Businesses should assess whether digital innovation is possible with legacy IT systems

Out-Law Analysis | 29 Apr 2014 | 12:50 pm | 3 min. read

Focus: Investment in technology and in providing new digital services is becoming a necessity for many businesses, but innovating need not always involve dispensing with core, legacy IT infrastructure on which the business has come to rely.

New technology is allowing businesses to dream of making a step-change in the way they deliver products and services but a transformational IT project such as a shift from legacy to digital systems is not without risk.

Before making a digital leap, businesses need to ensure that they have a thorough and rounded understanding of both the enticing new digital solutions on offer and the legacy systems they employ. They need to test and challenge the upgrade capabilities of their legacy systems and investigate an alternative investment choice of improving operational, technical and legal improvements to legacy systems.

Businesses must also fully understand the technical, commercial and legal risks of adopting a new digital operating model and transitioning from legacy to digital.

A digital strategy and investing in legacy IT - mutually compatible?

Go into any airport lounge and you will see consultancy material offering to support the development and implementation of your organisation's digital strategy. McKinsey has "gone bullish on digital" following feedback from a 2013 C-level survey in which 56% of respondents said that digital engagement of customers is at least a top 10 company priority. On the whole it appears that companies are investing more heavily in digital technology solutions than during 2012. 

Customers and employees embrace digital technologies An upturn in economic performance in some countries, the corporate boom in technology acquisition and the influence of disruptors are all seen to be major drivers for change. In addition, the effect of IT outages attract widespread customer angst and often gain traction on social media, alerting the media, and adding the spectre of reputational risk to the boardroom mindset.  Change is in the air.

We may be facing a digital tsunami but leaping to a digital solution is unlikely to serve the best interests of the business. A rounded and considered view from the board on the right strategic investment is required to respond effectively to the challenges presented by fast technology change and disruption.

The current vogue for investing in separate innovation business units free of the shackles of big organisational inertia undoubtedly has its place. However, there is a lot of good, cheap and secure legacy technology which sits at the heart of many company's core systems.  A choice to invest in "legacy" may not be a popular or populist message in the boardroom but there is a considerable logic and attraction to such a strategy. This is particular relevant in the context that businesses' technology budgets have been largely constrained since 2008.

The perception of what is wrong with legacy

The maintenance of and care in implementing new technology within core systems has often been hurried and subject to budgetary constraints. Similar and inevitable constraints upon legal spend have forced corners to be cut in procuring and contracting for software and services, and the safeguarding of intellectual property. There is a good business case for improving and strengthening the current operational, commercial and legal environment around a company's processes, systems and software but we anticipate that those calls may be lost in the clamour to innovate and meet customer demands faster than ever before.

Conventional outsourcing wisdom has been to 'never outsource a problem'. There is a perception though that a complete overhaul of legacy IT infrastructure and supplier relationships is necessary to overcome challenges associated with integrating new technology with older systems – from inefficiencies in the way those systems interact, to the risk of IT outages and other issues that impact on customer experiences.

Recent under-investment in legacy platforms and in new processes and systems that have been bolted on to provide new distribution channels, particularly online, has perhaps led to this perception, and moving in haste to a new digital platform or environment, like the cloud, has many attractions. 

The benefits of taking a step back

Before deciding to overhaul existing systems and move to new digital platforms,, businesses need to have a thorough understanding of what legacy IT they have at their disposal and its capabilities. It is also critical that they understand how flexible their existing contracts with suppliers are. This assessment will allow companies to have a full view of the options and the costs associated with a move away from legacy to digital technology. The challenges of moving from legacy to digital platforms are considerable and carry a very high degree of risk. It is important not to make a leap into the dark.

Current legacy platforms and systems are likely to rely on in-house IT support and on one or more significant supplier relationships. A shift from a closely embedded supplier relationship is not going to happen overnight. A carefully orchestrated transition programme will be required to ensure business objectives are achieved with an acceptable time, cost and risk profile.  A good understanding of supplier relationships is a necessary input to any strategic decision to move away from legacy systems.

From a legal perspective this means undertaking necessary due diligence on existing arrangements and assessing the legal risks and issues associated with procuring and transitioning to new digital technology. 

Clive Seddon is a TMT partner at Pinsent Masons, the law firm behind Pinsent Masons is hosting a series of free Out-Law seminars on the subject of 'legacy to digital' – please click the link for details on how to register to attend