Approaching Business Modernization Strategically

Some scenarios may necessitate it

I bet you read enough articles about business modernization being a prerequisite to digital transformation and AI rollout and how you must invest to stay competitive. That’s a lot of fancy words, but at the end of the day, why spend money today on something that may or may not happen in the future when all current business systems are operational?

And that’s an excellent question to ask. Any tech investments in your business should have a direct link to results to prevent overspending and overbuilding.

Modernization catalysts

Let’s look at a few scenarios that may push you toward crafting a modernization strategy sooner rather than later.  

Risk of business extinction 

We’ll start with the worst one. 

How far ahead of competitors are you? Does it take progressively longer to develop a new product, add a feature, or new service? Do you notice productivity dips? How long would you stay in business before someone does it better, faster, and less expensive than you?   What about the quality of service provided? Can your customers find the same level of convenience they learned to expect from other businesses in your industry?  

The speed of innovation is directly affected by outdated systems. Improvements to the customer experience may not be possible without a major overhaul.  

Investment in long-term initiatives feels counterintuitive when revenues are falling, so adopting a long strategic view before you get there is beneficial. 

Risk of business interruption from slowly approaching events 

Interruptions that are coming – but slowly – are the worst. Sudden loss of power or fiber internet is disruptive but fixable in the short term. Vendor dropping support for the software you’ve used forever, inability to buy replacement parts for outdated hardware, struggling backup systems - these issues are harder to recover from quickly. 

You’ll see them appearing on the horizon, which would be a good time to create a modernization roadmap initiative. 

Planned growth 

Planning to expand, get into a new market or develop a new one? Can you do that with your current business infrastructure quickly? If you increase the flow of customers by 15%, would that have any negative effect on the throughput? 

Performing an assessment if modernization is required to support the growth effort before heavily investing in product development reduces your risk. 

Preparing business for sale 

There is always an exit strategy, and if yours is selling within a specific timeframe – and your business has been around for a bit – it’s worth to start planning for strategic modernization. Perhaps not all the systems, but few key ones as it would help in marketing your business, increasing buyer pool (and price) and avoid issues during due diligence period. 

Planned acquisition 

If you planning to merge the purchased business with your existing operations, the tech needs to work for this to happen smoothly. Evaluating how easy it would be to integrate your systems with incoming ones early will help to maximize your investment. 

Why risk increasing costs of mistakes and difficulties in obtaining accurate business metrics? 

Are there alternatives to modernization? 

While the downsides to not modernizing should not be underestimated, you do have other options.  

Doing nothing 

Not everything needs to be modernized. At this very moment, multiple legacy systems that were created and developed decades ago are still powering critical operations.  Some legacy software systems that “just work” are perfectly fine to leave in place, especially if the cost to modernize significantly exceeds the benefit. 

This decision may be temporary and it’s essential to keep track of increased security and productivity risks. The issues tend to sneak up when you are not watching, so re-evaluating periodically is the best bet.

Complete replacement  

“Let’s just throw this all away and replace” is often the most enthusiastically supported solution. There is something about starting fresh and hoping to solve all existing issues. 

Exciting as it may be, this approach has its challenges.  

Business systems evolve over time, and everybody lacks proper documentation on how things work. If you are trying to rebuild something from scratch, it’s easy to miss critical business logic or requirements buried deep inside the existing process.  It’s also easy to oversimplify the complexity and overestimate the benefits reaped from complete replacement.   

Tip: estimating replacement costs early in the process can be challenging. Here is a quick method that can provide a rough ballpark figure:

• Count the total lines of code in your current system.
• Multiply by 0.3 (general assumption is only 30% of any given application contains critical business logic).
• Multiply the result by $45 (a very rough industry estimate for the cost per line of code from development to production).

For example: 1,000 lines * 0.3 * $45 = $13,500 estimated replacement cost to build.

This is a highly simplified approach and many variables can impact the actual cost - so only use it as a starting point for planning discussion.

Creating new ways to communicate with legacy systems 

This approach involves creating a new layer around old systems. It allows the reuse of existing applications while giving it a fresh look or making it work better with new technologies.

From an user perspective, this solution looks like a brand-new app and because some work is reused, there is a reduction in risk and cost. 

It’s a good short-term solution.

The downside is that it can make things more complicated. Important rules about how your business works might end up in this new layer. This can make it harder to update your whole system in the future.

Modernization strategy gotchas 

If you decide it’s time to start planning modernization, know the common mistakes:

Thinking in “projects” rather than “products” 

Because modernization is a strategy, a tactical approach should be avoided. You can’t modernize the business with a single project. Thinking in products helps to address the priorities holistically.   

Not having a dedicated team to lead modernization efforts 

The supporting team should have a full understanding of the directions and how individual initiatives fit into that. They should be given metrics to evaluate success.   

Not using the opportunity to reimagine how business works 

Instead of simply updating technology, consider changes to operations. Can you improve customer experience?  

Not making modernization a strategic priority 

Half-in / half-out is more damaging than just deciding to postpone. It’s critical to ensure a complete buy-in from the team before proceeding.   

Expecting quick improvements and starting big 

The strategic efforts will take time to see effects – there are no easy fixes. Picking a small iniative first is beneficial as it will generate enthusiasm and support across your organization.  

Dream big, start small.   

Not planning to upskill the staff 

When technology changes, your team will need new skills.