Why Should Businesses Modernize Their Legacy Applications?

Once started, digitalization did not stop for a minute, offering more and more new capabilities every day, involving businesses in the infinite chase for more efficient, cost-effective, and reliable solutions. The unspoken rule states, if you want to get a competitive edge make "out with the old, in with the new" your motto. Using the latest technologies and state-of-the-art developments significantly increases your chances of getting higher customer satisfaction and loyalty. Unfortunately, the main obstacle to this is the legacy system.

Legacy applications that were once the backbone of many businesses are now becoming an obstacle to progress. These systems, built on outdated technologies and architectures, can no longer meet the needs of today's businesses. Why are legacy systems still used, you ask? Because they remain deeply integrated in the organizational infrastructure and store valuable data and critical functions.

Apart from the obvious option of a complete legacy system replacement, you can choose to modernize legacy applications. Modernization offers not only a way to overcome the limitations of legacy systems but also opens up new opportunities for growth and innovation.

Staying with outdated software you constantly face problems with performance, flexibility, and scalability of your system. Moreover, you put sensitive and confidential data at risk, because it is much easier for hackers to find holes for attacks in applications that do not have the latest security and encryption protocols.

In this article, we’ll explore crucial reasons why modernize applications and how it would affect your business through real-world examples and compelling case studies.

1. Performance enhancement

One of the first and most influential indicators that usually need improvement in the first place is performance. Outdated software is slow, inflexible, and constantly crashes. It leads to customer dissatisfaction and low efficiency.

Legacy application modernization helps to restructure the software making multi-level architecture lightweight and understandable. Transitioning to micro-services and clouds, adopting AI algorithms and automation, you can save crucial data, implement new features, and enhance the performance of the outdated app significantly. This is how legacy software modernization helped the Spanish banking group gain worldwide leadership in the industry.

BBVA transformation journey

Multinational Spanish banking group BBVA's legacy banking systems were complex, monolithic, and fragmented. They can't introduce new products, scale services, and provide personalized customer experiences. It was also costly to maintain such a big software monster.

The banking group used a comprehensive approach to the solution of this issue and chose three main directions of transformation: cloud migration, microservice architecture, and API-centric strategy. Now they are partnering with AWS and proceeding with their journey.

“This collaboration with AWS and the construction of our new data platform represents a significant milestone for BBVA,” said Ricardo Oliver, global head of Data Engineering at BBVA. “By embracing the power of AWS for our data strategy, we are improving our data management capabilities, making data available for everyone, and leveraging AWS analytical capabilities to boost the impact of our data projects. This strategic collaboration aligns perfectly with our objective of becoming a true data- and AI-driven digital organization.”

2. Financial optimization

The longer you use outdated software the more money it will cost you over time. Gartner predicted that by 2025, technical debt will continue to compound, consuming more than 40% of the IT budget. Dig a little deeper and you'll find that nearly 80% of your IT budget is spent just for maintaining a system that no longer meets your needs, including:

• Costs of support and maintenance;
• Salaries of specialists who know how to work with outdated technologies;
• Constant problems with the system's performance.
• You can outsource the support of legacy software, however, the cost-efficiency of this solution is not too great.

On the other hand, the modernization of legacy applications among other benefits allows you to cut operational costs significantly and allocate budget to real changes. For example, Target Corporation has included this as one of the main points of its modernization plan.

Target's Shifting to The Cloud

As one of the largest retail chains in the United States, Target Corporation had to innovate, scale, and deliver seamless shopping experiences to its customers to stay on top. Their legacy IT systems were complex, siloed, and expensive to maintain. As one of the ways to overcome this problem, public and private clouds were chosen.

"We began our journey to the public cloud a decade ago, with shifts along the way to various public cloud providers. Each of these shifts was a massive undertaking, with significant rewrite. As we finally settled on a hybrid-multi-cloud architecture, our approach veered away from lift and shift to fully modernizing our application stack – so workloads would be fully portable. Over 4,000 Target engineers collaborated to transform applications to an event-driven, microservices architecture", said Hari Govind, a senior vice president of platforms & infrastructure at Target.

