Summary

Private and public organizations spend the majority of their information technology budgets maintaining older technology resulting in sluggish market reactivity, heightened security and business risk, and increased opportunity cost rather than successfully modernizing mission critical legacy systems and redirecting over half their IT spend toward innovation and responding to customer demands.

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The Past

Over the last 50 years of software development, American enterprises and government agencies have developed a very large body of software. Much of this software is rarely reevaluated, reinvigorated, or reanimated.

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In 2019 a U.S. Government Accountability Office (GAO) report found that the federal government spends more than $100 billion on IT and cyber-related investments annually. Of this amount, agencies have typically spent about 80% on the operations and maintenance of existing IT investments, including legacy systems.¹ Enterprises find themselves in a similar situation.

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On average, 31% of an organization’s technology is made up of legacy systems.

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Maintaining those systems can be a costly burden, with an average of 60-80% of IT budgets allocated to keeping them running.² A 2018 Deloitte survey found that the average enterprise spends 57 percent of its IT budget on supporting business operations and only 16 percent on boosting innovation.³ The 16% spent on innovation is only 25% as effective as it could be because of the overheads of working  with inflexible legacy systems such as the extra costs of testing or building scaffolding to the legacy systems. Organizations would be able to innovate much faster and keep up with customer demands if they had the ability to spend even 50% of their budget on innovation and be 100% productive with that spend.

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The Present

Legacy technologies hamper efficiencies and restrict growth in an estimated 88% of businesses.⁴ In many global 2000 companies, most of whom have been in existence for decades, one of today’s greatest technology challenges lies in the large body of legacy systems. Exacerbating this challenge, developers who understand how to maintain these systems may have transitioned to working on more modern technology, or are contemplating retirement. Many of these systems run on obsolete or unsupported platforms. For some, the source code is lost.

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Lift-and-shift to the cloud is not an option for many of these systems and modernizing them is not trivial. It isn’t uncommon to see mission critical systems operating this way with one band-aid solution layered on top of another.

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Some of the impacts of relying on frozen legacy systems are:

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‍Innovation Opportunity Cost - Organizations are severely impaired in their ability to effectively respond to evolving customer demands instead spending time and resources attempting to keep legacy systems alive. They miss the opportunity to take advantage of the latest technology which might allow them to operate a similar system that is more manageable and upgradeable, and that might allow IT teams to add modern features to improve efficiency, lower risk, reduce costs, and be responsive to a rapidly changing market.

‍Business Risk - As these systems age and get harder to maintain the probability of system failure increases. Typically these systems are mission critical and any downtime has a costly business impact.

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‍Security Risk - Legacy systems run code or rely on libraries that might contain known security vulnerabilities with no way to patch these. Dated, insecure code increases the attack surface for a business. This not only increases the risk of a cybersecurity incident which could result in sensitive data being stolen and the ensuing  fallout, but it also has real and present costs in terms of higher insurance premiums. In its 2019 study of several critical federal government systems, GAO noted that several of the legacy systems were operating with known security vulnerabilities and unsupported hardware and software.

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‍Technology and Talent Risk - Legacy systems often require older hardware or software tools to support them. As the rest of the industry moves away from these systems, businesses must rely on a shrinking number of vendors with inordinate market power. Similarly, the talent pool available to maintain these obsolete systems and platforms shrinks due to retirement and a lack of new developers entering the space.

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There are an estimated 240 billion lines of COBOL in operation in America. The community of COBOL programmers is shrinking faster than the open positions they create can be filled. The average age of a COBOL programmer is 58, and roughly 10% are retiring each year. It is estimated that there were 84,000 unfilled mainframe positions in 2020, and that number goes up every year.⁵ GAO reported instances where federal government agencies were using systems that had components that were at least 50 years old or the vendors were no longer providing support for hardware or software. Similarly, in June 2019 GAO reported that several of the federal government's most critical legacy systems used outdated languages, had unsupported hardware and software, and were operating with known security vulnerabilities.¹

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‍Employee Motivation and Attrition - Research suggests that 91% of employees are frustrated with workplace technology. A significant amount of frustration, 57%, stems from legacy technology. Amidst the current talent war 71% of managers say employees will switch jobs if they don’t have the tools to do their jobs well.⁶

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‍Productivity Losses - Studies in the UK indicate that 48% of the study population wasted 3 hours or more per day due to inefficient systems. Slow, old technology impairs employee productivity.⁷

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Squandered Data - Most enterprises are adopting big data analytics to guide business decisions. Legacy systems do not lend themselves to easy data extraction, leading to data silos and incomplete data for reports. An estimated 62 billion data and analytic work hours are lost annually worldwide due to such analytic inefficiencies, according to the ‘Data and Analytics in a Digital-First World’ Report.⁴

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‍Costs - U.S. business and government spending on technology products, services and staff was estimated at USD 2 trillion in 2022.⁸ By conservative calculations at least $1.14 trillion is spent on maintenance of existing IT investments including legacy systems. The cost of maintaining legacy systems becomes a drag on a nation’s economy and can hinder innovation over time.

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The Future

Worldwide investment in Digital Transformation for 2022-2024 is expected to be $6.3 trillion per IDC⁹, which indicates the urgency enterprises are experiencing to rid themselves of the shackles of legacy systems. Many of these projects will fail, the investment wasted.

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Research from the Boston Consulting Group shows that 70% of all digital transformation projects fail.¹⁰

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Bjarne Stroustrup, creator of C++, stated "Legacy code often differs from its suggested alternative by actually working and scaling.”¹¹ Drawing inspiration from Bjarne’s observation, Mechanical Orchard recognizes that legacy systems that have survived the test of time often have valuable patterns that should be studied and replicated on a modern stack running on an easy-to-manage, secure, and scalable cloud environment. Hence an older mission critical system, which is next to impossible to change, and weighs down the organization like a boat anchor, is turned into a powerful sail that pulls the organization into the future.

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