Legacy IT systems have become a costly barrier to technology projects. A recent independent study revealed that the UK government spends just under 50% of its annual tech budget (£2.3 billion) on maintaining outdated legacy systems.
HM Revenue and Customs (HMRC) officials have identified these legacy systems as the cause of delays faced during the implementation of their Making Tax Digital program. The consequences of relying on legacy applications and infrastructure have hindered progress but have also blocked the realisation of digital transformation initiatives.
This is just one recent example of how legacy systems present significant obstacles to technology projects. Often described as a “ticking time bomb,” these systems lack the flexibility, agility and scalability required to support modern business needs.
As a result, organisations face growth limitations and find it challenging to adapt to evolving customer demands. Moreover, the inherent security vulnerabilities within legacy systems pose a significant risk, which leaves organisations exposed to potential data breaches and regulatory non-compliance.
Here we explore the disadvantages of legacy IT systems in more detail and evaluate their impact on business initiatives.
The many costs of legacy IT
The tangible maintenance costs associated with these outdated systems are just one area in which they can negatively impact your organisation. While the financial aspect of maintaining legacy systems is a major concern, there are other costs if old technology is not appropriately managed or replaced. This section looks at six other negative costs of legacy IT.
1. Demotivated employees: Research from the University of Warwick reveals that happiness at work has a significant impact on productivity, with individuals being around 12% more productive when they are happy.
Notably, companies like Google, which have prioritised employee support and satisfaction, have experienced a remarkable 37% increase in employee satisfaction. These findings highlight the importance of creating a positive work environment that fosters happiness and well-being among employees.
Employees who are using legacy systems, however, are more likely to experience demotivation and frustration. Legacy systems often lack user-friendly interfaces, modern functionalities and efficient workflows. These limitations can hinder employees' ability to perform their tasks effectively and efficiently, which can be highly frustrating and unmotivating. The ongoing skills gap in legacy technologies can further compound the problem, as it becomes increasingly challenging to find and retain skilled professionals with expertise in outdated systems.
2. Reduced productivity: Legacy software, such as outdated enterprise resource planning (ERP) systems or antiquated financial management software, presents numerous challenges for employees which can lead to impaired productivity long term.
Employees are required to navigate through complex menus, perform manual data entry and manage slow response times, all of which result in a notable decrease in efficiency and work output.
Moreover, legacy software may lack crucial features and integrations that are essential for streamlining processes and automating tasks. This requires employees to rely on manual workarounds and time-consuming, error-prone manual processes. The absence of real-time data visibility and reporting capabilities further hampers productivity, as employees struggle to access accurate and up-to-date information necessary for making informed decisions.
3. Increased security risks: Research from the UK government reveals that a considerable number of businesses and charities have experienced cyber security breaches or attacks in the last 12 months. Approximately 32% of businesses and 24% of charities have fallen victim to such incidents, a finding which underscores the prevalence and potential consequences of security breaches.
One contributing factor to these vulnerabilities is the decline in applying software security updates within a timely manner. In the UK, the percentage of organisations adhering to the policy of implementing security updates within 14 days has decreased over the past three years, dropping from 43% in 2021 to 31% in 2023. This decline highlights a concerning trend where organisations are failing to keep their systems updated and patched against emerging threats.
Legacy systems, characterised by outdated software and infrastructure, often lack the necessary security features and updates, including security patches, to combat modern cyber threats effectively. These systems may have vulnerabilities that remain unaddressed due to limited support or compatibility issues with newer security measures. Hackers and malicious actors actively target these weaknesses, exploiting them to gain unauthorised access to sensitive data, disrupt operations, or launch damaging attacks.
4. Brand reputation: An outdated user experience can have a detrimental effect on both current and potential customers. Legacy systems prevent the development of systems that support seamless and intuitive customer experiences. Further still it shows that your organisation is not committed to innovation.
To protect brand reputation, organisations should prioritise modernising their systems to deliver exceptional user experiences. By investing in user-centric design and responsive performance, businesses can foster customer loyalty and attract new customers.
5. Difficulty analysing data: More than half of organisations are adopting big data analytics. However, organisations working with big data are struggling with poor data quality(41%) and data security and governance issues (38%) in data driven projects. Legacy systems pose significant challenges for organisations when it comes to analysing data. Outdated technology and the lack of centralised data storage contribute to difficulties in obtaining accurate and relevant statistics for informed decision-making.
6. A lack of innovation: Legacy systems, characterised by their inflexibility, can significantly hinder innovation and impede business growth. These systems often lack the capability to support new operational or infrastructure ideas or products, which prevents organisations from effectively testing and progressing innovative initiatives.
The inability to adapt and embrace emerging technologies and trends stifles innovation within an organisation. As technology rapidly evolves, organisations that rely on inflexible legacy systems struggle to keep pace. Notable examples, such as Blockbuster and Kodak, serve as cautionary tales of organisations that failed to innovate and adapt to changing market dynamics.
The cost implications of legacy IT systems
Legacy IT systems impose substantial ongoing costs that can strain resources. Below are several reasons why maintaining legacy IT is expensive:
1. Ongoing management and resource allocation: Legacy systems require continuous management and the allocation of resources, including adherence to compliance standards. The complexity arises from managing multiple customisations and integrations to ensure effective communication between disparate systems, which adds overall cost.
