The business case for applications modernization is about creating a high-performance organization

that can respond to change and is ready to grow. You need to align your applications portfolio to your

enterprise, operation, and budget needs. This makes modernization both a key to business success and a significant technology challenge for today’s chief

information officer.

Applications Modernization

A Guide for CIOs: Why Modernize?

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positionyour enterprise for cost-effective and agile growth.

Table of contents

Evaluating reality .....................................................1Technology direction ................................................1Defining the path .....................................................3Rationalizing risk .....................................................4Modernization strategy and benefits ...........................6Targeted architecture and the cloud ............................7Summary ................................................................8About the author .....................................................9

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There is a high cost to doing nothing. Maintaining your current legacy systems diverts up to 80% of your IT budget and staff resources—an expense that grows incrementally each year. Applications modernization delivers greater performance with lower cost and risk, positioning your organization for innovation and growth.

Evaluating realityThe evolutionary and transformative nature of information technology (IT) means that we live in a world where we must interact with both legacy and newer technologies. This creates an ongoing challenge for enterprises like yours: you must bridge the gap between the old and the new, but also develop a strategy and a plan that keeps the organization as cost-effective and agile as possible.

This perpetual cycle within your business also means change, and IT is the enabler of that change. For example, evolving business rules force the IT department to continually implement updates and enhancements to applications. This adaptive model necessitates an applications architecture that can easily assimilate requests to meet the ever-shifting needs of today’s business challenges.

Despite the obstacles, it’s critical that this business momentum be supported. Growth is no longer an option but the catalyst to sustain the health of the organization. So, how can IT support this fluctuating environment? It requires a holistic view of the organization, agility in the applications environment, a close partnership with the business units, and an eye on fiscal responsibility.

Technology directionThroughout the years, IT departments have embraced new technological advances and openly brought a variety of platforms and differing technologies into the data center. This has created the need for more staff with varying skill sets to support the variety of systems. By reversing this trend with standardization and reduction of complexity, support costs can be trimmed through leveraged support from resources and elimination of unique skills, which provides a lower total cost of ownership.

Let’s look at this more in depth: the inclusion of new technologies through time has contributed to technological sprawl across your organization, supported by expansion of staff within the IT department. Although many of these initiatives were born from business need to adapt to the changing landscape, you need to overcome the complex environments of decades of growth and implementation of a variety of technologies. Some degree of standardization is crucial to provide a robust business ecosystem.

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But it can be a difficult transition. Legacy systems have historically provided a stable operating environment and have proven to be a valuable asset, but are resistant to adaptability, have high operating costs, and have become overly complex throughout the years within the production environment. Because of the arduous process of completing changes within these aging technologies, CIOs must weigh options for management of these systems. With shrinking budgets, limited risk tolerance, and the need for improved support to the business function, applications modernization can help to resolve some of these pressing issues.

What are some key factors in this modernization? Transformation imperatives have become a necessity to reduce application sprawl and the legacy issues that exist within your environment. One critical element is keeping the focus on the technological direction to a progressively adaptable architecture—it must be one that will serve the needs of the enterprise today and into the future. This approach provides the business foundation for the transformation objective.

Another consideration is your architecture. Current architectural standards typically revolve around a service-oriented architecture (SOA) that provides a loose coupling of services. Its aim is designing reusable components that group functionality around business processes. This architectural style lends itself to a robust integration of data and business rules. These services are cataloged in a repository where they can be consumed by many applications, thus leveraging the code base and business logic, reducing development and maintenance costs.

This standard also provides re-use of developed assets and business rules, creating an agile environment within the IT department where the needs of the user community are better served. Decreased time to implement changes not only reduces cost, but the reusability of common services provides less risk in the development environment while increasing speed to market for new offerings.

Emerging standards also influence the transformation plan and may include cloud-based approaches that can help to defer or eliminate capital investments while providing elasticity in the infrastructure support for applications usage. Techniques such as this have gained wide adoptability and have proven to be beneficial in terms of costs, capital planning, flexible infrastructure provisioning and management, increased mobility, and the ability to make innovation a higher priority within the enterprise.