It led to significant cost savings for Target, including reduced IT infrastructure costs, lower maintenance expenses, and improved operational efficiency throughout the organization.

3. Security improvement

By using outdated software, your data is always at risk because you create ideal conditions for hackers. They are able to:

• Penetrate through holes in firewalls and security systems;
• Gain access to sensitive and secret information;
• Sabotage or destroy all company data.

The main reason is software based on outdated technologies no longer receives the necessary patches and updates from vendors, making them vulnerable to modern hacking methods. Moreover, low compatibility makes it impossible to integrate innovative encryption protocols and protect data.

With proper legacy modernization, you'll be able to implement new security strategies, save data from breaches, and protect intellectual property from cyber threats. Here is how Pfizer used system modernization to build and implement new security infrastructure.

Pfizer’s legacy modernization experience

Pfizer, a leading pharmaceutical company, decided to create a state-of-the-art infrastructure to protect its intellectual property, confidential research data, and patient information from cyber attacks to increase its efficiency during the global pandemic. The company's legacy IT infrastructure created security issues due to outdated systems and fragmented security measures. One of Pfizer’s first challenges was to bridge the gap between OT and IT. “We had no idea which IT tools would work in the OT world and which tools wouldn’t,” Pfizer Head of Global Automation Engineering, Jim LaBonty said.

While Pfizer needed to bridge the gap between IT and OT, it also needed to secure that bridge, with OT-IT segmentation. Along with restrictions and segmentation of the infrastructure with limited access to the Internet, the company uses the latest industrial firewalls and integrated modern data encryption tools.

4. Innovation and agility

Legacy software is usually too slow and inflexible to quickly make the necessary changes, add important features, and follow industry trends. These limitations can lead to significant loss of profits, loyalty, and customer satisfaction over time, whose demands are constantly growing. The inability to use the latest technologies for rapid analytics and data-driven decision-making is holding companies back, allowing competitors to gain advantages and take the lead.

Software modernization allows you to properly change infrastructures, switch to microservices or cloud storage, and integrate the latest AI-driven analytical tools to receive and process a large amount of information. For instance, PayPal platform constantly upgrades its legacy to stay ahead.

PayPal cloud migration

PayPal’s monolithic and heavy architecture of the outdated software did not allow it to implement new options, and provide new products and opportunities for its customers. The company moved to a cloud, microarchitecture, and adopted API approach. PayPal, in partnership with Google Cloud and Deloitte, continues to implement a multi-year cloud transformation that will move mission-critical workloads to the cloud, leverage leading-edge analytics, and increase agility and innovation.

“Democratizing financial services is our mission and working with the Google Cloud team is enabling us to focus on providing the best products, capabilities and services to our customers instead of worrying about managing our infrastructure,” says Sri Shivananda, EVP, Chief Technology Officer at PayPal. “As a part of our strategic partnership, we’re working side by side with Google Cloud to scale and secure our infrastructure for the future.”

5. Compliance assurance

Along with innovation, most businesses must also ensure that their software meets international standards such as the Health Insurance Portability and Accountability Act (HIPAA), Payment Card Industry (PIC), and Sarbanes-Oxley Act (SOX). As a rule, outdated software is simply not able to meet all the latest industry requirements, which does not allow not only to implement new functions but also the necessary measures.

Poor regulatory compliance can incur large fines and penalties, which significantly affect the company's reputation and subsequent profits. This could be your number one reason to modernize legacy systems. By the way, Lloyds Banking Group was building its transformation strategy with compliance assurance in mind.

Lloyds banking group long-term digitalization strategy

The banking system is considered one of the most regulated and compliant in the financial industry. That's why Lloyds Banking Group (LBG) should consider compliance regulations in developing its transformation strategy. Alongside key criteria, like reliability and efficiency, the company also paid attention to the vendor's compliance posture. In 2022 Lloyds Banking Group announced the long-term strategy, which involved porting 20% of its applications to the cloud by 2024 and decommissioning over 15% of legacy applications.

