5 Reasons Why Modernizing Legacy Systems is Crucial

Many of today’s businesses still rely on legacy systems, though perhaps not to their benefit.. In this article, we’ll show you why modernizing legacy systems is crucial for your business’ success. Despite the massive growth of digitally transformative solutions in recent years, legacy technologies remain a pervasive issue in the world of IT. According to a 2022 study, 88% of organizations around the globe are hindered by legacy technologies.

Continued reliance on outdated legacy software systems can disrupt an organization’s growth, inhibit efficiency, and thwart operational resilience. Yet, companies all over the world keep these systems in place due to the perceived cost and complexity of replacing them with updated, modern alternatives.

Legacy systems prevent today’s organizations from adapting seamlessly to the future. If this is true for your company as well, it may be time to consider modernizing your legacy system.

What are Legacy Systems & Why Do Companies Still Use Them?

The definition of a legacy system is an older computer system and network that has been in use at a company for many years and often several decades. These systems typically no longer receive updates and must rely on hefty amounts of hardware when compared to a more modern software-centric system.

Though not yet entirely obsolete, legacy systems tend to be highly inefficient and difficult to optimize due to the disparate nature of the system’s functions and the information it stores.

The continued use of legacy technologies does not fall within one sector alone. Legacy systems are still used across all industries, from finance and healthcare to government agencies.

Let’s take a look at a few statistics that showcase examples of legacy systems in various industries and their state:

• A 2023 report published by the U.S. Government Accountability Office (GAO) revealed that U.S. government agencies spend an astounding $337 million annually to operate and maintain legacy systems. These systems range from 8 to 51 years old, with many vendors no longer supporting the oldest systems.
• The 2021 Kaspersky Healthcare Report uncovered that only around 22% of healthcare providers use modern operating systems. Of the healthcare organizations still using legacy software systems, the top three reasons for not switching to a more modern system included the high cost of upgrades, compatibility issues, and a lack of internal knowledge regarding the system.
• The World Retail Banking Report 2022 — published by Capgemini and Efma — reveals that 95% of top global banking executives named outdated legacy systems and core banking platforms as major inhibitors to their efforts to optimize data and establish customer-centric growth strategies.

While only a small sampling of the countless examples of legacy technologies across different industries and regions, the above statistics highlight the need to transition away from legacy systems.

5 Reasons to Modernize Legacy Systems

Companies worldwide recognize the importance of modernizing their IT infrastructure to stay competitive, improve efficiency, and reduce long-term costs. As a result, many organizations are strategizing on how to gradually phase out legacy systems and adopt more flexible IT technologies.

Legacy technologies pose tremendous disadvantages to the growth and prosperity of all organizations, as well as to the collaborative capabilities between organizations.

Let’s examine five key challenges and their impact on a business’s crucial functions.

1. Inhibited Adaptability

Perhaps one of the most significant disadvantages of legacy systems is their lack of adaptability.
These systems are often rigid and inflexible, making it exceedingly difficult to accommodate changes in business processes, regulations, or customer demands as an organization evolves.

An inability to adapt quickly can also hinder competitiveness and innovation. Meanwhile, modern IT systems are built with flexibility in mind, allowing organizations to customize workflows, add new features, and respond rapidly to changing market or industry conditions.

To observe this inhibited adaptability more closely, consider how legacy software systems make it difficult for companies to adopt the Zero Trust security model.

Modern organizations have shifted to a Zero Trust approach to data security. This security framework requires continuous verification of all users accessing data and working in a business system, offering a much higher level of protection against fraud and other cybercrimes.

However, legacy systems can present massive hurdles for many companies, rendering these organizations unable to adapt quickly or adequately to a Zero Trust framework. One 2023 Deloitte report reveals that 44.6% of C-suite and other executives at organizations adopting the Zero Trust approach face major compatibility issues due to existing legacy systems and environments.

A legacy system ultimately lacks the flexibility and agility necessary to adapt to increased workloads and modern applications. Comparatively, a modern, cloud-based solution offers both the adaptability and scalability organizations need to adjust resources to meet changing demands seamlessly.

2. High Operational Costs

Maintaining legacy systems can be costly — but precisely where are those costs coming from?

A popular trend among legacy system developers was to build “homegrown” systems — aka, solutions built and tailored for one company’s highly specific needs. While these homegrown systems may have been the ideal solution when first built, the lack of adaptability we discussed earlier made it near-impossible for these systems to evolve alongside the companies using them.

A 2020 study looking at the use of homegrown systems for electronic health records (EHR) found that maintaining these systems could cost anywhere from $21,000 to $1 million or more annually. Additionally, the study discovered that commercial versions of these homegrown legacy systems could not provide the full EHR functionality necessary.

The high costs of maintaining outdated legacy systems are not a new struggle. Arguably, where many companies go wrong is by committing their top software development talent to these maintenance needs.