Further, technology direction must be planned to support the business environment. The IT department can no longer force technological change upon the organization at will, but must find the architecture that provides the most flexible approach to running the business within a fiscally responsible framework. A transformation plan does not need to be viewed as disruptive to either IT or the business fabric. Rather, using the right balance of best practices with a robust architecture that is flexible and adaptable, the changes can add immediate value with low risk.

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Defining the pathIs it a smart choice to standardize upon the legacy environments with which we are already comfortable?

This has been a dilemma for quite some time: When do you challenge the status quo? How do you determine if your current systems are adversely affecting the bottom line of the business? This requires analysis of the current operating environment to encompass not just the IT department, but all the users of the applications as well.

To do this effectively, it is imperative to take a holistic view of the enterprise. Analysis of the technical aspects of the business applications must be charted, along with the functional quality and the total cost of ownership. This view into the portfolio and analysis of the facts can divulge the truth of current systems—both positive and negative –and help to define a path by providing a comprehensive view of your applications portfolio and determining how well the business is being served by those applications.

This initiative needs to examine both strengths and weaknesses, which will ultimately lead to better business planning. Also, the IT department must partner throughout the process with the business units—this will ensure that you bring all operational aspects into the planning function for the future state architectural environment. It’s important that you understand the current business performance to ascertain the suitability of the applications within scope of this analysis.

Within this first assessment phase of modernization, you’ll want to look at many elements. The above figure illustrates some of the basic data that must be gathered within three key areas—People, Business, and Technology. All three elements also have a baseline of associated cost to get a full view into the applications within this assessment.

Once the data is collected and analyzed, a clear picture will begin to emerge as to total cost of ownership, technical quality, functional quality, and the action that may be necessary to mitigate the risk to ongoing business activities.

At this point in the assessment, you must look at many intangibles: the issues of today, the plans for tomorrow, the concerns and thoughts on the minds of the business users, and the plans of those users for modifying or adding new products, services, or business processes as they strive to profitably grow the enterprise.

At this phase, IT cannot work in isolation, but must collaboratively address the concerns, issues, and changes throughout the business, as well as keep a balanced viewpoint into the technology and how it can provide the best levels of service within the changing landscape of business applications.

Figure 1

People Business Technology

• Specialized skills• High turnover• Labor costs• Scarce resources• Lack of industry knowledge

• Time-to-market pressures• Predictable delivery and service levels• Operating expenses• Applications portfolio management

• Innovation• Legacy assets• Complexity• Scalability• Integration• Quality of service

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Rationalizing riskIf it isn’t broke, don’t fix it. While that paradigm may well seem to be the best approach and may have been successful for years, the dynamically changing business world has left CIOs with many unexpected challenges. With constantly constricting budgets and rising expectations from the business community, how can the IT department keep pace?

Looking at allocations of the budget for spend against maintaining activities, we find that on average, an overabundance of the IT budget is utilized by maintenance of the existing environment.

This staggering summation of IT spend shows the primary reason that CIOs struggle to find resources to meet the needs of the business. Quite simply, IT departments expend too much time, money, and effort to just maintain the present applications environment and have limited cycles left over for new initiatives. Modernization activities can even out the disproportionate amount of budget and effort of maintaining systems. This will allow more investment into new initiatives by redirecting budget from maintaining the status quo into higher value projects that will help the business grow—all while potentially reducing the overall IT budget allocation.

But maintenance costs aren’t the only reason to move away from legacy applications. There are many risks associated with older legacy applications that must be taken into consideration when assessing your risk profile. Age, complexity of the system, and support resources are

key components for calculating total cost of ownership and ease of change to the systems. An additional consideration, often overlooked, is any technology that may be losing vendor support soon, which poses significant risk to business continuity plans.

Another key risk associated with legacy systems is the support resources themselves. These mission-critical applications have been in use for many years, using older technologies. Although they have proven to be stable over time, coding standards and system documentation are typically inadequate to support ongoing maintenance of these systems. The issue here is that your key resources who know these applications well and have kept them running year after year are now beginning to retire—and younger technicians are not trained on outdated technologies.

It’s widely estimated that 70% of business applications running today are still written in COBOL, which creates a high-risk potential within the environment as the resources that understand this technology leave the workplace. Most college curriculums no longer include COBOL for IT majors; therefore, the aging workforce for COBOL support has limited backup, and the business may be left scrambling for support at inopportune times. Hiring support resources for these systems is difficult at best. Most recent college graduates have no knowledge or experience in these legacy technologies, and in fact have no interest in taking a job where this would be their primary function. They see the new technology trends of today and tomorrow as their focal point to grow their careers.

