Is Legacy Infrastructure Holding Your Company Back? Best practices to overcome technical debt

By Jim DeLoach, Former Andersen Partner and currently a Managing Director at Protiviti . He is the author of several books and a frequent Forbes and NACD contributor.

Copyright 2024 Corporate Compliance Insights. This article originally appeared on Corporate Compliance Insights and can be found here. Reprinted with permission. No further reproduction is permitted without permission from Corporate Compliance Insights..

Culture, speed to market, customer focus and organizational agility are mainstays in C-suite and boardroom conversations about innovation. But as Protiviti’s Jim DeLoach explores, these discussions should also address technological roadblocks to realizing innovation initiatives.

The origin of the phrase “Innovate or die,” is unclear. But it was made famous almost 40 years ago in one of Peter Drucker’s classic books, “Innovation and Entrepreneurship: Practice and Principles.” In it, Drucker wrote that the entrepreneur sees “change as the norm and as healthy … [and] always searches for change, responds to it, and exploits it as an opportunity.” Given today’s business realities, these words are timeless, as they refer to the importance of agility in the marketplace.

According to a global survey of board members and C-suite executives, the rapid speed of disruptive innovation enabled by new and emerging technologies is ranked among the top risk issues for organizations over the next decade. To face the future confidently, senior leaders and the board need to understand the extent to which the organization’s legacy infrastructure either enables or constrains the effectiveness of initiatives to respond rapidly and continually to emerging opportunities, competitive threats and customer demands.

While there are many aspects underpinning an innovative culture, technical debt — the cost and magnitude of additional rework caused by the accumulation of legacy systems and application solutions that were easier to implement over the short term but not the best overall solution for the long term — can be a powerful restraint to inculcating innovation into an organization. Because technical debt can result in a legacy infrastructure that is difficult to maintain and support, many incumbents face formidable challenges as market forces demand ever-higher levels of resilience in adapting business models, processes and systems to meet continuously changing expectations.

A survey of more than 1,000 CIOs, CTOs, CISOs and other technology leaders was conducted last year to understand how IT organizations are ushering legacy infrastructures into the digital era to enable innovation that will fuel long-term value creation. According to that study:

• Only 29% of respondents indicated that innovation leaders bridge the gap between technology and business needs very well, suggesting that more work is to be done to understand innovation goals and how they align with the business.
• Organizations are spending an average of 31% of their IT budgets and investing, on average, 21% of their IT resources on managing technical debt. Of note, nearly seven out of 10 organizations (69%) believe that technical debt has a high level of impact on their ability to innovate.
• In addition to the universal concerns over proliferating regulatory and compliance requirements and security risks when it comes to innovation, survey respondents also noted a lack of governance and infrastructure, innovation investment justification and organizational structure (e.g., teams and processes). The top five skills-related gaps impeding innovation are design thinking, solution architecture, enterprise agility, technical knowledge and strategic thinking.
• As expected, cybersecurity is a critical innovation-related issue. Globally, a strong majority of organizations (82%) have a high level of concern about security risks associated with implementing new innovative technologies.

Why should executives and directors care about these findings? In an environment dominated by emerging technologies, disruption of business models and universal acknowledgement of the importance of agility and resilience to corporate success, innovation is a strategic imperative. Unfortunately, all efforts to instill an innovative culture can be frustrated when technical debt has “accrued” to such a level that it slows organizational response to emerging market opportunities and stifles the ability to compete in a digital world.

A key takeaway for executive teams and the board is understanding the impact of technical debt on innovation goals and strategies. Technical debt is often likened to monetary debt in the sense that if not addressed, it can accumulate “interest” over time as technology evolves, necessitating additional effort in future development. As the cost of “repaying” the debt becomes more difficult and expensive, it is no surprise that companies are allocating a significant portion of their annual IT budgets to manage it.

The aforementioned research offers a call to action to increase agility and sustain the company’s innovation and transformation journey successfully over the long term.

Modernize legacy applications.

In the digital era, organizations need engaging, intelligent and easy-to-use applications for their customers, employees and business partners. Initiatives to modernize applications should significantly improve user experiences by providing more functionality and insights to meet user needs and improve competitive position with “born digital” players. They can also lead to new insights that spur innovation and new digital services and product lines that create new revenue streams. Thus, organizations should focus on reducing technical debt that is time-consuming to manage and resource-intensive to support. Outdated technology increases operational and cyber risks.

