- Tom Alford
- Deputy Editor, Treasury Management International
The phrase ‘legacy technology’ may invoke images of ancient and unstable IT systems that must be replaced as soon as possible. But is this always the case, and how easy is it to move away from such systems? We sought views from a number of specialists.
Although the notion of ‘legacy technology’ makes for a rather open interpretation, it has at least one consistent characteristic, notes Kevin Heins, Global Head of Advisory and Complex Client Solutions, GTS, Bank of America. “It says outdated and potentially obsolete software and technology, where the underlying architecture may limit the expansion of purpose of the original application.”
It’s a view shared only in part by Adrian Rodgers, Director, ARC Solutions. He contends that “legacy technology is not automatically a negative”, but qualifies this by asserting that the critical part of his definition is whether or not the original vendor has kept their software up to date, particularly in terms of enabling connectivity to newer systems.
Adrian Rodgers
Director, ARC Solutions
Openness to integration with the work of other vendors, especially specialist fintechs, helps maintain system relevance, even if that system is deemed ‘legacy’, he argues. “Of course, where functionality has failed to keep pace with user need, or where system support has become poor or non-existent, there is a clear case for moving on.”
Taking a straightforward view of legacy, Bob Stark, Global Head of Market Strategy, Kyriba describes it as a “closed system”. If it does not integrate easily with others, or it requires IT support to ensure new functionality or connectivity is available to its users, then he believes it is a problem in the making. “Technology is an enabler first and foremost, and if it struggles to adapt and scale to the changing requirements of the business, then its time is running out.”
Kevin Heins
Global Head of Advisory and Complex Client Solutions, GTS, Bank of America
Saying goodbye
While Rodgers accepts that “sometimes there may be no reason whatsoever why treasury should not build on top of an existing stack,” he cautions that “this must never be the used as a way of taking the easy way out of a problem”. Doing so, he warns, “will only serve to lock you further into legacy” that one day will become a problem.
Citing a client with a large in-house bank that repeatedly delayed changing its technology, Rodgers acknowledges the reality of change, saying “some organisations are so big, and their technologies so business-critical, that change is a frightening thought for them”.
Unfortunately, closed legacy technology can prove difficult or impossible to extend. Inhibiting the flow of new real-time data streams because, for example, APIs cannot be connected, will present a significant loss of treasury opportunity, even around basic activities such as managing bank signatories or receiving statement data. This is when the argument for change should become more compelling.
Reasons for replacing a system tend to fall into one of three categories, notes Stark. Until recently, it was likely to be either the relationship with the vendor no longer being satisfactory, or the functionality no longer being sufficient. Increasingly likely now though, he says, is the lack of ability of a system to integrate with other streams of information.
Bob Stark
Global Head of Market Strategy, Kyriba
Borrowing the Gartner term ‘composable financial management systems’, Stark has observed CFOs beginning to build their own finance IT teams, driven by a need for greater data integration and wider sharing across platforms. “If you don’t have the ability to support that model from a technology perspective, in my opinion, you have a serious legacy system issue.”
However, even if challenges arise, it still does not necessarily make legacy technology a problem to be immediately and unconditionally removed. A disparate and seriously limiting collection of spreadsheets may indeed need upgrading now, but Heins suggests that if legacy refers to vital systems that are deployed organisation-wide across multiple processes it could well be “difficult, risky and expensive to replace”. This requires a lot more planning than a simple shopping list.
Resistance is strong
While users of an ageing core systems may wish for a rapid upgrade, the idea of ripping and replacing will often raise concerns for the IT team. Replacement, as Rodgers notes above, can indeed be fraught with problems. Herein lies a necessary weighing up of the risk between replacing and not replacing.
A broad argument for replacement today is based on connectivity. Momentum is being driven by the rapid rise of, and demand for, online services and real-time data provision. It’s a situation that notably accelerated during the pandemic as business customers – B2B and B2C – were forced online, and finance teams desperately sought updates on liquidity and cash positions to stave off collapse.
For Heins, this situation has created a degree of change inevitability for many corporates where their old architectures are on-premise applications lacking the ability to integrate with new cloud-based offerings. “If you don’t upgrade at some stage soon, the business will eventually lose the ability to stay in touch with developments, in terms of both technology and client expectations,” he cautions.
Despite strong drivers, some resistance to removing legacy technology persists, even those in sectors most affected by digitalisation such as retail. Not least of the reasons why is an unwillingness (or inability) to bear the cost, complexity and commitment to deliver transformation.