One 2018 CNBC report posits that too many developers are “tied up in projects designed to prop up legacy systems and bad software,” leading to a cost of $300 billion per year and $85 billion spent solely on dealing with the maintenance of bad code.

As legacy systems age more and more, maintenance costs will only continue to skyrocket.

Finding replacement hardware for old or malfunctioning components is only one part of the puzzle. In many cases, that kind of hardware is no longer manufactured or exceedingly rare to find. On top of that, finding specialized developers to maintain these outdated systems is becoming increasingly difficult.

Though newer systems come with high upfront investment costs, they tend to have lower overall maintenance costs. Additionally, more developers are honing their expertise in cloud computing, AI, and other modern technologies, making the growing talent pool in this space all the larger.

3. Data Security Vulnerabilities

Increasingly advanced technologies inherently lead to heightened data security vulnerabilities.

In the 2023 Cost of a Data Breach Report, IBM uncovered that the global average cost of a data breach reached an all-time high of $4.45 million. This exceptionally high figure represents a 15% increase over the last three years, with detection and escalation costs jumping up 42% in the same timeframe.

Thinking back to our discussion of AI incompatibility with legacy systems, an inability to leverage AI to minimize the impact of data breaches can be a monumental disadvantage.

The IBM report further reveals that organizations fully deploying security AI and automation shortened breach lifecycles by an average of 108 days. Extensive deployment of security AI and automation resulted in an average of nearly $1.8 million lower data breach costs, making AI the most significant cost saver during data breach incidents.

Comparatively, organizations relying on legacy IT systems cannot easily or quickly deploy technologies like AI and automation, requiring far greater time commitments and higher costs to address data breaches.

The lack of regular updates to these legacy systems also contributes to the problem. Cyber attacks often target business systems with unaddressed IT vulnerabilities, especially those without modern technologies for user authorization and identification.

Legacy systems cannot easily adapt to new technologies and security methods, making them a prime target for criminals and a ticking time bomb for businesses.

4. Incompatibility with New Technologies

Legacy systems are notorious for their incompatibility with modern technologies.

As businesses seek to leverage emerging technologies to gain a competitive edge — like AI and cloud-native platforms — legacy systems can prove to be a substantial hurdle on such digital journeys.

In the January 2023 edition of Government Information Quarterly, one review analyzes how legacy systems have impacted the digital transformation of public administration across the EU and UK, and identifies the incompatibility of legacy technologies to be one of the biggest challenges.

According to the review:

“Legacy systems, in most cases, are often essential pieces of infrastructure. Nonetheless, the existence of various legacy systems increases complexity of interoperability and integrability, due to their outdated nature such as inexistence of vendor supporting the upgrade or inability to be upgraded because of obsolete technologies – hence becoming barriers to a successful digital transformation.”

Integrating legacy systems with cutting-edge technologies can be challenging, if not impossible, in decades-old systems. Organizations using legacy systems may find themselves falling behind in terms of innovation and digital transformation when compared to both competitors and industry peers.

5. Siloed Data & Limited Business Insights

For anyone familiar with legacy systems, these outdated technologies create data silos that highly limit an organization’s ability to collaborate internally.

Data silos complicate communication, making sharing critical business information across departments more challenging. As a result, departments become massively unaligned with each other and fail to effectively achieve overarching organizational objectives. Not only can decision-making processes be hindered, but companies also miss out on key data-driven business insights.

In a 2023 XPLM-commissioned study, more than 126 business executives were surveyed on their current data practices. This study produced several deeply insightful revelations about the state of internal data management, including:

• 76% of executives believe data silos “hinder cross-departmental exchange,” and 74% believe this hindrance to be a competitive disadvantage.
• More than 40% of companies have increased their number of data silos over recent years, with just 10% successfully improving company-wide information access.
• 71% of companies lack the proper interfaces to connect data silos.

Meanwhile, from the external perspective, data silos can decrease an organization’s overall productivity and efficiency. This can be a turn-off for both potential clients and business partners, causing an organization to miss out on vital opportunities for growth and expansion.

Modern data analytics tools and integrated systems provide a more holistic view of an organization’s operations, breaking down silos and enabling better-informed decision-making — but these tools and systems only work if a company has taken the steps to migrate away from their outdated legacy system.

Legacy Systems Modernization Strategies

Embracing modern systems and technologies allows you to position your business for future success by reducing operational costs, enhancing data security, and creating more collaborative and adaptable work environments. Although the transition away from legacy systems may present its own set of challenges, the long-term benefits of modernization are often well worth the investment and effort.

At Exadel, we enable our clients to achieve scalable and sustainable growth through streamlined technologies, end-to-end optimization through a comprehensive legacy system replacement strategy.

Our services include:

While legacy systems have played crucial roles in the past, they come with significant disadvantages that can impede the growth, efficiency, and competitiveness of modern organizations. Migrating to a cloud-based system is no longer a question of if, but rather when, for today’s businesses. Kickstart your legacy system replacement now!