In an era of digital transformation - not to mention a lot of economic and regulatory change - things are moving quickly.
For many financial services organizations this means unprecedented pressure to innovate to remain relevant and competitive. And the results are starting to show: in early 2019, Spanish multinational BBVA confirmed it had reached a global “digital tipping point”, with more than 50% of clients accessing products through “remote electric channels”.
But only in rare cases is the digital journey so healthy. While reports suggests the global digital banking market is on an 8% growth trajectory, a recent study described in Tech Republic revealed that the top concern for businesses in 2019 is what it calls “digital readiness”, in comparison to other "born digital" organizations. Another study revealed that as many as 21% of organizations feel they do not have a comprehensive digital strategy.
The importance of “doing digital” should be evident to anyone looking at long-term business health. According to one article, a paltry 12.2% of the Fortune 500 companies in 1955 were still on the list 59 years later in 2014, and almost 88% of the companies from 1955 have either gone bankrupt, merged, or still exist but have fallen from the magazine’s top 500list. Within financial services, the rise of the challenger bank, the growth of the disruptive fintech sector, and the wave of new market entrants - the major retail and tech giants looking to provide their own financial products - makes financial services arguably as competitive an industry as it has been for years.
Which means pressure to remain competitive: with so much to do, it’s little wonder perhaps that there is an ongoing reliance on incumbent, core business systems. It is quite telling that 90% of the incumbent IT apps will still be in use five years from now, according to Gartner.
One explanation for that may have something to do with the fear of large scale IT change. The global impact of IT failure is estimated at $1.7trn annually, according to a study undertaken by Vanson Bourne. Such numbers are hard to imagine. The tech issues faced at TSB in 2018 are a sobering illustration of how IT project failures can seriously impact reputational damage, profits and even the careers of those who preside over such situations. And it is an industry-wide issue: banks were hit “by major IT glitches every day”, according to FCA data.
Core IT modernization: pragmatism prevails
The benefit of building upon what’s already there is that the value the system already provides – often a decades-old heritage of functionality – is protected and maintained for the future. And in some cases this heritage works to an organisation’s advantage – differentiating them from competitors. Plus, reusing IT applications to support a digital strategy both reduces the effort involved (after all, what is needed is already in place) and can require a much more modest budget. This more pragmatic approach is referred to as modernization, and as a concept is viewed by many as a viable and sensible option for embracing digital transformation while avoiding needless risk.
There is a growing appreciation and acceptance of the more pragmatic approaches to IT system evolution. “The industry loves to call it ‘digital transformation’, but let’s just call it modernization,” said a recent Tech HQ. More recently still Forrester Consulting’s report, commissioned by Micro Focus, outlined a widespread trend towards modernization, with respondents citing plans to embark on such projects and stating that “modernizing applications benefits in multiple ways: increased quality of apps, increased delivery flexibility, and meeting customer demands with engaging apps”.
This is echoed by another IT analyst, IDC, who stated in its paper- again commissioned by Micro Focus – that the firm “ is seeing a shift from a ‘rip and replace’ approach towards modernization strategies that are aimed at gaining significant business value in the form of agility, new business capabilities, and a reduction in TCO and risk”.
Achieving said modernization is, of course, more than just a few words. Beneath the term lies an array of detail and significant supporting technological investment, built and improved over decades of support of thousands of customer successes. The fact is while there are many approaches to core IT system change, some of those involve risky and unchartered upheaval. There are others that are more practical, incremental, and significantly more likely to achieve their stated aims.
Learn more about FS core systems modernization: www.microfocus.com/amc