Thriving In Dynamic Times: Turning Headwinds Into Tailwinds Part 6: Portfolio Modernization

Build Organizational Muscle.

As context and for convenience, here’s the original overview post in full.

Picking up with the focus of this post… the key is to have a plan, know what you would do and use the crisis to advance your strength and capability. If you don’t, you’ll be weaker and hamper the resilience of your enterprise to thrive while the crisis abates. This is about enhancing productivity, effectiveness, efficiency, and the agility of the organization.

Building Organizational Muscle is a huge topic. There are four major levers that need focus, investment, and orchestration.

  • Workforce Mix & Skills (right size, right shape, right place, right skills, right cost)
  • Operational Efficiency (high-speed software development, velocity, quality, DevOps)
  • Architectural Re-Use (build once & use many, Common Services, Digital Hub/Core)
  • Portfolio Modernization (dealing with the cost, complexity, and risk of existing assets)

I’ve broken the above into four separate blog posts because each of these topics is so important. In the last few weeks, I wrote about Workforce Mix & Skills and Operational Efficiency (“Busting the Bureaucracy”) and Architectural Re-Use and Leverage. This week I’m discussing Portfolio Modernization.

PART 6: Portfolio Modernization

I assume that most people buy into the premise that you can’t have Business Agility if you have Technical Rigidity. Legacy systems and the “hairball” that connects those systems (complex, point-to-point, poorly architected interfaces, and data replication) have created a barrier to the kind and pace of change needed. It’s past time to deal with the cost, complexity, and risk of existing assets. However, the demand for new, modern capabilities has, in too many large and established companies, overpowered our ability to modernize the existing base.

Other companies that were born in the last twenty years haven’t had to contend with a legacy base. That more recent starting point, and what we now all know about architecture, has given them an advantage of speed and agility. For example, the, now famous, mandate Jeff Bezos gave to his team in 2002 helped Amazon avoid the legacy “hairball” trap. Like Amazon, these newer companies can more quickly and inexpensively create, scale, and sustain new business capabilities, which seriously challenges and threatens the incumbents.

During the last decade, some of the big, legacy companies have begun to successfully modernize their decades-old base. Others have tried to have a big “replace everything” strategy which is very expensive, disruptive and never complete. But most are still trying to figure it out and justify the investment it takes to change the game for the future. It never feels like the right time to invest in simplifying, modernizing, re-architecting, or replacing existing assets that seem, on the surface, to be working okay. Even in good or normal times, budgets are tight, and it always seems more exciting and productive, in the short-term, to focus investment on developing new capabilities or buying the next shiny object or building something with the latest new tools.

Tacking Into The Wind

Now, more than even a few weeks ago, the wind appears to be blowing against modernizing the portfolio of legacy systems. We all have more cost pressures; we all have to respond urgently to new tactical demands; nobody seems to be in the mood to make investments in the fundamental health of IT assets.

It’s definitely time for some counter-intuitive thinking, selling, investing, and acting. We’ve got to find a way to sell Portfolio Modernization into a huge headwind where many companies, in critical industries, will be very strapped for investment dollars or mindshare to focus on the embedded IT landscape. However, in the bigger picture, this is a ticking time bomb. There may not be a next time for some.

Most of us have seen the future of the “Modern Era” accelerate in just the last 4-6 weeks. Online shopping, banking, learning, entertainment, meetings, etc. are not new. They were all evolving. Now they have all accelerated. The biggest lasting change won’t be the doom and gloom of COVID-19. We’re going to emerge from the current crisis mode sometime soon, and the digital era will have leap frogged to 2023. So, it’s time to “tack into the wind” and not only sustain but also increase and accelerate your Portfolio Modernization efforts. Those who don’t will find themselves really out of position, still with the rigidity that inhibits change and agility and a cost structure they can no longer afford, while the future shows up even sooner and faster than we ever anticipated pre-COVID-19.

Portfolio Modernization is Like Urban Renewal

For some reason, I’ve always equated the legacy systems that run most of our companies to the cities we live in. I like using the analogy of an old city to explain the problem and as a way to think about and sell modernization. Over twenty years ago, when we were working a lot with McKinsey & Co, they picked up on the idea and wrote a great article called “The Paris Guide to IT Architecture” in the 2000 edition of The McKinsey Quarterly.

In the big, old cities, every neighborhood, block, and building were built at a different time, with a different design and materials, by different construction companies. The aesthetic design and the quality of the engineering and architecture reflects when it was built. That variety helps create the overall experience of the city.

