Corporate transactions are integral to business, regardless of industry. However, they are also one of the root causes of the legacy technology trap. But they are not the only ones.

In my last post, I described the characteristics of the legacy technology trap, and gave you some questions to ask yourself to determine if your organization is affected. But how do businesses end up caught in this trap? In this post, I will highlight some of the reasons.

One cause above all: corporate transactions

In the insurance industry, more than 1,100 mergers and acquisitions (M&As) took place in 2015, with a combined value of around US$150 billion.1

2015 was the year of “super-acquisitions” in insurance, with 24 deals exceeding US$1 billion in transaction cost.1

In large acquisitions, the subsequent process integration can take years to complete.

And this is only a “best case” prognosis.

In fact, consolidation following corporate transactions can be so challenging that attempts are abandoned. The result? Siloed legacy platforms with cumbersome business processes.

Furthermore, regardless of which industry they belong to, many organizations view modernization as overly complex, expensive and unacceptably risky. This “legacy stasis” is deeply embedded and, in many cases, it has become part of the enterprise culture. Oftentimes it takes a cataclysmic event, like a full-blown outage, to make change a priority. Unfortunately, more often than not, the damage has already been done by this point.

Other root causes

But even businesses that are not undergoing extensive changes from corporate transactions can fall into the legacy technology trap.

How?

Under-investment

One reason is chronic under-investment in the enterprise operations of many businesses. Organizations have often adopted a “make do and mend” mentality, tolerating legacy even as it diminishes their ability to stay relevant.

Shadow IT

Because business users don’t always share the “make do and mend” mentality, “Shadow IT” pockets may develop. These are business divisions which, over time, have hired technical team members to develop their own solutions.

Cloud-based software solutions

Cloud proliferation has accelerated the “Shadow IT” trend by improving the accessibility of new platforms and capabilities by removing the need to deploy dedicated infrastructure. These “Shadow IT” units frequently heighten operational complexity and reduce overall cohesion in the enterprise.

Fragmented insurance software market

In insurance, the legacy technology trap is also a by-product of the historically fragmented market for insurance software. While software solutions offering strong differentiation for local markets may be attractive to gain competitive advantage, over-localization increases legacy issues by expanding the breadth of solutions that may be present in an insurance enterprise.

Vendor and service provider influence

Finally, legacy issues can arise due to the influence of vendors and service providers. Packaged solutions may mean that without careful selection and management of vendor solutions, today’s cutting-edge implementation becomes tomorrow’s unsupported application version, creating future legacy issues.

In my next post, I will give you some insights into why making the business case to get out of the legacy technology trap is so difficult.

For more information, take a look at the full Overcoming the Legacy Technology Trap—A playbook for legacy IT transformation in the insurance sector report, as well as the Escaping Legacy—Why bank’s core systems must be made fit for purpose report.

 

Reference:

  1. “Overcoming the Legacy Technology Trap—A Playbook for Legacy IT transformation in the Insurance Sector,” Accenture, 2017. Access at https://www.accenture.com/us-en/insight-overcoming-the-legacy-technology-trap.

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