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Business Mentor: Building the Case for Replacing Legacy Systems

Jerry McElhatton, Contributor

Getting business buy-in for the replacement or renovation of legacy systems is one of the toughest sales jobs an IT executive ever faces. How do you build a meaningful business case? How do you get the necessary support and financing?

I've replaced numerous complex systems during my career, and it was always a challenge lining up those business allies. No one would argue that the systems were crippled by age or that additional surgery was a good long-term solution. But no one would lend support without solid business rationale -- or at least an understanding of what was in it for them.

The formula that works starts with effective communication (as so many things in executive management do). First, you have to educate business colleagues about the impact of mounting maintenance costs and inflexible systems architectures for solving their most pressing problems.

A good example can be found in banking or insurance, where opportunities frequently arise to introduce new consumer products, or the need to be more competitive drives pricing changes on short notice. If you lack the capability to introduce rapid change, you risk losing market share quickly. That can mean forfeiting incremental revenue opportunities, and once lost, they can't be recovered.

One of your biggest hurdles will be the significant misunderstanding that often exists between IT, business users and senior management about the business benefits of replacing legacy systems. There is a lack of empathy about software that never seems to wear out, unlike other business assets that require replacement over time. And the decisions are individually dependent on the types of applications that drive your business. All of which creates a pressing need to demonstrate the value of replacement in a very tangible way.

Sometimes you don't have a choice, which makes it easy. Consider image processing for checks in banking. Not only is the cost of continuing to return checks escalating and impractical, but banks increasingly find themselves at a competitive disadvantage if they can't provide image statements. There may not be an immediate payback, but the peril of ignoring what is happening with banking industry competitors is far riskier.

If industry competition isn't driving the decision, what then? Either you stay with your current core systems -- and do the best you can to manage user expectations -- or you develop an industrial strength business case with tangible benefits for replacing core systems.

Identity theft and credit card fraud are good examples to consider here. The rate of overall fraud continues to grow, and rapid changes are a must in protecting card holders and other participants in the processing cycle for credit card transactions. Replacement systems incorporate more real-time preventive techniques and offer robust information that shuts down fraudulent activities almost as soon as they occur.

As you start shaping your own legacy replacement arguments, here are some key questions to ask:

  • What have our current systems done for the business lately?
  • How cost-effective is our systems maintenance?
  • Are vendors still available to support these old systems?
  • How complete and accurate is legacy systems documentation and does it detract from speed of implementation and responsiveness?
  • Can we integrate technology and systems architectures?

Maintaining obsolete systems can be a real disservice to your company. It delays the inevitable, since core systems must eventually be significantly renovated or replaced. The real test of IT leadership lies in how well you are preparing your fellow executives.

A favorite saying applies here: "Make sure you get the 'Whoa!' before the crash."

Jerry McElhatton, CEO of Virtual Resources in Dallas, is the former president of Global Technology and Operations at MasterCard International.

This was first published in May 2005

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