The lack of budget for upgrading is “an absolute classic barrier”, comments Rodgers. “It’s particularly an issue where treasury is run as a cost-centre.” And where treasury faces a CFO who is only interested in keeping costs down, he says “they will never get excited about increased efficiency and service capacity”.
A number of client examples from Rodgers reveal where the treasurer has been “desperately in need of a technology upgrade, yet the CFO does not understand why”. Their refusal to acknowledge a real need persists, even after providing independent evidence that organisations have suffered financially because they didn’t have the appropriate treasury systems.
As Rodgers himself notes, “a mistake in accounts payable is survivable but a major meltdown in treasury may not be”. With some optimism, he feels old-school denialist thinking may be nearing the end of its tenure, and that those entering the office of CFO now will have had some exposure to treasury, or even been treasurers themselves.
But even with senior executive support, expectations must be managed to avoid disappointment. It may be the case that the first upgrade, from spreadsheets to a TMS, yielded huge savings in time and effort. Subsequent upgrades, notes Stark, are more likely to focus on transformation and new capabilities rather than purely productivity gains.
“Effective treasury system projects don’t stop once they’ve automated key tasks. The treasury team that continues searching for process improvements, including integrating multiple systems and processes together, will uncover significantly more benefit than those that remain content with only saving hours of time.”
In terms of project commitment, organisational changes and turnover at the management level can have a detrimental effect. Agreeing to budgetary and resource requests for a major systems overhaul that delivers only perceived incremental advantages is a crusade only of the brave. Often, it may be felt, it is best to focus on resolving other more immediate issues, leaving treasury upgrades for future incumbents to tackle.
As this attitude continues, so risks may intensify, notably around the continuity of core processes. Where system integration is not tackled, rapid enterprise-wide visibility of financial data is not possible. The potential harm to the understanding of working capital and liquidity positions forced by being unsighted in this way is immense. And yet Heins says he still bears witness to treasuries that are struggling to secure the agreement and the budget to upgrade.
Bel Group: transformation in progress
When family-owned global dairy product firm, Bel Group, sought to bring to order what was already a centralised treasury operation, it had made serious inroads into centralisation with its Paris-based shared service centre. However, most of its subsidiaries had no overseeing treasury function. With exposure to more than 15 currency pairs, and a significant volume of intercompany cross-border sales, and more than 1,500 market transactions annually, treasury was facing a challenging future.
It was clear that treasury’s needs were being hampered by “too many” systems, according to Benoît Rousseau, Group Treasury and Insurance Director, Bel. With no treasury-specific IT to call upon, an “unacceptable” amount of time and effort was required just to maintain system connectivity and scheduled upgrades, he reports. “For a company like us, finding an integrated software-as-a-service (SaaS) solution was really key to our future progress.”
Rousseau conducted a detailed review of the market, eventually selecting Kyriba. The vendor was already well known to him as a bank communication and cash management system but less known for its risk management capabilities. Accepting that Bel might discover some points of compromise in this respect, the fully-integrated nature of Kyriba’s platform was the decider. “Instead of adopting a best-of-breed approach and working yet again with several different providers, we were happy to change our way of management to make sure Kyriba gave us the level of integration we need,” he explains.
Having made the selection, the 12-month implementation project kicked off with a number of cross-functional workshops. These explored Bel’s requirements and specifications around cash management, bank communication and risk management. Having finalised details, the physical implementation work commenced.
“We’ve put a lot of internal resources into this project,” says Rousseau. Indeed, to be able to dedicate some of its internal treasury team to the project, Bel brought on board a team of interim treasury professionals. To cover some areas of technical expertise, the firm also worked with an external integration specialist.
Rousseau is anticipating considerable savings in terms of maintenance, along with more fluid connectivity with its banks and its SAP ERP platform. There will still be some work to close the system’s functional gaps for Bel, but this too is in hand. With Rousseau acknowledging that Kyriba’s specialisation is not risk management, the implementation is an opportunity to collaborate with the vendor, particularly around FX risk. Bel is now offering its observations and feedback on how this module can be developed, for itself and other users.
Bel is also engaging with Kyriba on the iteration of a new automated artificial intelligence and business intelligence-based fraud module. It goes further: “Today, most of our FX transactions are managed through a single platform, so now we’re looking for a single electronic platform to manage all liquidity products too,” Rousseau explains. He is also taking the opportunity, while minds are project-focused, to expand his review to cover all internal processes and documentation impacting treasury. “This is not about a like-for-like replacement. What we have clearly identified and are undertaking is a transformation.”
