Modernization: It's All about the Business
Why the common approach to IT modernization will fail in today's economy
by Jim Fowler
The "M" word -- within IT, modernization can mean bridging an organization's past, present, and future. Modernization can also be used as a club for one vendor to beat up another's products (e.g., mainframe versus distributed), or for one faction within IT to clobber another over whose systems and staff are "legacy" and should therefore be replaced or eliminated.
Whatever modernization means, it's on many IT leaders' minds. According to a recent announcement by Gartner (see http://www.gartner.com/it/page.jsp?id=855612), in their recurring survey of over 1500 CIOs, "legacy application modernization" was in the top-5 CIO technology priorities for 2009.
Ultimately, it's not what IT organizations, product vendors, or integrators think about modernization that matters. It's what the business thinks that matters, because the business must ultimately fund modernization initiatives of any significant scope.
A Business-centric View of Modernization
With this in mind, the definition of modernization must be business-centric. The business cares about business processes that help 1) increase revenue, 2) reduce costs, and 3) increase share price. Therefore, the definition of modernization that excites business leaders is: "Improving current business processes to better support organizational objectives." Once modernization is defined at the very highest level as making improvements to current business processes, all other sub-categories of modernization fall semi-neatly into place (see diagram).
As business becomes convinced that modernization will result in business process improvement that increases revenue, cuts costs, and builds share price, the effort to win funding for modernization becomes much more straightforward.
Fear of Modernizing in a Down Economy
Even if the entire company agrees on a business-centric definition of modernization, that still doesn't tackle the sticky subjects of when, where, how or even if modernization should be undertaken. As the Figure 1 suggests, modernization typically involves the core enterprise systems of an organization. These systems often run on a mainframe and include application code that has been fine tuned and expanded over years or decades. Millions of already-spent dollars are at stake.
To conservative-minded executives in the company, modernization seems to violate the "if it ain't broke, don't fix it" principle. Who wants to tinker with the core enterprise systems upon which the health of the organization depends when the economy is so precarious? Why not hunker down, guard the fort, and make do with systems that are "good enough" until the economic ice thaws?
The problem is that hunkering down is likely to mean giving up market share to competitors that see a down economy as a time to surge ahead. For example, a 2008 study by Diamond Management and Technology Consultants looked at the performance of more than 450 companies during the recession of 2001 (see http://www.scribd.com/doc/8980315/Diamond-Recession-Report-Dont-Waste-a-Crisis). It discovered that certain corporate behaviors enabled 52 percent of the companies to increase their gross margins by an aggregate of 20 percent while the rest of the field remained weak or weakened. It was not just a roll of the dice; a series of strategic decisions made the difference.
Processes versus Systems
One misconception that can hold companies back from considering modernization is that modernizing is about replacing systems instead of improving processes. Sometimes the desire for a bold initiative can translate into a move to replace an entire class of systems (get rid of the mainframe and install servers) or applications (get rid of all the custom code and buy an ERP package) or even languages (get rid of the COBOL and rewrite in Java). Consequently, a huge IT-driven project to replace a system is presented around the company in IT's search for business justification to obtain funding. The proverbial tail is wagging the metaphorical dog.
From the standpoint of the business, this approach makes no sense. The more reasonable approach is to first determine which business process can be modernized to make the greatest impact on business goals at the lowest cost (initial and/or long-term) in time and resources. From an IT perspective, this approach involves analyzing which hardware and software resources support the process in question, and how these IT resources can be modernized to support business process change.
The good news is that sometimes a relatively small change on an IT level can make a significant business process impact. For example, at a large U.S. state government construction management agency, constituents once had to use the phone to get information from operators looking at mainframe terminals. Human resources were tied up, taxpayers and building contractors were frustrated, and many errors occurred. Through a simple modernization project, the agency made the same information available on the Web, increasing customer satisfaction and reducing errors.
Not Always About Spending
Another misconception about modernization is that it's always about spending, replacing, and making radical changes. But modernization is sometimes about saving rather than spending. For example, through a process of modernization, a state university in the Pacific Northwest learned that it would not have to replace its valuable mainframe system (as originally expected) in order to get widespread access to critical mainframe data. Modernization turned out to be about making a small change rather than a radical change.
Forrester Consulting recently produced a vendor-sponsored study in which four Software AG customers were interviewed on the subject of core system replacement. Each customer had either planned to replace their core systems or was in the process of replacement. By the conclusion of the study three of the four customers decided against replacement in favor of maintaining (and potentially enhancing) their current systems; the fourth was still weighing its options. The collective outcome of this "reversal" decision was a projected average ROI of 331 percent over 5 years.
Each of the five organizations mentioned started out believing that modernization was about replacing and spending, and they subsequently learned that it could instead be about retaining and saving.
Three Best Practices
Like talking about "downsizing" or "synergies," invoking the "M" word can stir passions across the organization. However, in dire economic conditions, modernization needs to move beyond the level of passionate debate and into the realm of systematic and objective evaluation. Here are three helpful "outriggers" to keep the boat of modernization from keeling over in the whitecaps:
- To win business support and funding, plans for modernization should focus on improving business process, not replacing IT systems
- A down economy is no excuse for tabling modernization in favor of "do nothing" -- it's often the case that relatively small and inexpensive changes can result in significant business process improvement
- Sometimes modernization is about discovering -- through careful study and calculation -- that the painful change everyone was dreading is actually not required after all
Jim Fowler is director of market development for Software AG. Jim has more than 20 years in B2B high tech, writing about such diverse topics as enterprise software, satellite communications, electronic commerce, and datacom hardware. You can contact the author at email@example.com