However, over time, in a city, the buildings start to age. Some become obsolete; others work well for long periods of time and serve their purpose; a few are necessary as the lasting charm, character, and identity of the city. The bigger set of problems, usually, are that the roads, public transit systems, electrical grid, sewers, gas lines, streets, and bridges are too small, not designed correctly for growth, and are crumbling. Replacing all of the buildings would be expensive beyond imagination and totally unnecessary and won’t fix the speed or quality. More importantly, to grow and remain vibrant, cities must deal with the cost of maintenance, the modernization of the infrastructure, and the way everything is linked and flows together.

The same is true of our technology landscape. Four or five decades of the evolution of technical architecture are still embedded in the operation of most businesses. But like our cities, it is the cost of complexity and fragility of the way these systems are linked together that make them slow to change and risky to run and maintain. The way we connect and integrate systems through interfaces, data, messaging, workflows, platforms is at the heart of the speed, cost, risk equation. The actual system or application itself, like a building, can be refurbished, refactored, replatformed, and in a few cases, replaced. I say in a few cases because experience has proven to me that a system replacement is often ten times more expensive and riskier than a remodel.

Find a way to explain this, possibly using this idea of a city and urban renewal, to your business partners and executives to help them understand where the investment focus should really be. Developing a plan for this can be done with the same “Go Short”(-Term) and “Go Long”(-Term) framework.

“Go-Short”(-Term): Answer the Mail

I’ve never gotten through a crisis without some financial reduction target. The trick is to be prepared by having the facts (see “The Cube”) and knowing what we would do when a crisis or big event comes. That preparedness allows us to be surgical in our approach and use the crisis as air cover to:

  • Shut down redundant and/or low usage applications
  • Freeze enhancements on systems that can’t be turned off now but have no future (to be retired)
  • Change the shape of hardware and software expense by working with big partners
  • Reduce non-essential overhead staffing in order to reshape the development teams
  • Move the best people to the work that matters

You’d be amazed at how much help you can get from Finance and HR during the crisis, if you have the facts and a thoughtful, surgical plan. Take the number, agree to the financial reduction target, but don’t let them tell you HOW to achieve it.

“Go-Long”(-Term): Eyes on the Prize

We should keep our eyes set on two coordinates that define most companies’ journey to the future.

  1. Customer Needs and Expectations: In this digital world, it’s not hard to figure out what victory would look like in the long-term. The problem is that the long-term has been redefined and has arrived sooner than anticipated. The big capabilities that it will take to compete – omnichannel, customer 360o view/analytics, dynamic pricing, next-day delivery, etc. – have become table stakes in most sectors. It’s non-negotiable.
  2. Margin Expansion: This requires reengineering and automating the total cost structure of your company (see “Technology Impact on Business Economics”). With accelerating customer and consumer savvy/power, transparent pricing, and ever-expanding choice, it’s very difficult to price up. So, unless we can bend the cost curve, margins will erode quickly. We can’t keep adding labor, facilities, fleet, and overhead at the same pace that volume or topline revenue is growing. Sensors, robotics, machine learning are early in their lifecycle but are critical to get the efficiency needed to expand margins.

For most established companies to thrive in the future, the starting point is a current base of legacy systems and a “hairball”. That base is going to make it hard to respond with speed and agility for an affordable cost, unless we act now. Building modern digital capabilities, to meet customer needs and expectations and to get margin expansion, on top of layers of legacy will not make the business faster, more efficient, or more agile. We need to make Portfolio Modernization a business (not just an IT or cost) issue that is tied to and timed with the building of the modern architecture new digital assets.

Set and Sell the “Modernization Agenda” (at Least Try)

If not now, then when? I believe NOW IS THE TIME. Use “Go Short” action as a catalyst to accelerate the journey to the “Go Long” vision. If we let this crisis be another reason to delay or let it derail us, there might not be enough time left. On the other side of COVID-19 and its impacts, the future will be here sooner than expected.

I’ve said that we shouldn’t get discouraged if we can’t get the agenda sold, funded, or staffed on the first try. We’ve always got to keep pushing. At some point, the time will come that we will be “pushing on and open door” because we’re repeating a familiar message, and/or the time has just come, and/or there’s another crisis or a driving event or dynamic.

So, we owe it to our companies, employees, customers, and shareholders to step up and set and sell the “Modernization Agenda”. If not us, then who? It is us – all of us. My next blog, the last one in this series, is about why we need “best friends” (see “Game Changers”) on our journey to SURVIVE and then THRIVE.

Author: Charlie Feld, Founder, The Feld Group Institute
Connect with Charlie Feld on LinkedIn

Photo by Anastasia Petrova on Unsplash

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