5. Realising transformation:
A journey, not a destination
As compelling as the case may be, LegacyTech transformation is not an easy path for many. But best practice is emerging across the industry, pointing to the fact that legacy management needs to be seen as an ongoing discipline.
Senior management support and mobilisation: critical first steps
The case for LegacyTech transformation may be self-evident or pressing, yet many organisations continue to struggle to 'unpack' the problem and to take those key first steps.
Within the survey, both a lack of resources and lack of management support were the top barriers preventing change to legacy systems.
For those who aim for large-scale transformation, securing management support for big-ticket projects today is extremely challenging. High value investments mean aggressive prioritisation and management of painful trade-offs - potentially putting post-trade processing in direct conflict with other, more directly client-centric investment areas (such as onboarding, reporting, etc.)
Amongst larger firms, high-value change can mean big expectations and oversight, which need managing as a core cost of any transformation project. Aside from the scrutiny ("no one wants to be the person running a multi-million dollar project today"), many cite the need to avoid the trap of ‘wishful-thinking’ planning (i.e. setting unrealistic expectations for what legacy change programmes can deliver too early) if their projects are to be successful and to continue to be funded.
Investment approvals are especially difficult for smaller business activities, where current volumes aren't perceived as justifying the necessary investment. Business units can be caught in a challenging middle ground, big enough to have a problem, but not big enough to be able to spend millions fixing it - and will have to think creatively about to address systems with limited resources.
1. Why: Get the business case right - critical factors
These challenges only serve to underline the critical importance of getting the business case right.
Given the expenditures involved, there is often the tendency to "throw everything at the business case" and to include as many factors as possible in order to justify investment. Whilst this may help in securing approvals, the breadth of this approach often slows projects down in the mobilisation phase.
Successful transformation projects are structured to deliver returns quickly. In an era where tolerance for multi-year projects is limited, it is key that any transformation be broken into incremental, self-funding steps - partly to ensure returns on investment but also to secure and maintain senior management support. If a project is to continue, it must be seen to succeed as early on as possible.
Respondents also cite the need for aggressive prioritisation of critical (versus nice-to-have) factors within the business case - for example, a change programme driven by a need to build in resilience first and foremost, must avoid being distracted by how it delivers better client experience. Agreeing this during the business proposal stage can ensure that the initial steps and objectives of the project are transparent from day one.
At the other end of the spectrum, firms can risk under-estimating the business case for change by failing to size the wider costs and risks that they carry today. The gap between operations and treasury is often cited as a leading example - but our research in 2020 highlighted that most firms are missing around 40% of their total trading costs today. In an effort to combat unconscious exclusions, multi-departmental communication is key - so that decisions can draw on insights from operations, treasury, compliance and the front office all at the same time.
2. Who: Knowing what you don't know and getting the partners right
In many cases (such as new regulations or new market growth), there can be minimal expertise in-house to accurately support and realise a LegacyTech transformation and so the ability of firms to admit there are things they don't know is crucial.
In this context, shaping the right advisory team (through vendor partnerships and networks with firms and individuals who have delivered the necessary change before) can be the difference between an unsuccessful or successful change programme. Beyond just shaping the right solutions, consulting the right people can help firms move past the critical (but time consuming and expensive) task of diagnosing and accurately sizing the core issues at hand - avoiding 'excessive time spent on first principles'. Given shifting industry structures today, consultation groups can now extend to new partners, including fintechs, industry groups and other peers - all of whom are cooperating on non-differentiated areas in ever-increasing volumes today.
3. How: Get the roles right
Significant change is almost always driven by organisational structures. Beyond simply assigning the right accountabilities, this means creating roles where people have the mind-space and bandwidth to deliver excellence in their transformation projects.
