Analysis: Doing nothing is no longer an option for businesses.
In the past few years a lot has been made about the need for businesses to go through a digital transformation in order to better serve their customers and meet the challenge of new organisations that are using technology to eat into their market share.
This idea of digital transformation is one that is more easily talked about than achieved for those that are burdened by legacy systems which were not designed to support modern applications of a digital business.
A senior executive survey of financial, industrial, government, and IT services organisations conducted by the University of Surrey, found that some 40-50% of all IT assets are in urgent need of modernisation.
According to the report, seen exclusively by CBR, this amounts to a technology debt estimated to be tens of billions of pounds in the UK alone.
With the explosion of mobile devices, real time transactions and technologies such as cloud services, the Internet of Things, data analytics, and machine learning, the performance gap is likely to widen as traditional batch systems were simply not designed to accommodate them.
While a lot of IT investment has taken at the front end of organisations in a move designed to support growing customer demand for digital services, the core systems are unable to evolve and keep up with the pace of change throughout the supply chain.
The report said: “Although many core systems have become efficient and stable over the many decades of their existence (dating back in many cases to the 1970s and 1980s), they are now seen as a key obstacle in the rapid evolution to a fully integrated digital business. A senior automotive executive expressed the problem clearly in his statement ‘software is the new rust’.”
Despite the problems faced the survey reveals that the majority of Boards remain passive in the face of the legacy issue, until a cataclysmic event happens such as a full scale public outage. So rather than legacy being just a technology issue, it is also one about attitude and mindset of businesses.
While many of these issues are well documented it is often difficult for change to occur, the survey uncovered some pointers for a successful migration strategy which is aimed at reducing, or eliminating, technology debt.
The report suggests:
- “Adopt a business driven and evolutionary (step by step) rather than revolutionary (big-bang) approach when modernising core systems and associated infrastructures to align with customer needs in the emerging digital economy.”
- “Adjust both the business and supporting IT operating models to progress towards an integrated digital organisation, whilst maintaining strategic control over both these aspects of enterprise architecture.”
- “Tackle each layer of the IT stack by employing open standards, modern tools and techniques, especially those emerging within open cloud environments such as Amazon Web Services (AWS) and Microsoft Azure.”
- “Start to componentise (or ‘hollow out’) monolithic and heavily customised core systems by employing software packages and public cloud services, thereby simplifying access to valuable corporate data and improving front and back end IT integration.”
- “Consider new strategic IT partners in place of incumbents since new partners can bring innovation and the necessary funding to support complex and lengthy migrations.”
The problem of legacy isn’t limited to one or two sectors, it is across organisations. The survey found that over 90% of organisations recognise that legacy is a ‘here-and-now’ challenge across both public and private sector, however, there are some differences.
Clearing banks for example are tied to large scale and often heavily customised transaction systems, many of which are decades old and operating in batch made. Insurance companies suffer from many of the same problems as banks but have more options through a wider choice of packaged software such as rating engines.
Central government is also tied to ageing transaction systems, some of which date back to the 1970’s. Manufacturers though have successfully adopted ERP systems that handle back office functions, manage supply chains and customer records. However, many of these have difficult in coping with front-end digital applications relating to local markets.
“Despite these variations, the response to legacy at both the Board and IT levels appears to be relatively similar across most sectors. The majority of Boards are reluctant to address this issue due to the lack of a compelling financial case,” the report said.
In addition to the reluctance coming from the boardroom, IT organisations also face internal challenges in addressing legacy such as a lack of knowledge of the extent of the problem, vendor lock-in through multi-year contracts, insufficient skills in-house, and uncertainties about the changing IT landscape. All of which combines to result in few developing strategies to mitigate legacy issues.
The impact of the changing world of business has also hit the IT sector, which according to the report, has been thrown off balance by the combination of IT consumerisation and accelerating public cloud service adoption.
Prior to the appearance of cloud IT vendors could rely on traditional revenues such as outsourcing, large scale application developments, and sales of software licenses, but these are now all in gradual decline.
Customers are now mow partially pre-occupied with reducing the cost of core systems and infrastructure, but recognise that new digital applications and channels are an urgent priority which vendors need to respond to, the report said.
Vendors such as SAP, Microsoft, and Oracle have moved at different paces in order to adjust to the new world.
“Microsoft has virtually re-invented itself with a wholesale move to public cloud (Azure) and related office and collaboration products. Oracle has been struggling to integrate its own legacy systems such as JD Edwards, PeopleSoft and Siebel into a coherent open cloud offering.
“SAP is pursuing HANA as a means of promoting data analytic techniques to its universal customer base. All recognise that the future will be based on standard packages, public cloud services and componentized architectures,” said the report.
The report calls on CIOs to adopt a new IT operating model that will serve businesses into 2020 and beyond. Within this new model there should be a focus on open standards and APIs, flexible cloud based platforms, new digital partnerships, agile philosophy, multi-sourcing, and digital talent.
Action is needed now in order to face the challenge posed by new entrants into markets and obstacles such as ageing core systems and infrastructures need to be removed.
In order to create change it is necessary for the Board to be fully engaged and aware of the problem. With only 20% of organisations having a comprehensive ‘case for action’ relating to legacy, a thorough IT assessment of both internal and external factors should be undertaken.
Doing nothing is no longer an option.
The report was sponsored and supported by Accenture and authored by Roger Camrass, and Andy Nelson.