Cumbersome legacy IT systems leave business organisations vulnerable to digital disruption and stop them from becoming more efficient.
07 March 2017
Business organisations still working on legacy systems need to wake up to the fact that digital transformation may render them obsolete soon. Modern IT consumption models like the cloud can help create more agile IT systems and give employees access to today's best applications.
Legacy software: outdated and inflexible
"Legacy systems" refer to IT systems that have been operating in production for a long time, sometimes for over three decades. For many organisations in the sectors that still heavily rely on them in the GCC, like energy, banking, insurance or travel, the services they offer are still relevant and they see little point in replacing them. However, as time goes on, because the technology they rely on becomes outdated and systems get harder to maintain. Legacy systems are kept because they required large investments when first installed and for now seem to function properly.
A risk of potential disruption
So why change something if it works? The answer is: because the world is changing fast. Legacy systems simply stop business leaders from deploying digital technologies to innovate or make operational efficiencies. In fact, more than half (54%) of finance leaders globally say their current systems are unlikely to cope effectively with the near future demands of their organisation, according to the results of an Oracle/Intel survey, called 'Modern Finance: Driving Tranformation from Within'.
Younger companies, on the other hand, use the latest technology, and as such, are able to be more flexible when it comes to introducing new products, innovative services or concepts. Not constrained by huge and old IT systems they are free to break the rules, quickly react to shifts to market conditions or jump at unique opportunities. With 45% of CFOs saying they are under increasing pressure to raise productivity and 44% revealing their company is pushing harder for growth (Oracle/Intel survey), ignoring the potential of more flexible and up-to-date systems simply does not make business sense. "The market has no consideration for a company's size or status. Agility is the hallmark of virtually every successful modern business, and companies big and small must adapt to this reality. However, years of customisation have left many large organisations in particular with inflexible and convoluted legacy systems nearing the limits of what they can handle," the Modern Finance report says.
Legacy IT systems: no quick fixes
Apart from disruption from more innovative business models or systems, legacy systems may also be more vulnerable to various risks such as cyber attacks as they were not built with future security issues in mind. Yet research by EY has shown that companies that manage risk well perform three times better on EBITDA (Earnings before interest, taxes, depreciation and amortisation) than those that do not. Another reason to use newer systems like the cloud, which is a subscription-based model hence does not require huge investments in IT, is that is it allows businesses to add new functionalities. There are also a string of non-tangible benefits for organisations using the latest digital technologies like brand reputation, customer loyalty and satisfaction - which ultimately make them more competitive.
The Orange example
Mobile network operator Orange is an example of an organisation that has successfully moved away from legacy systems to the cloud to achieve their digital transformation. As part of their "Essentials 2020" strategic plan the group wanted to focus on customers and digitalise their accounting to offer employees the best technology tools but also to be more predictive. "We had, in the past, different ERPs in different countries," explains Christophe Eouzan, group chief accounting officer at Orange. "Moving to the cloud is a nice way to reduce the costs" and "offers more flexibility than in the past" he stresses. Another advantage of adopting modern systems like the cloud in accounting is to attract more Digital Natives to the profession, Eouzan says.
On-premise legacy systems worked when the world was more stable. However, in an era of fast change, the cloud can provide the flexibility and speed required by all to quickly adapt to market requirements happening in real-time - and at the lowest costs.
© Oracle 2017