Dec 1 ’09

ROI-Driven Legacy Modernization

by Len Erlikh in Mainframe Executive

This year’s IT budgets are forcefully framed by the worldwide adverse economical climate. Cost-cutting and a sharpened focus on ROI are the key drivers that shape these budgets. It’s universal wisdom that most budget reduction activities will weaken IT organizations and temporarily impact their ability to service the full spectrum of enterprise computing needs. However, not every budget reduction activity will have such a negative impact. In this context, legacy modernization projects can be viewed as proactive, strategic initiatives that, while reducing immediate operating costs, will ultimately produce more agile, streamlined application portfolios. These new generations of modernized application portfolios will be better aligned with enterprise business needs and more responsive to future enterprise growth once the economy recovers.

Historical Context

To better understand the historical context of legacy modernization initiatives, let’s begin by taking a quick walk down the enterprise IT computing memory lane. In the dawn of IT computing, the ’70s and ’80s were solidly dominated by increasingly powerful mainframe computers. The late ’80s and the early ’90s brought us user-friendly Graphical User Interfaces (GUIs) and the flexibility of relational databases and client/server computing. At the turn of the 21st century, these were rapidly superseded by the Internet and e-business networks. These most recently started to evolve into ubiquitous computing paradigms of Wi-Fi and Bluetooth technologies, as well as the rapid ascent of smartphone platforms.

The evolution of IT architectures was further accelerated by the rapid convergence of technology and business needs. Classical IT systems were initially focused on automation, cost control, and operational efficiencies for existing business processes. Over time, these systems evolved into critical success factors in enterprise value creation and served as the driving force that reshaped the core of 26enterprise business models.

An interesting phenomenon happened during this evolutionary process. Instead of replacing its obsolete predecessors, each successive generation of IT technologies simply augmented the existing portfolio of enterprise applications, creating a curious mix of old and new architectures that are working together in unplanned ways. It’s now commonplace for modern IT shops to simultaneously run semi-integrated mainframes, client/servers, and Web 2.0 applications that are both supporting and impeding evolving business models and corporate progress. The fact that the old IT systems never fully gave way to modern architectures and the associated complexities that resulted from this is known as the legacy dilemma.

The Legacy Dilemma

A frequently heard opinion from IT executives is that significant parts of their legacy application portfolios have difficulty supporting changing business needs. In fact, many legacy systems have developed such a rigid, complex internal structure that it’s risky to modify them in a way that goes beyond the most basic, tactical changes.

The immediate reaction to this situation is clear—legacy systems need to be rapidly replaced with the latest technological advances based on a solid architectural foundation and seamlessly integrated into existing application portfolios. In practical reality, the process of legacy obsolescence is impeded by two basic factors—time and money. The sheer size and complexity of existing legacy application portfolios make it impossible to simply retire these portfolios and replace them with totally new, groundup initiatives.

So we face the legacy dilemma that can be crisply stated as: “The objective reality of legacy systems is that the only plausible way to lift the economical burden of these systems is through the practical imperative to leverage the business value that’s already built into these systems.”

In plain English, legacy modernization initiatives are about reducing the costs associated with maintaining or replacing legacy systems by leveraging the residual investment that the enterprises already accumulated in the same systems.

Reasons for Legacy Modernization: Pain Points

From the business perspective, key reasons to modernize are:

Industry statistics show that about 70 percent of today’s IT budgets are dedicated to maintenance and support of legacy systems. These budgets are exhausted, which leaves minimal resources for new, critical, strategic computing initiatives.

Furthermore, a relatively new and alarming trend is developing among some of the legacy product Independent Software Vendors (ISVs) that vigorously pursue so-called contract enforcement initiatives. Faced with a diminishing volume of new license sales for their legacy products, these ISVs are aggressively trying to derive additional maintenance revenue from their existing customer contractual agreements. Anecdotal evidence indicates that some of these contract enforcement reviews may result in three- to ten-fold increases in license maintenance fees to unsuspecting customers. Constrained by their strategic legacy applications, customers have no immediate alternatives to paying these skyrocketing license fees.

The technology dimension of legacy pain is too familiar to all of us. We encounter these pain points much too often in our daily business operations. Following are some of the most obvious ones:

The upshot is that the need for legacy modernization is driven by business requirements and technological demands. In a rare unity of IT and business organizations, there’s a concerted effort to solve the legacy dilemma.

Legacy Modernization: Key Benefits

Now that we’ve had a chance to consider the factors driving legacy modernization initiatives, we can better define the key benefits of such initiatives.

It’s widely believed that legacy modernization initiatives, when properly executed, result in modern application portfolios that have a significantly improved business fit and a much higher agility to adapt to changing business requirements. Such systems typically offer significantly reduced maintenance costs and accelerate time-to-market for new business models. All of these benefits are further reinforced by a marked reduction in risk factors associated with such systems.

Often, legacy modernization benefits are mapped along three key dimensions: business, resources, and cost. Let’s look at each of these three dimensions:

In the business dimension, modernized systems offer:

Resource-wise, modernized systems are known to have:

Finally, in the cost dimension, these systems feature:

Legacy Modernization Options

Practical experience shows that in the context of budget constraints, not all legacy systems need be subjected to modernization initiatives. The uniqueness of legacy modernization is its business functionality and the quality and flexibility of its underlying legacy code. Traditionally, systems with truly unique business functionality offer the biggest competitive advantage to the enterprise. Such systems also tend to be strategic to ongoing enterprise activities. When based on solid technical architecture and high-quality code, such systems should be protected and nurtured. However, legacy modernization is a must when such mission-critical systems are built on an antiquated, rigid technical architecture and their underlying code lacks in quality and structure.

Additionally, in certain circumstances (such as high software or hardware platform license fee costs), even legacy systems that feature standard business functionality with no competitive advantage to the enterprise can be subjected to legacy modernization initiatives and moved to a more economical hardware/software platform.

Once an application has been qualified and approved for a legacy modernization project, there’s a full spectrum of legacy modernization options available to modern IT organizations. IT executives need to properly quantify the economical benefits and measure projected ROIs associated with each option.

From simple and affordable to complex and expensive, these options are:

Figure 1 represents a visual mapping of legacy modernization options along cost/complexity dimensions of the ROI value line, with User Interface (UI) at the left bottom part of the value line and application rewrite all the way at the top of the same value line. Experience shows that the least expensive UI upgrades offer only tactical solutions to an organization’s modernization needs and most such projects have limited business benefits. At the other end of the spectrum is application rewrite, which usually proves to be too complex and costly to implement.

Commonly held opinion suggests that a combination of modernizing application architecture (re-platform) and migrating a database or application to a new technology solution offer the best value by balancing cost and complexity measurements. Often, a positive ROI can be achieved in 24 months when such projects are conducted by experienced service organizations and founded on an advanced automation toolset, with a replicable, well-defined methodology.

Conclusion

The economic imperative of legacy modernization is real and offers true value to IT organizations seeking to balance near-term budget cost reductions with building a long-term foundation for future enterprise growth and business expansion. Leveraging the residual value of legacy systems toward building modern application portfolios is the key consideration behind the legacy dilemma. A powerful combination of business drivers and legacy pains propels legacy modernization initiatives to the top of IT priorities. IT executives need to review the multitude of available management alternatives with regard to these legacy modernization initiatives and get a full measure of how these alternatives appear along the ROI value line. ME