RSM Resources

The adage "If it ain’t broke, don’t fix it" may hold true for many things, but experts warn against applying that wisdom to your midsized company’s legacy systems.

With the volatile world of business software and computers, chances are your company has at least one legacy system in operation. Legacy systems are business systems that have been relegated to "support-only" mode by their publisher, are based on obsolete software, or have a rapidly diminishing or nonexistent resource and support pool.

Executives of midsized businesses who are comfortable with the capabilities of their legacy accounting, accounts receivable, customer management or other legacy systems may be leery of investing the money, time and resources to upgrade to more current packages or to an integrated enterprise software system. But experts warn that the cost of not replacing your legacy systems could far exceed the price of installing new ones. Making the wrong decision ultimately could affect the long-term success of your business.

The following information will help you calculate the hidden costs of maintaining your legacy systems and weigh the risks of upgrading — or not — for your midsized company.

Hidden risks
So, you’ve paid for your legacy system, and it meets your company’s needs. What’s the problem? Perhaps there isn’t one. But before deciding the fate of your legacy system, experts urge you to understand the following risks of maintaining one.

Financial. As the pool of experts versed in your legacy system’s infrastructure dwindles and eventually evaporates, the cost of maintaining, repairing and modifying it will grow steadily higher. In addition to the cost of maintaining your systems, myriad other, less tangible factors can negatively affect your bottom line. Legacy systems may reduce your overall productivity, force you to create manual workarounds to compensate for system limitations, or limit your competitiveness by failing to provide adequate or timely business data.

Business continuity. If your legacy system fails due to a hardware or software problem, will your company be able to function? For how long? At what cost? Experts advise you to factor business continuity into any risk equation.

Growth. Even the most capable, stable legacy system may exceed its capacity in the event of company expansion. In the case of a merger or acquisition, many legacy systems lack the capabilities to export information to or assimilate data from other systems.

Exit strategy. If you ever plan to take your company public or sell it, experts warn your legacy system will be a near-certain liability. Publicly held companies must comply with the Sarbanes-Oxley Act of 2002, which, among other things, requires you to have "auditable systems." Many legacy systems fall short of the act’s definition of auditable. As for selling your business, any prospective buyers will inevitably be less familiar with your legacy system than you are and therefore less trusting of the data they generate. As a result, the prospective cost of replacing your company’s legacy system more than likely will cut the price you can fetch for your business.

The industry factor
Moving away from your legacy system is almost always a good business decision, experts say. While all companies could benefit from such a move,businesses in some industries may find the issue carries greater urgency and a higher immediate payback.

Companies that may benefit the most from upgrading their legacy systems to more modern platforms include:

Businesses with a Web-based component. The Web plays an extensive role in many companies’ business operations, from sales to communications to customer service. Few legacy systems lend themselves to Web-based applications without the use of costly and often complex third-party tools. Modern enterprise systems are often synonymous with easy migration to the Web.

Service-based businesses. If you are in a service industry, you must contend not only with the day-to-day issues of keeping your business running but also with the increasingly savvy demands of your customers for modern tools, current and customized data, and timely market approaches. Customers are increasingly citing tools and technology as the deciding factor when choosing one company over its competitor.

Highly regulated businesses. Companies in highly regulated industries such as banking or health care must have easy access to timely, accurate business data in order to meet compliance regulations and satisfy industry auditors. While you can modify most legacy systems to generate custom reports and data, such customizations can be time-consuming and costly, and often fall short of the latest out-of-the-box capabilities.

Experts cite only a few instances when replacing your legacy system may not be the best choice for your midsized company: if the company simply cannot manage the change without becoming too destabilized, or if the initial cost of your legacy system was so great that you have not yet seen a return on your investment. But, they say, you can avoid or mitigate either situation through careful planning and staged implementation.

Comparing price tags
When determining the replacement cost for a legacy system, it’s important to factor inall the money you’ve spent on your legacy system throughout its lifespan. For example, you may have purchased your existing legacy system for $100,000 a decade ago but, in the intervening years, spent an additional $500,000 on maintenance, enhancements, customization and repairs. That’s a $600,000 total investment. Experts say if you plan ahead, you should expect to pay 90 to 150 percent of that total investment to replace your legacy applications or convert them to an enterprise system. However, those same experts say if you wait until a crisis such as a system crash to begin planning an upgrade, you may find yourself paying exponentially more.