By Nick Nesbitt is Consulting Services Director at Tagetik UK
As explained in Harvard Business Review, legacy technology can become a liability for your business.
Legacy IT systems, as well as in-house built systems based on spreadsheets and macros, can be a real weakness in your finance function. Not only can IT failures leave bank customers without their money for instance. They can also trigger regulatory compliance delay fines and expose businesses to operational risk due to budgeting, planning and reporting errors. Often, when a story about “computer problems” makes headlines it is because a legacy system has outgrown its capacity and become unstable.
The drawbacks of hanging on to a legacy system
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The negatives of not replacing your legacy systems are many. Here are the three key ones:
- A legacy system limits you. It can create real technical barriers to innovation. Your IT should allow you to offer modern services and solutions to users and it should be agile enough to adapt to new technologies as they become available.
- Technology becomes old really quickly. Your legacy system doesn’t get better with age like a fine wine. The more you add to it, the less stable it can become. Banks in particular have now been facing this issue for a few years: decades old legacy systems struggle to co-exist with new technologies and are preventing the banking giants from adapting to meet the new demands of customers, regulators and governments too.
- A legacy system is expensive to maintain. Rather than saving you money, maintaining legacy infrastructures can be a real drain on financial resources preventing investment in new technology. Research from Forrester suggests that that only 28 percent of IT spend drives innovation – the remaining three quarters are spent supporting and maintaining old technology.
So, what should organisations do to truly innovate and not just stay in survival mode?
Why Excel is not enough
Research by the American Productivity and Quality Center (APQC) highlights that, if you want your budgeting and planning process to be relevant and valuable, you have to get it out of spreadsheets (39% use spreadsheets and email as a budgeting solution; 51% admit there are no governance or controls on spreadsheet budgets; 88% of spreadsheets contain errors). Some Excel workbooks take hours to load and it is practically impossible to cope with electronic reporting and data storage requirements manually.
Outsourcing may be an alternative option when it comes to compliance but it comes with the added cost of an ongoing third-party contract to manage. Furthermore, a third party provider will most likely not be responsible for paying fines should there be any mistakes or delays. Even if you could negotiate a contract that held them financially liable, what would an infraction mean to your brand reputation? The collateral cost of cleaning up a public relations nightmare could be devastating.
No one is advocating that Excel be scrapped entirely. In fact, many CPM solutions use Excel as a front end because of its wide familiarity, flexibility and ease of use. However, an Excel interface should only be the window, not the engine. There needs to be collaboration, workflow, line item details, notes/justification and history of all changes made throughout the process in addition to the native capabilities of Excel to turn financial practices, including compliance, into valuable exercises.
The ‘progressive’ CFO thinks differently
Technology is moving fast. There are many powerful, new solutions available and, to be progressive, CFOs need to understand the value of IT and Finance communicating and working together, with the business’ profit, reputation and growth being common goals.
By resisting change and not switching from outdated systems, you put a brake on the development and innovation of the whole business. Legacy systems lack agility, cost a lot to maintain and deliver a poor user experience.
According to the Standish Group, enterprises collectively spend over one trillion dollars per year on IT. While you won’t incur new direct expenses by keeping your existing legacy systems, you’ll continue to pay for it indirectly through change management, risk mitigation and opportunity costs. The crucial question a progressive CFO should be asking is: “How much does it cost the business to keep our current system running?” rather than “How much money will we save by doing this?”
A single, unified solution
When it comes to financial processes and compliance, the approach that makes most business sense is automation and investing in a robust corporate performance management (CPM) platform.
Your total cost ownership is made of visible costs like software licenses but also of invisible costs like training, maintenance, customisation, implementation, IT personnel and more. By upgrading to a unified CPM platform you’ll reduce the cost of ownership of your IT investments which will eventually result in higher Return on Investment for your company.
The key benefit resulting from upgrading your corporate IT and switching to a CPM solution, is that you’d be moving to a single, stand-alone application.
A unified CPM suite can replace the company’s fragmented legacy solutions and modernise and unify key financial processes, as well comply with accounting and regulatory standards. A stand-alone CPM solution provides one single version of the truth simplifying all CPM processes and rationalising the data collected for budgeting, planning, reporting, forecasting and for financial consolidation.
Ultimately, implementing a stand-alone CPM solution provides multiple measurable and transparent results, from single definitions for all your legal entities, to a unified product catalogue, faster adaptation to change, reduction of the time needed for the entire consolidation process, delivery of statutory, financial, planning and management reporting via dashboards and subsequent reduction of the overall costs.
In the end, a single system costs less to maintain.
Investing in a robust CPM system would at minimum streamline reporting and budgeting and guarantee regulatory compliance. Improved decision-making and business intelligence would be added bonuses.
Given the evolving standards and timelines that define today’s regulatory environment and the need for efficient and transparent financial processes, moving from legacy systems to newer models is a required exercise to gain agility, cost-savings and improved user experience. Letting automated systems do the heavy lifting offers the best and fastest solution. Don’t let your legacy system become a liability – upgrade now and stay competitive without running into unnecessary organisational risks, added costs and lengthier processes.