Cost and business intelligence have been behind firms’ resistance to change legacy systems but, as Parveen Bansal reports, platform replacement may prove to be a cost-saving long-term option as new, cheaper alternatives are developed.
There are times when needs dictate that software must be redeveloped,
for example, to improve product offerings or adhere to new regulations.
As well as these traditional drivers for change, systems maintenance
and upgrade can mean that software, too, must be upgraded. Such
upgrades can be achieved either through minor amendments or, in some
cases, redevelopment of the whole system. The economies of the former
are well understood, but a new factor needs to be considered: the cost
of the platform on which systems are based, as cheaper alternatives
become available.
When confronted with some of these issues, what choices do banks have?
Primarily, they should consider the opportunity – and their ability –
to take advantage of the new platforms that are emerging to reduce
their overall cost of operation. They should also be aware of the
option of re-engineering for new functionality or the benefits of
re-engineering to change platform. Ideally re-engineering should result
both in upgraded systems for overall improvement in system efficiency
and in improved business functionality.
Dramatic changes
While there are several components that can be altered or replaced
in a system, changing the foundation on which it is built has a
dramatic impact on the system in general. It is for this reason that
financial institutions have been reluctant to make changes to the
foundations – hence the abundance of legacy systems in the industry.
Essentially, changing the foundation refers to changing the hardware
platform and operating systems on which software applications are run.
For some, a change of platform may mean moving applications from a
mainframe to a Unix or Windows NT platform. Or, as many investment
banks are doing for certain applications, it can mean a move from Unix
to Linux.
While some institutions often cite the high investment in and the
inherent business intelligence of their existing systems as reasons to
reject change, Skipton Building Society, the UK’s seventh largest, has
proven both the viability of and sense in following such a course.
Key role in LINC
During the mid-1980s, the 150-year-old society was the first to
adopt LINC, the innovative, fourth-generation enterprise application
development environment. John Goodfellow, Skipton chief executive and
director, says: “After reviewing our systems during the mid-1980s we
decided that, although the existing systems worked well, the world was
changing and a whole new system was needed.” Using LINC, the bank was
able to develop applications faster and cheaper than its competitors,
giving it a shorter time to market.
The Skipton’s system manages its mortgage clients, as well as the
collective savings and administration business of its retail and
white-label banking clients, a total of one million customers and Ł26bn
under the management of its mission-critical systems
However, after a decade of reaping the benefits of LINC – which is also
used to process more than half of the mortgages issued in the UK,
through outsourcing agreements with Unisys’ UISL – the society decided
to change its computer systems. “During the late 1990s, we looked at
the cost of IT again and considered how we could reduce it further and
do it better. A complete analysis of our systems highlighted the
mainframe platform as being the most costly component,” says Mr
Goodfellow.
Project challenges
“The challenge was to develop a new system inexpensively and
relatively quickly without compromising security reliability and
functionality,” he adds, noting: “People make up the most expensive
part of any project.” At the same time, the society was considering the
best platform on which to redevelop and run its core systems.
The decision to change from a mainframe platform and the selection of
an alternative was not taken lightly. The society had four main options
for the core systems: to stay with LINC on the mainframe; to see if
LINC would operate on an open platform and change to a different
hardware environment; to redevelop its core system onto a lower cost
platform; or to take the existing code and convert it to new code on a
lower cost platform.
“After a worldwide trip to review alternative platforms such as Windows
and Linux in action, we decided that we could reduce our IT cost by at
least 50% by changing from a mainframe-based platform to a Microsoft
Windows platform running JADE,” says Mr Goodfellow.
Jump for JADE
JADE is a suite of application development tools from Jade Software
Corporation, headquartered in New Zealand. The JET (JADE Enabling
Transition) service was used to transfer the mortgage and investment
administration system from LINC to JADE – a fully integrated software
platform enabling all enterprise software development, database
management and deployment to be accomplished with JADE technology. The
object-oriented technology enables applications to mirror real-world
concepts and processes more easily, and extends the object orientation
concept through to the database layer.
