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.

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