By creating new roles within a business unit (most often starting at the management level, such as Head of Transformation, Head of Resilience, etc.) firms can not only ensure that relevant expertise is assigned to the project outside of business-as-usual, but it also ensures that the daily 'blocking and tackling' can happen at the right level, with the right amount of management support to make meaningful arbitrage calls. Numerous projects have failed because they are run on a reactive basis and led by BAU resources - but this is entirely avoidable.
4. What: Standardise the process
Process standardisation is an essential part of every LegacyTech transformation.
In unsuccessful cases, the lack of standardisation (i.e. disparate or duplicative processes being run across the firm) can critically undermine the success of the technology platform - acting as a centrifugal force that pulls a common operating model in multiple directions at once. Mapping one system to many processes (e.g. processing a settlement differently across 10 markets) can also mean failing to identify potential inefficiencies - and hence further undermine the returns of the project.
Done well however, standardisation can accelerate and empower transformation projects. Leveraging today's gig economy mindset, this doesn't mean imposing a centralised operating model on every unit or task. Respondents talk of ‘process mining’ (i.e. locating multiple, duplicative processes being done by different teams) and consolidating tasks into centres of excellence, to build efficiencies across businesses, as an essential first step in transformation.
The focus here needs to be not on ‘how’ the job is done today – but on what the target output of the legacy transformation needs to be.
Finally, review the role of technology
Changing systems can not solve people or organisational problems - which is why the people and process side must come ahead of any successful LegacyTech transformation.
With these done, the final step is to look at each (standardised) task that is being performed and to ask what the role of technology is at every step - in assisting, empowering or automating entirely.
Despite starting out with a 'lift-and-shift' objective (of simply replacing one system with another), firms are increasingly aware that no single solution can do everything. For many firms, success relies on identifying the 'right task, right technology, right place' as part of a coherent operating model.
““In a world where budgets are +/- 5% each year, it’s hard to get approval for a 40% budget increase in a single year”
(Head of Operations, Global Custodian bank)
Continual education...
Whilst often under-estimated, the importance of stakeholder-education is central to every successful transformation project.
Do senior stakeholders understand the problem?
Our research shows that budget owners (CEOs and COOs) are less than 20% as aware of back office issues as their Compliance or Operations colleagues - leaving a potential gap in awareness around the size and scale of the issues that need addressing. Organisations have evolved over time to manage specific risks (such as funding or corporate actions) on a local or micro-basis - and the more successfully this is done, the less senior management will perceive there as being a pressing issue that needs resolution. As painful as it may be, including senior management in escalations and drawing attention to risk breaks can actually help to accelerate transformation in the future.
Once aware of the problem, these stakeholders also need support in understanding the value of the potential solutions that are available. Technology is evolving so fast that it is crucial for people to continually track what is available in the market – and for stakeholders to be educated on that part too, especially to overcome suspicions with new technologies (such as AI, blockchain and machine learning).
Do users understand the solution?
While systems can change, it can be hard to shift ingrained behaviours, using decades-old processes that aren’t broken and that are well understood by staff . This is especially true for systems and processes where volumes are low today - and where using legacy systems appears to do little harm - despite the hidden risks and cumulative costs of these behaviours.
In some cases, firms have addressed this challenge by re-aligning performance objectives for key staff - shifting from performance and inputs towards reduced error rates and outcomes. In parallel with measures to drive change (such as decommissioned emails), steps to incentivise and reward staff for better risk outcomes can ensure that all staff are focused on the same outcomes.
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“Users are just too used to going to the website for their data”
(Global Head of Operations, European bank)
...and continual improvement
Above all, LegacyTech is a never ending journey. Systems age every day and the need for new technologies to meet the challenges of market, customer and regulatory changes is constant.
That is why managing LegacyTech needs to be seen not as a once-off exercise (driven by a single regulation, for example), but as an ongoing discipline. As some firms have proven, the journey from COBOL platforms to blockchains is a long and complicated one, stretching beyond the scope of any one activity. If we are to manage these journeys, by developing the right skills, talent and experience, we need to see our ability to manage change as an existential need.