Skipton moved its disparate legacy systems running on expensive
mainframes to JADE, providing a flexible platform that used
cost-effective commodity hardware. In essence, the building society has
successfully moved its entire multi-platform core processing
infrastructure to a Microsoft Windows environment with the help of JADE
technology. The result is a cost-effective and more flexible
replacement for its core-processing systems, which offers improved
usability and customer services, and resulted in a $3m reduction in
annual IT costs.
Microsoft benefits
With the assistance of Unisys Technology Consulting Services,
Skipton consolidated 70 older systems onto Microsoft technology. Mr
Goodfellow acknowledges that Microsoft Windows may not be as
function-rich as mainframes, but he says that this is only because
mainframe functionality has been developed in the past 25 years,
compared with only about five years for Microsoft – although he feels
that Microsoft is probably ahead of the function development curve
compared with Linux.
“To our surprise, we found that some processes could be run faster on a
low-cost Windows-platform than on a mainframe platform. And many jobs
were at least 10% quicker if not more,” he says.
The project clearly demonstrates the viability of using Windows in a
mission critical system without compromising security and reliability.
Mr Goodfellow says: “We have managed to fit 20 man-years of work into
12 months. People said we couldn’t achieve it. And in moving to a
Unisys on Microsoft server environment using JADE, we have reduced our
data processing costs by 50% and our overall operating costs by
approximately 6%. Our experience proves that Microsoft and Unisys work
well together to provide mission-critical systems quickly, cheaply and
effectively.”
Brian Clark, CEO of Jade Direct UK Ltd, comments: “While a business
maps its future, its technology can undergo several changes, and the
investment in that technology may become redundant as plans are fully
realised. By adopting JADE, Skipton Building Society is now able to
address its changing market, using technology that lowers the risk of
delivering information systems in the short term, and ensures a better
fit to its business in the longer term.”
Skipton predicts data processing cost reductions of 50% in annual IT
operating costs from the combined effects of moving from core legacy
systems on mainframes to using JADE running on more cost-effective
hardware. The building society is also benefiting from using an
award-winning new, efficient, centrally-managed branch automation
system, CASTLE (Cashier, Sales and Transaction Ledger), which is built
in JADE.
The JET conversion process enabled the society to begin the process of
integrating all its applications into a single customer-centric system
at the heart of the business, which was not bolted-on like other
customer relationship management systems.
Reduced hardware spend
By developing and transferring applications on a single platform,
Skipton is benefiting from a reduced spend on hardware and less time
spent on integrating applications that were built on disparate
technologies.
“We have put the society on an open platform, which is more
future-proof, is more easily internet-enabled and gives us a
development route map – and which allows the society to return to
having a single database that can be viewed throughout the business,”
says Mr Goodfellow. He is so confident that he claims that Skipton,
which serves about 550,000 individual customers, is the only financial
services institution in the UK that already benefits from a single
customer database giving a real, single view of customers.
By moving to an open platform, the building society has greater options
when selecting its preferred operating environment and it is now easier
and more cost effective to integrate external systems to its core
business, he says.
Drive to get smarter
“My desire is to keep driving our systems forward, to know the
customer and identify opportunities and this means constantly refining
data and getting smarter,” says Mr Goodfellow. For him, the change in
the underlying IT infrastructure is not just about reducing operating
costs but also about making it easier to do things, supporting his
vision for the future: growth, increased profitability and a fun work
environment.
Such a change is easier for a small organisation like Skipton than it
would be for larger organisations. A big institution needs executive
management to be very determined to drive change in a reasonable
timeframe. “It is like asking a giant tanker under full steam to change
direction quickly,” says Mr Goodfellow. “The bigger you are, the braver
you are going to have to be because of the risks associated with
changing systems.”
Banks must beware the pros and cons of using multiple platforms because
the management costs can be high, as is the cost of integration. Mr
Goodfellow asks: “How long does the financial services industry think
they can afford the current legacy systems?” Many players may consider
alternative platforms as being too new and therefore unreliable to bet
on, he says. But he also says: “There will come a point when these
become widely-accepted as reliable – but by that time it may be too
late to change.”
There is clearly an opportunity for significant cost reductions and
process efficiency by changing the platform on which applications are
run. Still, the emphasis should be on using the most cost-effective
platform for the various applications while keeping down
integration and maintenance costs.