2. Skilled tech support: When applications rely on an older, specialist technology base, obtaining skilled technical support becomes challenging and costly. Addressing issues and keeping the systems running smoothly may require specialised expertise.
3. System extensions and integrations: Legacy systems often necessitate the development and installation of additional system extensions to coexist and integrate with current systems. This further contributes to the expenses associated with maintaining the legacy environment.
4. Cross-platform interfaces: In cases where employees need to regularly access multiple separate legacy platforms, the development of cross-platform interfaces (wrapper interfaces) becomes necessary. While this can ease the burden on employees overwhelmed by numerous interfaces, it also incurs additional costs.
5. Supporting undocumented customisations: Over time, legacy systems accumulate numerous undocumented customisations. Supporting and maintaining these customisations can be time-consuming and costly, especially when the knowledge of these modifications is limited or lost.
6. Data extraction and reporting: Extracting data from various systems and running multiple reports across different platforms can be laborious and time intensive. This process increases costs due to the effort required to compile and analyse information from disparate sources.
7. Operational downtime: Legacy systems may require periodic downtime for system upgrades or issue resolution. These interruptions in operations can impact productivity, cause delays, and result in additional expenses.
Alongside these maintenance costs, legacy IT systems contribute to other financial burdens, including:
- Recruitment expenditure: Dealing with a high turnover of dissatisfied staff due to the frustrations associated with working on outdated systems can result in significant recruitment costs and loss of top talent?
- Customer churn rate: Clunky legacy interfaces can lead to a higher customer churn rate as users seek more modern and user-friendly alternatives. Losing customers directly affects revenue and profitability.
- Difficulty attracting new customers: Outdated technology and its resulting damaged brand reputation make it challenging to attract new customers. This limitation hampers business growth and leads to missed opportunities.
These factors highlight that legacy IT systems can accumulate significant expenses over time. It is crucial to invest in modernisation and move to more cost-effective and efficient solutions to mitigate ongoing costs.
Does legacy IT cost more than upgrading to new technology?
While the initial investment in transforming and upgrading technology may seem costly, it is essential to consider the long-term expenses and implications of maintaining outdated and inefficient legacy IT systems. Continuing to rely on legacy systems can lead to higher costs in terms of maintenance, support and potential business disruptions due to compatibility issues and limited scalability.
Investing in modern technology, on the other hand, can yield significant benefits in terms of business continuity and financial savings. Modern software solutions can streamline operations and improve productivity. With efficient and intuitive applications, employees can perform their tasks more effectively, leading to increased job satisfaction and motivation. This, in turn, drives innovation and fosters a positive work environment that encourages growth and creativity.
Furthermore, upgrading to modern technology enables organisations to stay competitive in today's fast-paced digital landscape. It allows them to leverage advanced features, data analytics, and automation capabilities to make informed decisions, enhance customer experiences, and drive profits. By embracing new technology, businesses can better retain existing customers and attract new ones by offering innovative solutions and services.
The benefits of transforming legacy IT: An example
AESSEAL, one of the world’s largest mechanical seal manufacturers, faced challenges with their outdated and disparate legacy systems. These systems lacked central management, which hindered data visibility and reporting across sectors, markets and sites. Additionally, limited standardisation in processes and a lack of knowledge management affected their overall efficiency.
To address these issues, AESSEAL made the decision to invest in a legacy modernisation project, delivering a knowledge management solution. The results were transformative, providing numerous benefits for the company:
- Drastic improvement in invoicing speed: The implementation of modern technology enabled AESSEAL to increase their invoicing speed by an impressive seventy-two times, reducing the process from 35 hours to just 29 minutes.
- Increased sales: The new system supported over £170 million in annual sales, providing a solid foundation for business growth.
- Enhanced user experience and streamlined processes: The improved technology significantly improved the user experience and simplified processes within the organisation, leading to increased productivity and efficiency.
- Accelerated time-to-market: The implementation of the new enterprise software product suite significantly reduced the time required to bring new products to market. This gave AESSEAL a competitive advantage with the ability to create real-time, accurate quotations on customer sites.
The success of AESSEAL's IT transformation highlights the tangible benefits that can be achieved by modernising legacy systems. By embracing new technology and optimising processes, organisations can streamline operations, improve efficiency, and gain a competitive edge in the market.
Stuart Welsh, Group IT Director at AESSEAL, said: “Our ability to respond to customer enquiries has massively increased and the resource required is substantially reduced. We have always been good at this, but our new software allows us to be absolutely excellent at it.”
What is the cost of legacy technology for your organisation?
A legacy system that is no longer meeting the needs of the business and its customers, and is not cost-effective to maintain, should be upgraded.
The consequences of this issue include financial losses, disengaged workforce, dissatisfied customers, negative brand reputation and a lack of innovation. Investing in new technology will lead to business growth and long-term advantages.
Want to find out how you can upgrade your legacy systems? Contact us today on 0113 398 4199, or email email@example.com.