Building a case
Stark believes focusing overly on cost as a barrier is itself a “symptom of legacy thinking”. The real focus, he suggests, should be on “value realisation”. It is, he explains, about what can be added to either the top or bottom line, based on having transformed the treasury operation using, for example, real-time information, or improving cash and liquidity through more precise forecasting.
If no such benefits are presented, then the upgrade conversation will be short. However, real improvements can have ROI (return on investment) figures attached; these will boost the business case. “Don’t think of the shift from legacy as a cost, but as an investment that will yield certain benefits and an ROI,” Stark advises. “It’s a figure that enables CFOs to crystallise where treasury transformation should be on their priority list. And cost goes away quickly once you really understand what you’re looking to accomplish.”
Rodgers offers some practical case-building illustrations where, for example, quantifiable cost-benefit analysis might show that four FTEs undertaking cash allocation could comfortably be reduced to two by implementing matching software, based on a specified cost over a defined period. In addition, software deployment could remove practices such as manual keying and error-correction, demonstrating that efficiency also positively impacts security and control measures.
Managing change
Because every major IT project can present risks, treasury should consider adopting a proven methodology to aid safe migration away from legacy technology. Heins proposes a four-pillar approach that requires the following to be addressed, attaching equal importance to each:
A “softer element” that enhances user experience should be added too. “If a business is investing in a major technology upgrade, offering the best user experience for every stakeholder is essential to make the most of that investment,” he explains.
At a practical project execution level, Rodgers often reminds project teams that effective data management is vital. “For a system that has been in service for a long time, some of that data will be redundant, and some incorrect. It generates a data-cleansing imperative that must run in parallel to that of the data migration, where retention and accessibility are possible challenges.”
Indeed, he argues that cutting over to a new system and simultaneously switching off the old one requires caution. At least 12 months of comparative data will be required alongside that required for audit, compliance and legal reasons.
“It may be obvious to some, but the archiving and accessibility of data from certain systems is something to be borne in mind,” says Rodgers. “For a professional project manager or consultant, this should be just another item on the checklist of important actions. For a busy treasurer looking forward to a brave new world, something so obvious can go unheeded.”
Partners
One way to ensure data accessibility is retained is to extend the legacy replacement consultation to multiple stakeholders across the organisation. Collaboration with colleagues is particularly important in a project that integrates treasury systems into the wider technology environment – to deliver real-time information sharing, for example. Here, the conversation with functions such as finance, procurement, tax, accounting and the business, should explicitly reveal the needs of all up and downstream partners.
At the sharp end of most major projects, a principal player will be IT, notes Rodgers. While the CFO will most likely have the final say on the decision to buy, treasury will need to partner with IT on evaluation, transition and ongoing support. The latter may be a delicate matter.
An organisation with an SAP or Oracle ERP system, for instance, will often see the whole of its IT support function focused on that core system. Treasury may be able to justify why it does not want SAP or Oracle, but IT will always ask where treasury will obtain support because often it will no longer be available in-house, warns Rodgers. “Almost certainly if IT does not have the skills, resources or incentives to assist, treasury will have to find a way to plug those gaps,” he comments. While vendor support should be available, it’s essential that the relationship be built on solid ground from the outset.
Still at the sharp end, “perhaps one of the most worrying indicators of potential project failure is when the treasurer refuses to or cannot give up their day job,” adds Rodgers. Depending on project size and scope, it may therefore be prudent to call upon expert assistance when assessing the impacts of change, and planning and executing the implementation work. Similarly, if resources and relevant experience and skills are not sufficiently available in-house, then third-party help may be necessary to achieve the most effective outcome.
It may even be beneficial, depending on how well treasury is staffed, to bring on board an interim treasurer for additional team bandwidth, either taking on the day-to-day work of treasury or, more likely, to act as a dedicated treasury project managing resource. “It’s all about speed to market,” suggests Heins. “The quicker you can complete the project, the quicker you can achieve ROI.”
ArcelorMittal: NextGen build
With its multi-system treasury and trading architecture no longer delivering expected levels of service and risk management, the Paris-based group treasury of Luxembourg steel production giant ArcelorMittal knew the time had come for a major technological upgrade.
The firm’s IT team had kept the existing fragmentation of in-house and vendor systems in operation across a group-wide intranet for around 15 years. However, this set-up required an increasing amount of maintenance and audit work, says Laurent Koenig, Treasury Head of Operations, ArcelorMittal. With a number of applications no longer being supported by their vendors, he says the goal was clear: find an integrated solution that could become the heart of treasury for at least the next 20 years.
