Renewing the Legacy

In his keynote speech at last year’s ACORD Forum in London, Nick Prettejohn, then CEO of Lloyd’s, argued that poor quality data and business processes were threatening the very existence of the London insurance market.  He went on to speak of the high operational costs that exist within the industry, and how this cost is not simply one of direct processing.  “As a market,” he said, “we deal with some of the most volatile, dangerous and significant risks in the world.  And yet, ironically, we compound that risk by handling it through a business process that breeds operational risk.”

Matthew Josefowicz, of financial analyst Celent, echoed these views shortly afterwards when he stressed the need for companies to adopt straight-through-processing in order to reduce errors, and improve responsiveness (or “turnaround time”) and consistency.  The accurate and timely flow of information across each and every link of the value chain is fundamental to the success of insurance companies.

There are few who would dispute these opinions, nor their importance or urgency; they are not, after all, issues unique to the London Market, or indeed to insurance in general.  But when we consider that the financial services industry as a whole runs primarily on applications first developed fifteen or more years ago, and that such legacy systems account for the execution of some 90% of all transactions within the sector, it is often unclear to organisations how exactly such improvements in levels of operational efficiency, risk mitigation and business agility can be achieved. 

These systems, and the environments in which they execute, are part of the fabric of the company.  They have evolved in line with business needs over the years as part of a constantly changing application landscape, often through mergers and acquisitions.  But now it is their narrow and diverse origins and very lack of flexibility which fuels the process complexity and inefficiencies of which Nick Prettejohn and others are so fearful.

Strategies in the past have varied, and only now is the industry accepting that wide scale replacement of these systems through rewriting presents an unacceptable level of risk with minimal return on investment. An Age of Pragmatism, it seems, has arrived, with business deliverables, rather than technology, foremost in people’s minds.

Legacy modernisation has become the reality.  Organisations are coming to realise that inside these ageing systems reside vital components of the organisation’s competitive edge; the mission-critical processes and systems that form the heart of the enterprise. They may require rationalisation, documentation and better understanding, for the benefit of extracting more value - but nevertheless they exist, they have been bought and paid for, and they have proven their reliability in the processing of billions of transactions per day across the globe. Getting these vital components to step out from behind their green screens and participate in a fully connected and automated world is key to the success of the enterprise.

The rise of the service-oriented architecture (SOA) is bringing new life, and new hope, to IT departments struggling to deliver flexible systems while driving down costs.  Through Web services, and the innovative technology now available to support their development, the stable and well-proven functionality that exists within a company’s legacy applications can be identified, isolated and presented as a series of core services.  These, in turn, are facilitating greater levels of flexibility and re-use in development, enabling faster time to market and a more agile approach to business process optimisation.

Financial services firms are proving themselves quick to realise the advantages that an SOA-enabled application portfolio can bring.  Analyst firm Forrester recently reported that more than 70% of large North American enterprises already use SOA, while half of the European financial services firms surveyed intend to SOA-enable the majority of their applications once plans are complete.  BlueCross BlueShield of South Carolina, North America, a leading health insurance provider that also administers federal health insurance programs, is one such company building legacy into its Web services and SOA strategy, utilising Micro Focus Studio, the Windows-based development environment, to maintain and extend its legacy systems into a contemporary architecture.

This trend towards service enablement is also reflected in the offerings of solution providers to the financial services industry, such as Solcorp, Alnova, FNS and SEEC, who are providing applications which are either fully Web service-enabled or being delivered simply as a set of business components for integration within an organisation’s existing IT infrastructure.

Of course, with many of these legacy systems still residing on the mainframe, it is very often not the applications themselves which are the major barrier to IT and business agility, but the operating environment or hardware.  Calls to scrap legacy systems in favour of modern, service-enabled applications have very often found themselves guilty of “throwing out the baby with the bathwater”.  They speak of diminishing skill sets and limited support.  They tell horror stories of inadequate interoperability with modern environments such as .NET, blaming the application (the baby) and the language in which it is written rather than the hardware or the operating system (the bathwater).  To do so is to limit the success of any modernisation strategy.

The starting point for legacy renewal is an understanding of the existing application portfolio and its fit with corporate goals.  Once this is established, a strategy based on each system’s value to the business and its cost of operation can help decide how best to proceed.  There will be redundancy and overlap within the portfolio.  There will be applications in need of retirement or replacement through packages as part of an overall consolidation.  But there will be many systems perfectly moulded to the contours of the business and delivering great value, yet simply costing too much to maintain because of the platform on which they run.  Such applications will find a new lease of life, and deliver even greater business value, through migration to a lower-cost platform, such as Windows.

Financial services organisations like Pacific Exchange, a subsidiary of Archipelago Holdings, is migrating its clearing and billing application from an outsourced mainframe system to the Windows platform as part of an overall effort to save costs and improve productivity.  With growing costs of maintaining the application on an outsourced basis, the exchange explored ways to eliminate external costs while maintaining the performance of the application.

Following an analysis of a number of options, the exchange chose to move the application off the mainframe and onto the Windows platform using Micro Focus' Lift and Shift™ solution. To complete the migration of the CICS, JCL and COBOL code, the exchange is using Micro Focus Studio for application development and Micro Focus Server for deployment to the Windows environment.

"We've chosen to move our applications to a more agile platform like Windows to eliminate the significant costs associated with mainframe maintenance while at the same time increasing our internal control over core applications," says Steve Hirsch, managing director of database operations at Archipelago.

The Pacific Exchange anticipates that the migration will provide a 5-10 times boost in performance and expects that their cost savings will kick in within six months.