Partnering with Saviyant, LBG proceeds to implement innovative changes to fit the new market demand. “Our goal is to create a single privilege access management journey across all clouds,” says David Queen, Head of Cloud Identity at LBG. “Looking forward, this journey is about creating a single process, a single set of controls, and hopefully, a single customer journey.”

6. User experience upgrade

The modern market dictates new rules of interaction with users, if you want to get the necessary advantage over competitors and increase customer satisfaction, loyalty, and retention.

• You must create a customer-oriented product from the very beginning.
• Each subsequent update should include new features or improvements to existing ones.
• The accessibility trend of recent years also requires you to implement new options adapting them for customers with disabilities.

Relying on outdated software you'll unlikely be able to create a new appealing user experience, as old-school applications are restricted and not flexible enough to fulfill this.

With accurate legacy modernization, your system will be elevated significantly, allowing you to provide users with an immersive and seamless experience. Here is how Epic Systems proves there is always room for improvement.

Epic systems constant renovation journey

Epic Systems Corporation is a leading provider of electronic health record (EHR) software solutions for healthcare organizations worldwide. According to them, 82% of HIMSS Stage 7 clinics in the U.S. and 65% of HIMSS Stage 7 hospitals globally use Epic. Founded in 1979, the company constantly improves its products striving to provide the best experience for all kinds of users: employees, physicians, and patients.

Now the company is focusing on implementing generative AI to enhance customer experience and take it to the next level. “As adoption picked up, we recognized the value that generative AI can create and the speed with which it can be implemented throughout the health system. Now, we're in the process of using it across our entire suite of products, with more than 60 projects in the pipeline”, says Seth Hain, senior vice president of research and development at Epic. “HIMSS is a great chance to connect with customers, hear their current goals and challenges, and share what we're working on to help them. While the booth will cover all sorts of topics – across patient experiences, staff experiences, organizational efficiency and advancing medicine – the key message is, "We care about you doing well and we're here to help."

7. Scalability and flexibility

Let's be honest, the longer you delay the implementation of the latest technologies and viral functionality, the further you will be behind your competitors. Using outdated software can be a convenient way to maintain basic functionality but this is the main limitation to implementing new options. Customer requirements are constantly growing, forcing businesses to adapt to these needs quickly. Legacy software may be incompatible with modern technologies and methods of implementing the latest ideas. For example, artificial intelligence, and virtual or augmented reality expect the use of light and reliable technologies. Applications built on old programming languages and frameworks will require significant changes and, in some cases, complete replacement.

Upgrade legacy software promptly to have the opportunity to scale and grow fast. For example, Walmart strives to stay ahead of its competitors investing in digital transformation.

Walmart digital transformation strategies

Starting its digital transformation with infrastructure improvement, Walmart gradually expanded its legacy modernization efforts. Its annual ICT spending was estimated at $9.5 billion in 2023. Transitioning from monolithic architecture to microservices and cloud storage made it possible to obtain the desired flexibility and scalability. Thanks to this it is possible to introduce innovative technologies and functionality that are so loved by modern customers.

"As a company, our commitment is to provide our customers with a shopping experience that exceeds expectations – one that is easy, engaging, and personalized,” says Tom Ward, EVP and Chief E-commerce Officer of Walmart US. “With our latest addition, we are offering our customers yet another dimension of choice, meeting them exactly where they are in their shopping journey. This is a testament to our continuous efforts to redefine and elevate the shopping experience.”

8. Integration excellence

When it comes to integration, it is not only about ensuring data security, such as the integration of encryption protocols or firewalls. It also means integration with third-party software and additional services needed to expand functionality or provide a better experience. Another pain point of legacy software is poor compatibility with modern systems, which means you won't be able to quickly and seamlessly implement additional payment options, analytics, data collection, advanced search, recommendations, etc.

Updating outdated software allows you to change the technological stack, reduce tech debt, and also improve the compatibility of applications with the latest functionality. This applies both to the creation of an ecosystem from own products and simple integration with third-party ones. Here is how Adobe Inc. works on interoperability and integration improvements.