The primary objective was optimisation of ArcelorMittal’s front-to-back global trading, liquidity, funding, regulatory reporting, and foreign exchange (FX) and commodities hedging activities. With its financial risk management carried out mostly using Excel, Koenig was keen for the team to build “something far more robust”.
To achieve its goals, group treasury embarked upon a two-year quest for a single-vendor, single-platform successor. “We certainly took our time,” recalls Koenig. Using the services of KPMG to guide the search, an extensive request for information/request for proposal (RFI/RFP) process was initiated. Calypso’s integrated suite of trading and risk applications was eventually selected, alongside its implementation partner, Synechron.
The nature of ArcelorMittal’s business means it hedges many commodities. “It’s a pain point for us,” Koenig explains, noting that “it’s often difficult to record trades, so having a customisable system like Calypso is essential”. That said, he is adamant that customisation will be strictly limited. “This way it makes it a lot easier for us to document, support and upgrade.”
The implementation project will replace most of the applications currently in use by ArcelorMittal’s group treasury. However, it will retain one of its core systems for pure cash management activities, Koenig “feeling quite at ease with that system”.
Calypso will focus on front-to-back trading operations, interfacing directly with existing settlement functionality. Jérôme Plainchault, Director, Synechron France, says his team will rely on a standardised Calypso platform architecture and messaging formats to deliver the project’s remit. “There will be times when we do need to customise for the ArcelorMittal implementation,” he notes. “We just need to find the right balance between what’s proposed natively by the system, and what the client wants.”
The aim is for the entire group treasury to be live by 2022. Access by ArcelorMittal’s global community of subsidiaries is under review, not least from a licensing standpoint. The company currently provides user-rights to its existing intranet facilities to more than 1,000 individuals. For Koenig, this means finding “the most economic operating model of integration”.
As might be expected, the cost effectiveness of day-to-day running is also part of his equation. “We believe that with the Calypso system we can produce a lot more EBITDA [earnings before interest, taxation, depreciation, and amortisation] than we currently are,” he says. “We hedge all our residual financial exposures, so feel we need this integrated system to enable us to generate stronger results here too.”
Despite a few early challenges – this is a huge ‘rip and replace’ project necessitating a massive change management programme – Koenig remains focused on the benefits of improved connectivity, stronger system management and, through full process integration, enhanced financial risk management across the group. After all, he says, “we are building for the next generation”.
Future vision
For many businesses, a legacy system that is subject to constant patches and work-arounds to keep it functioning in an increasingly digitally connected world will eventually become a liability, and it will need to be replaced. The escape plan may simply be to provide like-for-like capabilities in treasury. However, says Stark, it may see a more seismic shift from disparate point solutions or basic task automation, to the multiple connected nodes of process automation. Here, solutions such as artificial intelligence can bring considerable commercial and operational advantages, alongside a range of new capabilities.
Where legacy technology and processes often involve basic systems of record that capture transactions and offer simple, siloed viewpoints, the right upgrade can deliver more sophisticated systems of engagement, capable of connecting all available internal and external platforms.
“This is when treasury becomes a data-driven strategic player, connecting with and deriving insight from multiple sources of information across the organisation,” Stark comments. “It’s how vital enterprise-level decisions are made and, perhaps more critically in the current stressed environment, how treasury begins optimising enterprise liquidity.”
Whatever the reason for change, technology often presents as a shifting set of goalposts. For treasurers, trying to keep up or make a judgement as to when to change can be a source of frustration and confusion. To better understand the market and relevant developments in this space, the resources of banks such as Bank of America should be fully leveraged by corporate clients, says Heins.
Banks can work with clients on streamlining processes and automation, and determine practical ways to make legacy upgrades smoother, he explains. “The investment we make in innovation in Bank of America is always brought to focus through an ‘outside-in’ lens. It’s a collaborative approach that helps us understand how our clients want to work with us. We see it as a key differentiator. By working together, we can keep building technology that is smart and fit-for-purpose, for the client and for us, across every market and use case.”
There is no doubt that moving away from legacy technology represents a major commitment. It’s a realisation that can be made more palatable if seen as an opportunity to evolve, rather than a trial to be endured.
Although Heins cautions that when building for the future, “system adaptability, scalability and connectivity are critical”, with appropriate planning, funding, resourcing and project management, he believes that businesses of all shapes and sizes can begin moving towards a more future-proof technology stack. That’s when legacy technology really becomes a thing of the past.
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