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So, while there is risk and cost associated with applications modernization, the new architectural standards, tools, and processes in use today to support such initiatives have created a safety net for modernization projects. Consider all aspects of your environment to understand your risk profile and the challenges you face. Modernization can provide an effective risk-mitigation strategy to help stabilize your environment while providing relief to your most problematic applications management issues.

While modernization of legacy systems may not always be called for, a thorough analysis of the current situation and consideration of the future direction of the organization will help to solidify and validate the best transformation plan for that specific environment.

Is there a risk and cost for doing nothing? The answer here is absolutely yes. Imagine this scenario: your mission-critical applications have been running fine for years although you have many incomplete enhancements for a number of these legacy systems. You recently celebrated retirement parties for a good portion of your long-standing employees who have done a great job of keeping these systems running. When something failed, they were called, day or night, and were able to get the systems running again in no time.

You now find that a mission-critical system outage has created a disruption within your supply chain. Your back-up developers have been called to work on the issue. The only problem is they have

limited experience working with COBOL and are struggling to debug the ailing code. They look for system documentation to help with their assessment, but the documentation is limited and no help to the team. If this outage is prolonged, you will have work stoppages due to critical systems being unavailable, thus creating a loss for the corporation.

Leaving issues unresolved until you are forced to deal with them can become more expensive to remediate, increase your risk profile, and force the enterprise to react to extreme situations with little more than a temporary fix to a problem that needs a proactive solution. Planning for a transformation is not easy, nor should a modernization effort be done all at once. It takes patience, persistence, and purpose to understand where you are today, determine where you want to get to, and ultimately know how to successfully execute those plans.

Part of your road map for optimal business continuity assurance is realizing that your technology plan revolves around a number of key transformation initiatives and moving your aging applications to your future state architecture. Taking the proactive approach allows you to complete transformation activities in a measured cadence without introducing unnecessary risk in the process. It also allows you to complete the work without the reactionary urgency needed when you are forced into time-sensitive, unforeseen modifications to your systems.

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Modernization strategy and benefitsThere are many benefits in completing an applications modernization, and the success of any high-profile venture is dependent on many factors. To implement a successful applications modernization campaign, the project team must have a thorough understanding of both the older legacy technologies and the newer targeted technologies. This means developing a comprehensive understanding of the existing environment as well as developing a future state architecture when beginning an applications modernization initiative.

You also need to know and understand your business objectives or end benefits. What is it that your particular enterprise wants or needs to achieve? When analyzing IT initiatives, including modernization, a business case must be developed that measures three key aspects in determining the final solution. The proposed solution must provide one or more of the following value points—Business Value, Technical Agility, and/or Cost Containment. When you view these three benefit categories in context of a specific project, each individual initiative will stand upon its own merits. The benefit categories will shift dependent upon needed value, and the intersection of all three represents the value proposition and business case justification for a modernization project.

One future benefit or objective that can’t be overlooked in modernization is the ability to leverage the existing investments from business rules embedded in legacy applications. This information is extracted from existing systems and applied to modernized applications using a variety of strategies, tools, and techniques. This not only reduces the risk for transformation activities, but also leverages the investments made in these applications—especially where documentation may be limited and the embedded business rules not fully understood.

Of course, many other benefits are achievable through a modernization program, including future-proofing applications by developing next-generation architectures that allow flexibility and agility within the applications enterprise. This provides stability and an environment that benefits the IT department, users, and the business as a whole. By modernizing your applications, you may also realize productivity increases, risk abatement in the form of agility to the enterprise and the IT department, and, of course, budget optimization.

Figure 2

Technical Agility• SOA• Ability to change• Obsolescence

Cost Containment• License reduction• Maintenance reduction• Resource optimization

Business Value• Improve performance• Speed to market• Regulatory compliance• Industry knowledge

Solution

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Targeted architecture and the cloudDefining your future state architecture is a complex question that has intensified with inclusion of cloud technologies as all organizations assess the value that cloud brings. How do you migrate to current applications architectures? Does the cloud play a part in applications modernization?

