The Hidden Costs of Legacy Technology

As the economic turbulence of the past few years continues to send shockwaves across the global economy, business have markedly intensified their focus on cutting costs where possible. Some of these cost-minimizing measures, such as retaining legacy technology, however, may actually have the opposite effect.

Indeed, when it comes to relying on legacy tech, postponing a modernization plan due to cost becomes, ironically, rather expensive. This reliance is more common than one might expect - even among the heavy-hitters who dominate their industries. According to a report from Dell, more than 70% of software used by Fortune 5000 companies was developed 20 or more years ago. Many of these large enterprises are specifically concerned about the immediate financial and temporal costs of transitioning to a new digital architecture, and so continue to utilize their existing systems instead.

Drawbacks when sticking with legacy technology

In times of economic uncertainty, it is tempting for enterprises to think only in terms of the here and now. Given the financial squeeze, many businesses have faced since the pandemic, therefore, an increased focus on short-term costs is not surprising. Moreover, in addition to the initial costs, digital architecture migration can be challenging and protracting, and there can be pitfalls along the way. But the long-term potential gains make it more than worth the risk, and there are a number of drawbacks that can come with the ‘if it ain’t broke, don’t fix it’ approach:

Security Risks: Legacy systems leave enterprises exposed to cybersecurity attacks and data breaches from hackers looking to exploit vulnerabilities. The financial risks associated with outmoded security cannot be overstated. According to Sophos’ State of Ransomware Report 2021, the average total cost of remediation from a single ransomware attack more than doubled between 2019 and 2020, from $761,106 to $1.85 million. The more up-to-date a company’s security systems are, the less likely hackers are to be able to breach it without considerable time and effort on their part.

Poor Integration: A lack of integration with more modern technology and automated systems can lead to valuable data being overlooked or siloed. The more modernized the data systems are, the better connected the data will be as a result. Indeed, an incredible range of exciting new data-use cases are starting to become realistic for enterprise businesses: advanced real-time business reporting, incredibly detailed 360° customer views, AI/ML-assisted applications, and business processes. These can all drive improved interdepartmental alignment across organizations, better insights, and, ultimately, more informed business decisions. However, organizations that rely on legacy technology lack the ability to meet the sophisticated data demands of these use cases. According to a recent survey we conducted, a third of business leaders at large enterprises reported that they were unable to make sound decisions based on data. Business-as-usual approaches (i.e., siloed data teams, centralized data warehouses) are too slow and fragmented. It can take months to deliver basic data capabilities and use cases.

Operational Costs: Maintaining legacy tech can prove to be every bit as expensive as a digital upgrade. This is because IT staff have to spend time and money to keep the obsolete software functioning. This wastes valuable staff hours that could be channeled into improving products, services, or company systems. A report from Dell estimates that organizations currently allocate 60-80% of their IT budget to maintaining existing on-site hardware and legacy apps, which leaves only 20-40% of the budget for everything else.

Technical debt: When it comes to upgrading, time is of the essence. No company can defer upgrading its tech indefinitely: sooner or later, the business will fail as its rivals outpace it. Despite this urgency, many business leaders mistakenly believe that they can afford to defer their tech improvements and rely on dated systems in the meantime. However, this is a misapprehension and can lead to ‘technical debt.’

‘Technical debt' describes the phenomenon in which the use of legacy systems defers short-term costs in favor of long-term losses that are incurred when reworking the systems later on. This is because the longer the enterprise defers, the further ahead its competitors will become, making it even harder for them to accrue the profits necessary to fuel the innovations needed to catch up. The longer that upgrading is deferred, the harder transitioning to a more modernized system becomes.

Non-compliance: As any data expert knows, laws and legislation for the use of technology do not remain immutable. These complex codes and regulations are constantly in a state of flux and can vary wildly across the world. Reliance on legacy systems means that a company's outdated tech will be based on outdated financial and data protection legislation. Therefore, when an enterprise refuses to update its tech and software, it risks becoming non-compliant and breaching the law.

Creative stagnation and lost opportunities: Relying on dated technology limits the pace at which an enterprise can innovate. If a company does not have the best possible infrastructure to help it improve and iterate its products and services, these will fall short of the mark in comparison with competitors’ more cutting-edge offerings. Furthermore, businesses utilizing older systems also miss out on certain features that improve the user and customer experience, exacerbating the negative impact on their business. For example, e-commerce merchants who rely on legacy systems might not be able to support handy additional utilities for potential consumers, such as one-click payments, or tools needed to track each stage of the customer journey, such as smart data analytics. This can stifle business opportunities enormously.

Looking ahead

Making the jump from an outdated infrastructure to a more modern digital system cannot happen overnight. Creating the infrastructure that will empower your business to innovate at speed and scale involves a profound transformation across the levels of people, process, and technology. Yet, some businesses, afraid that legacy systems are driving them towards obsolescence, attempt to suddenly pivot to a new architecture. This can lead to the new system being rushed and poorly integrated.

Transitioning away from legacy tech should and can be achieved in a safe and cost-effective manner. To reap the multitude of benefits that a more modernized digital infrastructure has to offer, companies should take a business agility approach to updating their tech stack. By taking incremental steps that lead from one goal to the next in a linear manner, businesses can gradually advance the long-term, sustainable tech objectives that will secure their place in the future.

Nia Batten is Head of Cloud and Platforms at esynergy.

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