Seventy percent of all legacy applications in large corporations still leverage COBOL, according to recent study by Information Week. What’s more, many core applications within financial services continue to run on mainframes (e.g., AS/400s). Applications that were “modernized” in the 1990s used proprietary systems like Powerbuilder, where the product companies have disappeared but the products still remain to support critical parts of the business and are now considered legacy.
However, the required level of cost and care to maintain older systems is now taking away vital investment dollars to power digital business transformation.
“Outdated IT systems are often the biggest Achilles’ heel for established companies seeking to compete successfully against upstarts,” McKinsey stated in an article. “…To obtain the same cost and performance benefits that online companies enjoy, established companies need an IT architecture that is modular, simple, customer-centric, and configurable-and they need it quickly.”
Indeed, companies running dated legacy applications, which today include vital corporate data locked within legacy these platforms such as business rules, face the following:
- Security risk due to outdated technology
- Increasing costs to build, maintain and support these systems
- Higher license and maintenance costs and an increase in technology debt as companies stop updating /supporting older systems
- Inability to move to new methods such as Agile across the enterprise
- A higher degree of failure tied to managing large and complex multi-technology efforts with legacy tools and technology
- Challenges competing with startups and newer competitors who are unburdened by legacy IT and benefit from faster product development lifecycles, digital operating models and lower operating costs
Combine these challenges with the wider push into digital banking and the COBOL issue becomes critical with an estimated $3 trillion in daily commerce flowing though COBOL systems in the financial industry, according to Reuters.
Path to Modernization
When companies think about how to bring their legacy systems into the digital era, their initial assumption is a complete overhaul of their older systems. The reality of doing that is very different, especially with cost pressures and IT budgets under close scrutiny. Without unlocking data from legacy systems, capital for new transformation initiatives and real-time customer experiences will always be limited if transaction data resides in old mainframes and legacy systems.
Emerging technologies have the ability to transform how organizations use and interpret data, equipping them with greater and more powerful insights. It is clear firms want data models that serve the business and drive growth and revenues, more than as often occurs, simply performing a box-ticking compliance function.
However, bringing IT systems into a digital ready model is an iterative process that occurs over a multi-year transformation journey. It requires the right balance of using valuable IT dollars between transformation and existing legacy systems. Although there isn’t a one-size-fits-all solution, the key is creating flexibility to add new digital layers, which supplement business functionality and support growth.
For years, firms have relied on homegrown, monolithic applications powered by COBOL. However, this approach has huge limitations in that successful applications always grow over time. After a few years, a small, simple application will have grown into a large, complex burden for development teams. Any attempts at agile development and delivery flounders as the application is overwhelmingly complex and too large for any single developer to fully understand.
Many firms are solving this problem by adopting a microservices architecture pattern. Instead of building a single application, the idea is to split your application into sets of smaller, interconnected services.
Componentizing software functions into microservices makes applications easier to build, scale, test and maintain. With DevOps capabilities, microservices can help build deploy large complex applications and bring a modular approach to the modernization of legacy applications.
Cloud to the Rescue
Becoming a digital-first organization requires leveraging modern infrastructure architecture. As financial institutions redefine their strategies around data insights, streaming data platforms, artificial intelligence and data visualization are just some of the tools helping firms gain greater insight and drive revenue. A crucial enabler of these emerging technologies is cloud, offering a path to modernization today by using an “asset light” model and shifting workloads from on-premise legacy systems cost effectively.
The model also allows companies modernizing to be consumed on an opex vs capex basis. Businesses that put digital on a fast track without addressing the legacy IT modernization are bound to hit a wall. They will find that their digital efforts take more time, cost more money and deliver less value than they anticipated.
Legacy systems have such a rich data set that they should not just simply go away. Companies need their data and business rules within these systems to get the competitive advantage they own over newer “data-starved” digital natives. The key is identifying ways to cost-effectively access legacy data and add digital layers to enable digital business transformation.
The good news is that there are multiple approaches to modernize. And with many possibilities for approaches and architectures, modernization efforts for legacy platforms can create new service-based technology to fill your needs.
Ultimately, the move to digital and any digital strategy must include the right plan to modernize legacy systems to ensure your customer experience and operating costs are in line with digital native expectations.