Digital transformation: 9 ROI factors when upgrading legacy systems

If you are putting off IT modernization efforts due to complexity and cost, consider these ROI factors associated with legacy systems.
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For enterprise technology organizations, tackling legacy systems and infrastructure is expensive, extraordinarily complex, and often impossible to justify with a traditional ROI model that weighs cost against demonstrable return on capital.

On the other hand, the accumulation of applications, different tech stacks, and hard-coded solutions have created Frankenstein IT environments that are costly to operate, vulnerable to failure, unlikely to be understood from end-to-end, and detrimental to speed, flexibility, and agility. For technology professionals, these systems distract from the day-to-day work required to support critical business strategies and opportunities.

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Of course, many creative, forward-thinking CIOs have made progress "ring-fencing" legacy systems, building connectors to new digital interfaces, and extracting and replicating critical data. This admirable effort keeps the business moving, but it may no longer be enough.

When legacy tech is a barrier to digital transformation

Today, companies must deliver a strong digital experience to engage customers, and complex legacy technology is a significant barrier to digital transformation. There are signs that companies recognize this as a significant threat and are starting to change course.

You need an ROI model that reflects the many hard and soft implications of falling behind in your digital transformation.

According to Gartner, operating costs increased from 67 percent of IT budgets in 2013 to 71 percent in 2017, while budgets for digital transformation decreased. But now IT departments are spending more on software applications that drive revenue from digital business channels and shifting to off-premise platforms including cloud services, software-as-a-service, integration platform as a service (iPaaS), and application platform as a service (aPaaS), according to Gartner research.

Today, we may be approaching a tipping point where the burden of legacy IT systems is untenable and modernization is essential. If so, the people I think of as tech whisperers – those who recognize oncoming disruption, provide strategic guidance, and marshal support and resources – need a more expansive ROI model that reflects the many hard and soft implications of falling behind in your digital transformation.

9 ROI factors to consider about legacy tech

To that end, here are a few things to think about as you develop a business case that will compete with, say, investment in a new business or product offering:

  • Old systems are budget killers — If you’re spending 70 to 80 percent of the IT budget operating and maintaining legacy systems, there’s not much left to seize new opportunities and drive the business forward. And this expenditure will grow as technology ages and becomes more susceptible.
  • Everything new is built in the cloud — All new technologies are built using cloud architectures and approaches, while options available to monolithic legacy shops continue to narrow. What is the long-term value of leveraging the best new technology for your business and customers?
  • Missing out on technology’s full potential — A critical factor driving legacy upgrades, according to a recent Deloitte survey, is technological relevance. “Legacy solutions lack flexibility and carry a significant technology debt due to dated languages, databases (and) architectures,” Deloitte reported. “This liability prevents many organizations from advancing and supporting analytics, real-time transactions, and a digital experience.”
  • Talent issues pose a risk — It’s increasingly difficult to find people to operate and support legacy technologies. After all, no one is studying mainframe systems, COBOL, and Fortran. As your team ages and retires, then what? And how do you attract today’s best young talent – the people your company needs to thrive in the digital-first era – with a tech environment that can’t keep pace with competitors?
  • Customers expect a satisfying digital experience — And they’re getting it from digital-native firms that can iterate continuously as they monitor customer interactions and react to the feedback. Legacy environments rarely can adopt this type of iterative customer engagement. Your new ROI model should address the impact a legacy system upgrade will have on customer experience.
  • The need for speed to market — In the Deloitte survey, companies said the primary reason they initiated IT upgrades was to better support product strategy and objectives— that is, to go-to-market faster. The days of quarterly releases and 18- to 24-month projects are gone. Speed is a true competitive differentiator.
  • Security risk — While the security of cloud solutions still requires care, it is clear that older technologies are more difficult to control, monitor, and secure as security paradigms and solutions evolve. How much risk does your dated technology pose?
  • Data management & privacy – There are a growing number of data-related regulations and policies being enacted. It’s difficult to comply with these practices and controls after the fact, especially when information is squirreled away in multiple legacy systems and data has been replicated in myriad warehouses and data stores. Your ability to comply with current and future policies is severely hampered in this type of environment. At what point do you lose the trust of your customers, regulators, and control functions?
  • New markets and ecosystems – Increasingly, enterprises are embracing opportunities to enter new markets, engage and delight customers, and rethink business models through digital platforms and tech-enabled ecosystems. This is difficult to do – perhaps impossible when your IP is trapped in bespoke legacy systems.

It’s time to engage your business partners – including finance, HR, product development and strategy – to develop a new ROI model to assess potential legacy migration and retirement efforts.

Quantify the risk factors and opportunity costs of failing to deliver a competitive customer experience, attract talent, speed products to market, protect and leverage data, and be equipped to respond to fast-changing market conditions and operational demands.

[ Read also: Why you’re managing digital transformation wrong: Think portfolios. ]

As Head of the Innovation Network, Beth oversees Citi Ventures’ emerging technology practice. In collaboration with internal and external partners, Beth’s team stays abreast of frontier technologies and dives deep to understand and experiment with tech that intersects with Citi’s business.