technology, numerous businesses persist with old systems. Their rationale: the software has been effectively functioning for years and still handles most tasks adequately. The mindset often is, why change something that isn't broken? However, there are compelling reasons to consider updating legacy systems. The hidden, ongoing costs of operating such software are a primary concern.


In 2019, the US Federal government allocated 80 percent of its IT budget to Operations and Maintenance. This expenditure was largely for outdated legacy systems, presenting challenges in efficiency, cybersecurity, and mission-critical risks. To give a clearer picture, only a mere 20 percent of the IT budget was dedicated to Development, Modernization, and Enhancement.


Looking at the top ten legacy systems identified by the GAO, their maintenance costs taxpayers around $337 million annually. For instance, the Air Force's “System 1,” a 14-year-old system crucial for aircraft wartime readiness, recently underwent a complete overhaul. This update, instead of the expected rise in maintenance costs (from $21.8 million in 2018 to $35 million in 2020), resulted in annual savings of $34 million.


Maintenance and Support

Legacy system maintenance involves several key expenses:

  • Updates and Changes. Due to their size and monolithic structure, legacy systems don't allow easy module replacement or updates. Even minor changes can lead to system-wide conflicts. These systems often come with extensive (and sometimes undocumented) features, adding risk to any code modification.

  • Infrastructure. The infrastructure supporting the software becomes increasingly difficult and costly to maintain over time. Legacy systems often need specific hardware environments, making infrastructure maintenance expensive compared to modern, cloud-based options. Additionally, managing scattered legacy data across multiple databases poses challenges for storage optimization and data transfer.

  • Staff Training. Supporting and maintaining legacy systems requires unique skills. As original developers retire or move to newer technologies, finding and training the right talent becomes a major expense.


Integration and Compliance

Modern software platforms often leverage third-party APIs for features like geolocation or data sharing. For instance, Uber uses Google Maps API for navigation. These modern technologies are generally integration-friendly.


However, integrating legacy software with third-party tools usually demands substantial custom coding, with no guarantee of successful integration.


Legacy systems also present compliance challenges, particularly in regulated sectors. Following the GDPR and the CCPA in California, organizations find legacy IT a significant hurdle in meeting compliance standards.


Security

With increasing cybersecurity threats, many organizations still use legacy systems, raising concerns about their vulnerability. Legacy systems are often less secure against cyberattacks, malware, and other threats. Their age gives attackers time to identify and exploit vulnerabilities. Additionally, outdated software may lack vendor support, meaning no new security patches or compliance updates.


Vijay Samtani, Chief Information Security Officer at Cambridge University, notes that maintaining legacy systems is as much about risk management as traditional IT service management


Even with https://www.sombrainc.com custom solutions, continuously patching a legacy system can be costly and akin to fixing a leaky bucket, where new breaches emerge as soon as old ones are repaired.


Lost Business Opportunities

Investing in legacy software maintenance limits innovation potential. While competitors adopt new technologies and business models, sticking with outdated software can cause missed opportunities and market share loss.


For example, digital banking platforms like Citigroup, N26, and SoFi are reshaping the financial industry, attracting customers away from traditional institutions. Nonbank digital lenders like Quicken Loans are gaining significant market share in mortgage and personal loan sectors.


Efficiency and cost reduction are key motivators for digital transformation in finance. Javelin Strategy & Research revealed that mobile banking transactions are significantly cheaper than offline transactions at physical banks.


By not embracing digital and remote channels, businesses using outdated methods incur higher transaction costs and fall behind competitors who capitalize on efficient, low-cost digital solutions.


Editorial Team
Consultant
This article was written by Editorial a Consultant at Industrial Psychology Consultants (Pvt) Ltd

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