BankingThe Bank CIO’s Dilemma

The Bank CIO's Dilemma

As we enter 2004, IT leaders are once more examining spending priorities to determine IT investment for the coming year. According to Gartner “CIO’s and other IT executives will have to spend the next 12 months holding down costs while innovating for the future.” This is the CIO’s dilemma for 2004 – to achieve a balance between managing short-term issues of cost and complexity, while at the same time investing in the future. One of the key items for the CIO in 2004 is to decide which legacy systems should be replaced and which should have their life extended. This shouldn’t come as a surprise as legacy systems play such a critical role in IT infrastructure; yet seem to drain precious resources.

Conventional wisdom tells us that new is better than old. New hardware is better, cheaper and faster than ever before. Replacement of old computers by new computers is necessary for organizations to deliver products and services better, cheaper and faster than the competition. Consumers who have come to expect year-on-year improvements fuel this cycle. Likewise, the Internet is better than old proprietary networks. Windows XP is richer in function than DOS and Linux is cheaper than proprietary mainframe operating systems.

While legacy hardware may need replacing, we must then ask what is to be done about the applications running on that platform. After all, it is the applications that fuel the business, touch customers and help deliver products and services to new markets. Does all this mean that new applications are better than those written in previous decades? Are COBOL business processes, the most widely used in the world, obsolete simply because they can be re-written in Java? Probably not.

The business procedures written down and captured, whether in computer language or English (or any other spoken language), may be relevant for many decades, or even for centuries. For example, the City of Massri Treasurers used double-entry accounting (implemented by all major financial packages today) as early as 1340 A.D.

According to Gartner, 75 per cent of the world’s business is processed by COBOL applications, totalling 180-200 billion lines of code – the equivalent of about 10 million books. To illustrate this, the British Library Catalogue provides access to over 10 million texts. A large enterprise may have an application library of several thousand volumes to define the way they do business!

Sandvik Coromant – a Swedish manufacturer – recently estimated they’d invested 1,000 man-years of development in legacy applications. These applications capture business processes developed over many years – processes that are essential ingredients for doing business today and the foreseeable future. With this in mind, there’s no guarantee a large-scale technology conversion would not be obsolete in three years. Technology moves on, just as surely as business processes mature and stabilise.

IT infrastructure, including computers and packaged software are IT commodities available to everyone, but applications the IT group has written are unique to that organization’s way of doing business. These applications embody data, processes, rules and concepts uniquely intertwined with the people who run the business. This is ultimately what distinguishes one business from its competitors. In the well-worn analogy, the bathwater (the legacy platform) is dispensable, but the baby (the application) is not.

So can IT unlock an application containing valuable business processes from a legacy platform that restricts the CIO’s ability to reduce cost and to innovate for an agile future? Absolutely.

Core business applications can be preserved as hardware and software environments are upgraded. For example, the software environment for COBOL applications is readily available on contemporary Linux and Windows platforms, and fully integrated with latest technology features from these platforms.

For many organizations, the mainframe is no longer the most cost-effective platform to operate core business services. Fierce competition between platform vendors has driven new server technology to; ‘enterprise scale’ with prices the mainframe cannot match.

Moving applications to low-cost Linux or Windows platforms can reduce or remove mainframe operating costs currently locked up in IT infrastructure budgets. Software is preserved, and business continuity is no more disturbed than a conventional mainframe upgrade. For example, call centre employees can work as before, unaffected by the change. The move may also avoid serious risk as hardware vendors withdraw support for many older mainframes.

A moderate initial investment on new platform set-up yields year-on-year cost savings and ROI can often be achieved within a few months. Meanwhile, budget previously allocated to annual IT infrastructure costs can be redirected to fund new value enabling projects.

Core business applications moved to new platforms are more easily extended using contemporary features of the new platforms. New user communities (such as Web clients) can now access the same business logic and traditional data via the Internet, XML and Web services. New technology therefore makes it possible to unlock the value of legacy while at the same time innovate for an agile future by:

  • Re-using and extending COBOL applications in Service-Oriented Architectures.
  • Deploying COBOL applications in Microsoft’s .NET framework.
  • Integrating COBOL applications with the Internet, Web services and J2EE.

Mainframe IT staff can now team up with the Java, Linux and .NET developer communities. Traditional applications can be developed and extended, bringing unrivalled ease-of-use features to help IT become more agile. COBOL developer teams can enjoy the productivity of new paradigms of development including UML and Model-Driven Architecture, bringing together best practices for rapid innovation and rigorous processes across the IT organisation.

To understand the value locked up in legacy applications, simply estimate the cost of doing business without them. Alternatively, estimate how much it would cost to rebuild that legacy from scratch. Sandvik Coromant concludes, not unreasonably, that a rebuild project would amount to repeat of the original investment of 1,000 man-years. The risks associated with such large-scale projects are well documented in the press. Few CIO’s would put their jobs on the line for such projects, and fewer CFO’s would sanction the costs in the current economy.

CIOs can now upgrade to better, cheaper, faster new platforms, and re-use existing business processes and skills. This means they can avoid the high costs and risks of ‘;ripping and replacing’ several thousand volumes of business ‘;scripts’. Business applications can be readily adjusted by an agile IT organisation to become more agile business ‘;services’ used over and again in new business initiatives. Today’s CIOs can address all three challenges in a single stroke by:

  • Reducing costs through moving the IT operation to a new (better, cheaper, faster) platform.
  • Increasing agility by modernising software infrastructure to a Service-Oriented Architecture and merging traditional and contemporary languages and tools to construct new business applications.
  • Resolving the legacy issue by unlocking core business applications from their legacy platform to become agile services running within the new infrastructure.

This is good news and a clear path forward to resolve the dilemma faced by many CIO’s – to hold down costs while innovating for the future. At the same time, the CIO can decide which legacy systems should be replaced and which should have their life extended. In 2004, the CIO’s dilemma can be answered by viewing legacy applications as an asset that can help drive down costs and increase agility with minimum risk.

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