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Digital Transformation – The Business Case for Legacy Modernization

enterprise-cloud1As the name suggests legacy modernization refers to transforming older software to new systems, such ADA83 into Real-time Java, software that is Cloud ready and thus can be migrated to Cloud providers.

Legacy applications typically have many hard-wired dependencies on the computing platforms they run on, such as IBM mainframes for example, and so aren’t easily portable to new Cloud environments, and the metholodogy addresses this need.

Problem Statement: Legacy modernization key to Digital Government

Especially for larger enterprise organizations their existing legacy technologies like mainframes and Unix systems are absolutely mission critical but experience considerable age-related issues, in particular loss of core skills and lack of support through product expiration or supplier bankruptcy.

This presents a challenging conundrum, as these are typically very reliable systems and so altering them in any way can seem a very high risk course of action, however equally as we enter the business age where software innovation rates now directly determine competitive advantage and drive revenues, failing to master the conundrum presents an even higher risk of market place obsolescence.

For example in the Government sector elderly systems like COBOL are still prevalent, indeed in the USA they account for 70% of IT spend, and cost the government nearly $40 billion a year to maintain. This is why they aren’t investing as much in new innovation-enabling technologies like Cloud as they might.

In Oct 15 the UK Authority web site reported that the National Audit Office said the public sector is still struggling to master and realize the potential of digital transformation, despite the citizen and cost benefits it’s known to deliver.

They also identified the root cause of this lack of progress in all of these areas: Their legacy applications, reporting that over £480 billion of government revenues were reliant on legacy IT, highlighting the many risks this presents, most notably resistance to the new digital innovations governments are required to adopt to achieve new online services:

“The government’s ICT strategy, published in March 2011, recognized legacy ICT as a barrier to the rapid introduction of new policies and particularly the move to ‘digital by default’. Legacy ICT reduces the flexibility to improve public services, makes it harder to protect against evolving cyber threats and increases government’s reliance on long-term contracts with large ICT companies. It is also likely to increase the cost of operating public services by preventing higher levels of automation and hinder data sharing intended to prevent fraud and error.”

In their audit they review a sample of government department situations and their legacy application challenges -the DWP Pension Service, HMRC VAT Collection, NHS Prescription Payment Service and the OFTs Consumer Credit Licencing Service.

These scenarios feature a variety of aged technologies, some originating as far back as 1973 running on a mainframe computer. The HMRC identified in 2009 that their 600 systems were “complex, ageing and costly”, and the report highlights how expensive a burden this is: The VAT collection service costs £430 million per annum to operate, and the DWP’s Pension Payment service £385 million per annum. That’s almost a billion pounds a year for just two applications.

Different options for addressing the situations are explored – ‘No Change’, ‘Enhance and Maintain’ and ‘Replace’ approaches, detailed in these in-depth case studies.

Similarly the Canadian Government audit office also identified their estate of legacy applications presented considerable risks of revenue-collecting downtime, and also inhibited the development of modern, online systems.

Legacy IT – Risks

The report identifies eight key risks of legacy IT:

Disruption to service continuity –  Legacy ICT infrastructure or applications are prone to instability due to failing components, disrupting the overall service. Failure of the legacy ICT may be more difficult to rectify due to the complexity or shortage of components.

Higher security vulnerabilities – Older systems may be unsupported by their suppliers, meaning the software no longer receives bug fixes or patches that address security weaknesses. The system may not therefore be able to adapt to cyber threats.

Vendor lock-in – Legacy ICT systems are often bespoke and have developed more complexity over time to the extent that only the original supplier will have the knowledge to support them. For example OFT felt that only the original developer could maintain the application, due to its bespoke complexity and lack of documentation, consequently extending their outsourcing contract.

Skills shortages – The HMRC VAT system is facing a skills gap due to the age profile of the support staff and declining skills internally and with the supplier.

Inhibiting Business Transformation

The remaining four risks of legacy systems that were identified directly inhibits an agencies ability to achieve their Digital Transformation goals.

Manual workarounds – More manual processing can be required due to the lack of functionality within the system or its inability to interface with other systems. Examples of workarounds include performing detailed calculations outside the system on spreadsheets; re-entering data on to other systems or having to manually check for processing and input errors.

Limited adaptability – New business requirements may not be supported by the legacy ICT. These may include requirements such as the provision of digital channels, the provision of real-time information and not being able to process transactions in a new way.

Hidden costs – The true cost of operating the system may not be known. Workarounds to the system and the cost of the additional manual processes may not be recorded. By not having all the information available at the right time, legacy ICT may not be able to provide real-time performance information which could lead to poor decision-making.

