Legacy systems explained

A legacy system is any hardware or software that continues to be used by an organization despite becoming outdated. Typically, the system is outdated when it either relies on obsolete coding practices, is no longer patched to keep up with modern tech, or has simply stopped evolving its functionality.

There's no set time period that defines when a tool is considered a legacy platform. A lot of modern software has a relatively short life cycle of only several years, but older legacy systems can often stick around for much longer.

Within the banking sector, it's not out of the ordinary to see legacy IT tools that have been in operation for over three decades. Perhaps the most classic legacy system example is the continued reliance of many banks on software created using the COBOL programming language. Despite dating back to 1959, COBOL was still being used by over 40% of US banks in the early 2020s.

You'll most often find outdated systems in larger organizations with complex internal structures and rigid work processes. This includes government agencies and traditional financial institutions like banks.

This begs the question: Why do so many still rely on decades-old legacy technology in the age of hyper-fast innovation? 

There are several explanations for why a company may choose to keep an outdated legacy setup.

The truth is, older systems may adequately perform their intended functions decades down the line. So organizations adopt the "If it ain't broken, don't fix it" mentality and continue to maintain them.

Older legacy platforms are often carefully tailored to the exact needs of a company. As such, the company may feel it can never replicate the same functionality with modern third-party tools.

Here's a paradox: Maintaining a legacy system can burn through 80% of a company's entire IT budget. But the fear of a costly transition is keeping companies from switching to more modern and effective solutions.

Unfortunately, upgrading to an up-to-date setup isn't always a simple task. It's a matter of more than just buying the perfect 1-to-1 replacement tool off the shelf. Transitions at this scale require significant upfront planning and involve many internal stakeholders.

All of the above can create a natural pushback at all levels of the organization.

Management may be hesitant to embark on a costly and complicated project that might not yield clear benefits in the immediate future. Employees who rely on existing software may fear having to retrain themselves and learn new ways of working.

As tempting as it is to simply do nothing and keep a legacy tool around forever, this isn't sustainable in the long run. Outdated technology comes with numerous downsides.

We've already mentioned how legacy systems can eat up about 80% of your IT budget. That's only part of the picture. Keeping legacy systems around comes with lots of additional hidden costs related to poor user experience, downtime, and more.

And these costs only grow over time. In the worst case—such as If your software relies on obsolete programming—you'll eventually run out of experts capable of maintaining your setup.

Modern software-as-a-service (SaaS) solutions are designed from the outset to work with other third-party tools. In fact, effortless integration with existing products is often one of their key selling points.

The same can't be said about legacy systems, which were built long before the emergence of modern apps. As such, they aren't equipped to "talk" to other tools and offer limited integration at best. This leads to a related issue…

Because they don't integrate, legacy tools are usually unable to pass data on to the rest of your IT ecosystem without cumbersome workarounds. This results in siloed data and process inefficiencies.

The legal environment in which banks and other financial institutions operate has changed dramatically in recent years. Regulations like the GDPR place an added burden on companies to ensure compliance. Most legacy tools are simply not equipped to deal with this new reality.

Similarly, modern banks face a number of vulnerabilities and cyber threats that didn't even exist back when legacy software was first designed. Outdated tools are therefore ill-equipped to address any potential security breaches.

While the actual upgrade process is too detailed to tackle here, it'll usually involve the following steps:

First off, you'll want to create a list of available tools that can meet the future needs of your organization.

Once you have your shortlist, you'll narrow it down to the final mix based on factors like compatibility with your current setup, costs, ease of use, customer reviews, and so on.

This is where the heavy lifting happens. You can't just unplug your outdated platform and switch over to a shiny new one overnight.

Legacy system migration is a multi-stage process that can take months or even years, depending on complexity. There's likely to be a "hybrid" period where parts of the old system coexist with new applications.

Finally, you'll need to modify or reinvent your existing internal processes to be in sync with the new software. This will involve onboarding and training for employees who work with the tools on a daily basis.