There are several proven tactical approaches to mitigate technical debt:

• Create a greenfield: To support new products or markets, some organizations may see opportunities to start with a clean digital slate by building new infrastructure from the ground up based on modern technologies. Of course, this is unlikely to address the technical debt of the existing enterprise.
• Ring-fence as a quarantine: In some cases, technical debt can simply be isolated from the rest of the operating environment, especially for infrastructure and supporting business processes designated for retirement.
• Preserve and protect: For some stable infrastructure, the right approach may be to build a services layer around the system. By deferring the inevitable upgrade or replacement of the systems in question, the company buys time to plan an effective solution.
• Simplify and rationalize: Streamlining technology where opportunities permit allows businesses to address some forms of technical debt. This approach may be best suited for organizations that have grown through mergers and acquisitions.
• Go big: Some organizations may be able to use the rip-and-replace process on existing systems to reduce technical debt aggressively by upgrading to a more modern infrastructure. While this option has potentially high rewards, the associated risks should be considered carefully.
• Upgrade and replace in phases: This approach represents a migration path whereby technical debt is reduced over time through a risk-sensitive phased upgrade or transition to newer technology platforms. For example, it may entail building a parallel infrastructure with temporary “scaffolding” to support the transition to the desired future-state environment.

The above approaches are dependent on the current state of an organization’s technical debt, existing documentation, institutional knowledge, appetite for risk and resources available. They are not mutually exclusive and can be combined to address different systems and requirements. For example, cloud solutions can avoid future technical debt while shifting some of the maintenance burden to the cloud services provider.

Improve agility through rapid response and strong operational resilience.

Orchestrate the building of resilience across existing domains such as business continuity, disaster recovery, technical recovery, cyber resilience and third-party asset management so they can readily respond to outages, crises and other threats.

Capitalize on the emergence of advanced technology platforms and capabilities.

Leverage new platforms and architectures for building and running business applications to enable better access to data, provide flexibility and faster time to market, and support digital capabilities to deliver differentiated experiences. Deploy greater process automation and intelligent technologies such as artificial intelligence (AI) models, including generative AI, machine learning, the Internet of Things and 5G, cloud computing and robotic automation capabilities to reimagine existing processes and alleviate risks arising from the inevitable shifts in labor availability and costs.

Maximize customer engagement.

Focus on the experiences of users and consumers (both positive and negative) to drive interaction through a modern, innovative operating model. Decisions based on insightful customer data and sufficiently advanced user analytics and AI are more likely to achieve business success.

Prioritize cybersecurity and data privacy in innovation activities but avoid creating bottlenecks.

Proper cyber hygiene is foundational to managing security risks and maintaining resilience of business services. Companies should harness the power of effective cybersecurity frameworks to mitigate cyber risks without slowing down innovation and should search for opportunities to boost enterprise value with novel tools such as greenfield cloud environments.

Consider implementing practices that balance identity and access management to ensure maximum speed of user access while managing risk and complying with applicable legal and regulatory data privacy requirements for collecting, storing, securing, processing, using and monetizing sensitive data. More importantly, understand why the organization obtains and retains the data in the first place.

Make your talent your customer.

A focus on the customer experience should extend to the organization’s people and talent. Retention of key people requires efforts to keep them engaged long-term. That is why an advocate for the preservation of talent and culture should have a seat at the decision-making table as the organization focuses on sustaining its financial health. The organization’s people should be privy to its strategy for deploying innovative technologies to augment their job functions.

Senior management and the board should consider the above takeaways when discussing innovation goals and strategies. By listening to the voices of customers, employees and other stakeholders, businesses can identify technical debt issues and prioritize their infrastructure-modernization efforts. From the board’s perspective, it is essential that constraints on critical innovation initiatives be addressed timely before the limitations placed on improving operational efficiency and adjusting business models become so egregious that they impair the organization’s competitive position.

Questions for senior executives and the board

Following are some suggested questions that executive management and the board may consider, based on the risks inherent in the company’s operations:

• Are we satisfied with the organization’s innovation strategy, culture and processes? Do our discussions of innovation investments address the costs, benefits and expected payback? Do the C-suite and boardroom agendas allocate sufficient time for discussing innovation, including consideration of appropriate innovation-related metrics that tell the full story regarding the results the strategy is delivering, return on investment and the effectiveness of the company’s innovation capabilities?
• Is the organization agile and adaptive enough to recognize market opportunities and emerging risks over time and seize or overcome them with timely adjustments to its strategy and supporting technology infrastructure? Does it learn through data from customer and supplier interactions and is it able to convert lessons learned into process, product, service and business model improvements?
• Does the board and executive management have visibility into the extent and nature of the organization’s technical debt and its impact on executing the strategy and innovating processes, products and services? Is there an actionable roadmap to mitigate the risk and cost of technical debt? Is there active governance in place to ensure that effective trade-off decisions are made so that technical debt is actively managed on an ongoing basis? If answers to any of these questions are no, why not?

Jim DeLoach, a founding Protiviti managing director, has over 35 years of experience in advising boards and C-suite executives on a variety of matters, including the evaluation of responses to government mandates, shareholder demands and changing markets in a cost-effective and sustainable manner. He assists companies in integrating risk and risk management with strategy setting and performance management.