Business change – Due to the complexity or the limited availability of the skills required, change may be difficult, lengthy to implement and costly. This makes it difficult for the business to be responsive and changes may have to be prioritised.

In short the difficulty of updating legacy applications prevents implementation of new digital government features. The report describes “Legacy ICT is harder to adapt to meet changing business needs. We found that where an organisation has replaced its legacy ICT system, adaptability has increased.”

For example:

“OFT commissioned an efficiency and effectiveness review in April 2010, which recommended the redesign of business processes to streamline consumer credit processing. While most changes were implemented, some could not be supported by the legacy ICT and therefore were not adopted.”

One of the approaches, ‘Enhance and Maintain’, is based on keeping the legacy application and creating new interfaces to it such as mobile or web access, described as “wrappers”. However this does not address the core limitations of the legacy technology.

For example although the VAT system has been considerably updated via this approach, it’s still not a fully digital service as customers are unable to view their accounts in real-time, and HMRC has found it challenging achieving a ‘whole customer’ view, as its customer data is stored across a number of legacy ICT systems.

Other key limitations include the ‘batch processing’ approach of older platforms.

“Business transformation, including the drive for digital transformation is proving challenging for departments when it involves legacy ICT. Many legacy systems require data to be processed as a sequence of batches that is incompatible with a fully real-time digital service. In the pension system, for example, online applications have to be manually re-entered into the main system by a DWP operator, as the website and the main legacy ICT system are not integrated. The approach of adding functionality through the addition of interfaces to the core legacy ICT is likely to be insufficient to achieve full digital transformation.”

Additional processes are required due to the limited adaptability of systems using batch processing. The VAT return error correction process is a typical example of such manual intervention. VAT returns submitted online are only partially validated and corrected as they are entered. Full validation, risk identification and correction can only be done after the overnight batch is run. At that stage errors are picked up by the error correction team and addressed manually. This is typical functionality for the technology design of that era. Validating, and identifying more errors, at the point of submission would lead to greater efficiencies.

HMRC had exception processes like this which represented 20% of costs.

Furthermore increased complexity caused by additional interfaces and connections with other systems makes routine changes to legacy ICT costly and protracted. The existing complexity of DWP’s pension legacy system means changes take up to 18 months from planning to deployment.

Modernization Benefits

Legacy modernization can address these issues, delivering business benefits including:

Untangle and map legacy application complexities – Build a basis of understanding of existing application and data architectures to establish more intelligent IT planning concepts in line with business and technical demands. Developers with no experience of the legacy software can be enabled to implement changes in line with business needs.

Extend the life of legacy applications without the risks of greenfield COTS projects – Numerous reports highlight how a COTS (Commercial Off The Shelf) approach to modernization is very high risk with expensive failure rates.

Align user interfaces and back-end application and data models with modern business processes – Modernization can be used to achieve IT objectives such as SOA, Cloud migration and Web-enablement of applications.

Leverage new technologies and tools – The overarching benefit is the transformation of software that is now resistant to change and thus innovation, as the required skills have long since retired and/or the suppliers are no longer in business. By moving it to a modern software platform new tools and techniques like ‘DevOps’ can be implemented to speed the rates of innovation.

Modernization would enable government agencies to eliminate unnecessary, non standard and obsolete technologies, a huge cost they endure.

Calculating your Legacy Debt Balance Sheet – The Business Case for Modernization

At our London workshop industry experts responded to these challenges with the following presentations:

TSRI – Legacy Modernization solutions

The keynote presentation from TSRI CEO Philip Newcomb provides a detailed analysis of the challenges of migrating legacy applications to the Cloud. Download: TSRI_Workshop.

Silverthread – Calculating Legacy debt

Dan Sturtevant of Silverthread explains how a ‘technical debt balance sheet’ can be calculated, the financial impact to an organization caused by the complexity of their legacy software. Download: Silverthread London Presentation.

The legacy debt balance sheet can be contextualized by key research findings:

 

  • A Standish Group study found that less than 30% of the code in a given application contains business logic, meaning that the bulk of the costs are tied up purely in maintaining the proprietary hardware.
  • An IBM Systems Journal reported that as much as 60-80% of the functionality in silos may be redundant or duplicated in other silos.

In other words, 70% of costs are consumed simply by maintaining elderly hardware which increases downtime risk, a resource that is now available via plentiful, very low cost IaaS services, and the remaining 30% contains the business logic which includes many processes duplicated elsewhere in the organization.

There the ROI business case for Legacy Modernization can be driven in three key areas:

  1. Eliminate hardware-related costs and risks
  2. Consolidate duplicated business processes and eliminate associated costs
  3. Define a new transformed process that realizes further cost efficiencies as well as other benefits

 

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