Adobe legacy modernization strategy

Adobe Inc. was almost among the first to see the effectiveness and profitability of transferring services to the Internet, which it started in early 2010. In more than 10 years, they were able to transfer most of their services to cloud and transform popular products into the latest ones adapted to modern needs, taking into account trends and future growth.

The transfer to the cloud made it possible to create a reliable and powerful ecosystem of the company's products that are used by industry leaders. The company continues to actively work on the integration of third-party technologies and solutions in close collaboration with other developers and its own data centers. For example with Microsoft, they are developing a solution to embed the Adobe Acrobat PDF engine to strengthen the Microsoft Edge built-in PDF reader. Adobe also introduces artificial intelligence into its own products.

9. Talent management

The other side of the coin of using outdated software is the search for the necessary specialists for its maintenance. The truth is that over the years there are fewer and fewer specialists who are familiar with outdated technologies and know how to debug them properly. If you are still a supporter of frameworks and programming languages that are no longer updated or are not used anywhere, your talent pool is significantly limited. It not only slows down your development but can also become an anchor that will not allow you to move on.

Legacy system transformation allows you to move to a state-of-the-art technology stack, adapt the latest development methods (CI/Cd), and agile methodologies that will open up new opportunities for you to hire and retain engineers and developers. See, how IBM transforms its HR approach and leverages the latest technologies.

IBM workforce management initiative

Over the years of rapid growth and development IBM faced the problems of staff scaling and reorganization of work with employees. The HR system used by the company was decentralized and chaotic, which did not allow for assessment of workload and workforce, to make adequate forecasting, or to help the employees grow. IBM started with the introduction of a new philosophy and culture of talent management, which was gradually reflected in its internal HR management system.

“At IBM, this new approach to strategic workforce planning was rooted in a fundamentally different approach to HR. Our entire HR organization was trained in agile practices and design thinking, allowing us to shift the culture to one where innovation is driven by user-centric co-creation and iterative development. Analytics, AI, and automation are now part of our HR toolkit, and HR teams are encouraged to find use cases where these capabilities can be applied to improve the employee experience and business outcomes,” said Tanya Moore, a Partner with IBM’s Talent and Transformation organization.

10. Competitive advantage

Gaining a competitive advantage is probably one of the most obvious reasons for legacy modernization. In the era of digital technologies, being able to constantly implement breakthrough innovations, being the first to satisfy the client's needs, and being able to predict and forecast them are among the most important factors of rapid business growth and development.

Modernizing legacy software secures your place in the future because you now have enough space to implement new features, ideas and solutions. A true leader of the industry thinks that way, for example, Capital One Bank, which stands at the forefront of innovation in the financial sphere.

Capital One: constant technical upgrade

“From founding, Capital One has been a technology-focused and data-driven company,” said Sriram Vadakattu, senior director of data engineering. “Capital One has always understood that technology and data impact how people interact with any service — especially financial services.”

Most of the bank's systems were fragmented and built into complex bureaucratic architecture that did not allow for the rapid implementation of the necessary changes. These limitations led to low efficiency, performance and productivity, hence, poor user experience and periodic system crashes. The company comprehensively approached the challenge and divided solution milestones into several main areas: migration to the public cloud, data transformation, and the introduction of the latest technologies. Becoming a pioneer in this field, the bank was not only able to bypass its competitors but to create powerful cloud migration tools for financial organizations and a complete guide that will simplify this task for them in the future.

Key takeaways

Even though legacy software is still a cornerstone of many organizations across industries, modernizing it is far more effective in the long run. As you can see from the examples above, if you want to get a competitive advantage and at some point become a pioneer in your field, you have to take a risk and invest in legacy software modernization.

Select a skilled team or enhance your in-house IT department with engineers specialized in legacy modernization to improve performance, get the necessary agility, scalability, and flexibility. Open more capabilities for seamless integration, innovation and future-proof functionality to create an engaging user experience and satisfy your customers. Fill in the talent gap with developers and adjust budget spending reducing maintenance costs by switching to a new tech stack. And finally, protect your data with the latest security and encryption protocols, and always be updated on regulatory compliance with new analytical tools.