Forbes.com

Overcoming Digital's Biggest Obstacle: Legacy IT

Companies that directly address legacy IT stand the best chance of winning in the digital world.

By Rudy Puryear, Steve Berez and Vishy Padmanabhan

First published on abril 26, 2017
min read


This article originally appeared on Forbes.com. By now, most companies have taken at least the first steps toward doing business in a digital world. They’ve set up flashy websites, built mobile apps, opened e-commerce stores and engaged in social media. While these digital initiatives can deliver value, many executives have been lulled by a false sense of progress. Others have been disappointed that their digital efforts haven’t helped their business more. Sooner or later, every company trying to go digital will run headlong into roadblocks, likely due to legacy IT. Companies have discovered that their legacy IT is not ready for digital. Companies get tripped up when they try to connect their digital initiatives with the organization’s hundreds of legacy IT systems and databases. In many cases, those systems have been in place for decades and can’t interface with new digital apps and architectures. And while these legacy systems are packed with potentially useful data, many times the digital apps can’t easily access it. Companies may have whizz-bang digital apps, but their operating models often haven’t kept pace, and neither have the skills of their IT employees. Legacy IT, in short, can become the Achilles' heel that thwarts digital success. Organizations have begun to realize they need substantial work to make their legacy systems, data, operating models and skills ready for digital. A Bain & Company survey of 150 technology decision makers shows they plan to spend 55% of their incremental dollars on modernizing their existing IT to make it digitally ready, leaving 45% for digital initiatives. Some companies have learned the hard way about the pitfalls of moving ahead in digital without simultaneously addressing legacy IT. Fast-food companies, for example, have spent years building systems to efficiently manage all aspects of meal preparation. These systems were designed to serve two streams of customers—those at the front counter and those at the drive-through window. So far, so good. In a digital world, though, customers expect to order meals from their smartphones. The food companies have responded by creating front-end digital apps that enable customers to see the menu, place an order and designate a pick-up time. They can then retrieve their food either at the front counter or the drive-through window. Building this kind of app is relatively easy; it can take as little as a few weeks. But the smartphone apps have had the unintended consequence of creating a third queue of customers whose needs have to be melded with the other two. That causes traffic jams, and many fast-food operations are struggling to modify legacy “back-of-the-store” systems that were designed for two queues, not three. A front-end app that looked like a win for consumers may not be such a convenience after all—not if their orders get mired in back-end systems that can’t respond fast enough. Some companies have approached digital with a two-speed IT mindset: a faster gear for the customer-facing parts of the business and a slower pace for the rest. But this two-speed approach is not optimal. Businesses that put digital on a fast track without addressing the legacy IT are bound to hit a wall. They find their digital efforts take more time, cost more money and deliver less value than they anticipated. On the other hand, companies that do the hard work up front reap the benefits. One large US retailer struggled with a legacy IT organization that responded slowly to the needs of the customer-facing parts of the business. The retailer shifted to a model that tied funding of IT projects and applications more directly to business outcomes, resulting in dramatic gains in speed and quality while reducing costs. Getting an entire organization, including its legacy IT systems, to move at the speed of digital is a multiyear journey that can require substantial investment. But it’s no longer optional. Companies ready to directly address the technological, organizational and financial impediments blocking their path stand the best chance of winning in digital. Rudy Puryear, Steve Berez and Vishy Padmanabhan are leaders in Bain & Company’s IT practice. They are based in Chicago, Boston and New York, respectively.

This article originally appeared on Forbes.com.

By now, most companies have taken at least the first steps toward doing business in a digital world. They’ve set up flashy websites, built mobile apps, opened e-commerce stores and engaged in social media.

While these digital initiatives can deliver value, many executives have been lulled by a false sense of progress. Others have been disappointed that their digital efforts haven’t helped their business more. Sooner or later, every company trying to go digital will run headlong into roadblocks, likely due to legacy IT. Companies have discovered that their legacy IT is not ready for digital.

Companies get tripped up when they try to connect their digital initiatives with the organization’s hundreds of legacy IT systems and databases. In many cases, those systems have been in place for decades and can’t interface with new digital apps and architectures. And while these legacy systems are packed with potentially useful data, many times the digital apps can’t easily access it.

Companies may have whizz-bang digital apps, but their operating models often haven’t kept pace, and neither have the skills of their IT employees. Legacy IT, in short, can become the Achilles' heel that thwarts digital success.

Organizations have begun to realize they need substantial work to make their legacy systems, data, operating models and skills ready for digital. A Bain & Company survey of 150 technology decision makers shows they plan to spend 55% of their incremental dollars on modernizing their existing IT to make it digitally ready, leaving 45% for digital initiatives.

Some companies have learned the hard way about the pitfalls of moving ahead in digital without simultaneously addressing legacy IT. Fast-food companies, for example, have spent years building systems to efficiently manage all aspects of meal preparation. These systems were designed to serve two streams of customers—those at the front counter and those at the drive-through window. So far, so good.

In a digital world, though, customers expect to order meals from their smartphones. The food companies have responded by creating front-end digital apps that enable customers to see the menu, place an order and designate a pick-up time. They can then retrieve their food either at the front counter or the drive-through window.

Building this kind of app is relatively easy; it can take as little as a few weeks. But the smartphone apps have had the unintended consequence of creating a third queue of customers whose needs have to be melded with the other two. That causes traffic jams, and many fast-food operations are struggling to modify legacy “back-of-the-store” systems that were designed for two queues, not three.

A front-end app that looked like a win for consumers may not be such a convenience after all—not if their orders get mired in back-end systems that can’t respond fast enough.

Some companies have approached digital with a two-speed IT mindset: a faster gear for the customer-facing parts of the business and a slower pace for the rest. But this two-speed approach is not optimal. Businesses that put digital on a fast track without addressing the legacy IT are bound to hit a wall. They find their digital efforts take more time, cost more money and deliver less value than they anticipated.

On the other hand, companies that do the hard work up front reap the benefits. One large US retailer struggled with a legacy IT organization that responded slowly to the needs of the customer-facing parts of the business. The retailer shifted to a model that tied funding of IT projects and applications more directly to business outcomes, resulting in dramatic gains in speed and quality while reducing costs.

Getting an entire organization, including its legacy IT systems, to move at the speed of digital is a multiyear journey that can require substantial investment. But it’s no longer optional. Companies ready to directly address the technological, organizational and financial impediments blocking their path stand the best chance of winning in digital.

Rudy Puryear, Steve Berez and Vishy Padmanabhan are leaders in Bain & Company’s IT practice. They are based in Chicago, Boston and New York, respectively.