While rationalizing your current technology environment, you must also weigh in the factors that define your future technology plan. This will inherently create hybrid solutions that all organizations need to balance to stay ahead of the curve, both technically and from business and economic perspectives.

This hybrid approach can include targeted architectures, such as SOA, which have become more ubiquitous. Leveraging the value of this architecture has become a natural fit for many modernization strategies, but each modernization initiative must be evaluated upon its own merits. This cannot be a prescriptive approach; instead, we must provide the solution that best supports the business models and value propositions for each engagement. Always taking a standardized approach without analysis of all factors will undoubtedly put at risk the ongoing business value and optimization of the modernization project as it relates to efficiency and profitability.

We must also factor in the cloud environment and measure the value and accessibility of migrating solutions and applications to public or private cloud options, while evaluating the security posture for this new platform as well. This is no easy decision for CIOs, and they must consider all aspects as they forge

plans for moving their organizations, applications, and business assets to new environments. The benefits are plentiful for optimizing to cloud architectures, but it must be based upon the individual technology and business models of each individual enterprise.

Cloud initiatives are often a main consideration during the planning stages of transformation, since modernization at its core is reflective of the current architecture, future state of operations, and business priorities. Reducing the need for capital expenditures by operating in a cloud environment has huge potential benefits, and can also aid in the reduction of energy usage. Energy savings and expansion of the longevity of the data center through this new architectural model will optimize IT budgets while providing the robust operating environments that business units demand of the IT department.

However, as noted above, developing a viewpoint of optimal usage of cloud will differ for each enterprise and must be analyzed to determine the proper course. Whether you should move some of your applications or even carve off specific functional pieces to the cloud are scenarios that need to be reviewed for each specific situation. There are many factors for analyzing the effectiveness and efficiencies to be gained from a cloud initiative—including usage statistics, business criticality, data sensitivity, security requirements, application accessibility requirements, availability, reliability, and others. This is a complex topic, and there is no one right answer. Therefore, an assessment of your environment, balanced with your future plans, needs to be completed as part of a transformational initiative.

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SummaryAs IT has matured over the years, there are huge benefits to be gained from applications modernization. While this initiative can provide significant cost savings for the business, the resulting agility gained to support business momentum and movement is crucial to the health of the organization. A holistic analysis, business case, and value proposition will ultimately decide the feasibility for a transformation program.

Each enterprise must take a close look at its specific situation to determine an individualized plan for transformation. Every organization must evaluate its unique situation, look for its weaknesses, and build upon its strengths. Organizations must plan for the optimal approach to mitigate existing risks, transform the way IT is structured to support the current business imperatives, and ultimately support the stated business direction.

It isn’t easy. CIOs are tasked with providing IT services economically while assuring the flexibility to adapt to the changing business landscape. Many organizations struggle with this requirement as they have limited budget available for new innovative initiatives needed to support changing business domains. Without a plan to shift budget away from pure maintenance activities, IT organizations will endure tremendous pressure to meet the constantly evolving changes that are the business norm.

Applications modernization provides a path to an agile, flexible computing climate in which the business needs are the paramount focus to the established IT operational environment. Transforming to the future state plan is not a sprint, but a measured approach of designed waves of initiatives that provide ongoing returned value to the organization. This approach yields achievable results without significant disruption to the business ecosystem, providing rolling cost savings through modernized application environments while optimizing business continuity. Planning and executing a transformation plan require the patience and persistence of the CIO and team to successfully implement the plan in the environment, obtaining technical resilience with results that are based upon evolving business needs.

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About the authorJeff MisustinJeff Misustin is a regional leader in the application services worldwide product marketing group and brings more than 20 years’ experience in the computer technology field in both the public and private sectors.

Misustin has a breadth of experience focusing primarily on application services but has experience in managing all facets of IT delivery and services. He has worked within complex environments bringing innovative solutions to provide comprehensive successful outcomes for our clients.

© Copyright 2011 Hewlett-Packard Development Company, L.P. The information contained herein is subject to change without notice. The only warranties for HP products and services are set forth in the express warranty statements accompanying such products and services. Nothing herein should be construed as constituting an additional warranty. HP shall not be liable for technical or editorial errors or omissions contained herein.

4AA3-6820ENW, Created December 2011

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