Why effective risk management is critical to successful modernization

Modernization is the lifeblood of today’s organizations. It is necessary to meet the rising expectations of new-age customers, increasing competitive pressure from established digital natives, the constant need for cost optimization and the relentless need for innovation for the sustainability of the business.

These factors help explain why 50% of the global legacy application landscape is expected to modernize in the next two years and 70 to 90% in the next five years, according to recent research of the Infosys Knowledge Institute.

With big pressuring companies to modernize, they must also recognize that it can be disastrous if done the wrong way. But how can companies modernize without taking unnecessary risks? After all, the risk-return principle reminds us that the greatest return is usually achieved by taking the greatest risk. As expectations rise about the potential return of modernization, so does the potential for an increase in the risks associated with it.

Four different types of risks associated with modernization

1. Operational risk: This risk usually arises as a result of culture change and unfamiliarity with new technology and updated business processes impacting business continuity. There can be a high cost associated with a business continuity disruption, including lost productivity, decreased customer satisfaction, and security breaches that arise when staff adopt new systems.
2. Financial risk: Any modernization requires some form of early investment to transform from the current state to the desired state. This includes investing in acquiring newer technology, updating age-old outdated processes and acquiring new skills, just to name a few. This effort can be costly and companies need to ensure they have the resources to fund the initiative and generate a return on investment.
3. reputation risk: When organizations pursue modernization without a clear roadmap of where they want to go and what they want to achieve, the result can be failure. It can damage a company’s reputation and erode customer confidence. And it’s more common than you might think. a report published in June 2022 by vFunction and Wakefield Research revealed that 79% of app modernization projects fail.
4. Personnel risks: The human factor of modernization is critical. An Infosys survey of more than 1,500 technology leaders found that more than half of those who responded cited lack of skills and talent as their top fear associated with modernization. If a significant number of employees lack the necessary skills, it can cause various problems such as decreased productivity, increased costs, delayed timeline, poor quality output and ultimately an unhappy workforce.

Numerous factors to mitigate risks in modernization

These risks underline the importance of developing a mitigation plan – and following it. Organizations must take a number of factors into account.

Building a business use case to convince decision markets to budget for modernization

Securing funding for a modernization plan doesn’t have to be complicated, but a few basic steps can help, starting with identifying exactly why new technology is needed. How does existing technology hinder the business? And what technology is used by other similar companies?

Next, identify the benefits that will be realized through modernization. Which internal efficiencies are achieved? For example: cost savings? And how does it contribute to greater customer satisfaction?

Write down not only the total cost of the modernization, but also how it looks over time, taking into account the savings realized by fully implementing the new tools.

Set clear goals and objectives

Define clear goals and objectives to ensure everyone is working towards the same outcome. Regularly monitor and review the progress of the modernization to identify emerging risks and adjust the risk management plan as necessary.

Identify technology and business stakeholders

Building support for modernization among key software architects, IT team leaders and developers will greatly increase the likelihood of success. Also critical is gaining support from all business stakeholders – including the C-suite – as well as customers, suppliers and partners. If everyone likes the result of the modernization, but the company’s largest customer doesn’t like it, it’s not a successful strategy.

Choosing the right architecture and technologies

This may seem basic, but the range of choices presented by a modernization strategy can be overwhelming. And the architecture and technology that seem ideal for one department may be sub-optimal for another. Make sure the evaluation — and decision-making process — involves a wide range of stakeholders.

Understanding of people, processes and technology requirements

A key ingredient to a smooth modernization is that staff have had the opportunity to develop the skills and knowledge needed to adapt to new practices. They must be able to answer the inevitable questions.

The workforce needs to be upskilled and retrained, not only in the new technologies, but also in the new ways of working made possible by new technologies. These can be niche skills such as re-engineering, database modernization and rules externalization. These steps should be an integral part of the modernization program as they can minimize disruption. Unfortunately, many companies skimp on this dimension of modernization.

The power of partners

The scale and complexity of modernization make partnerships a critical – and often overlooked – part of the process. These partners can be startups, hyperscalers and private cloud companies, as well as others with specialties in relevant products, tools, apps, platforms, security, data center and infrastructure solutions and services.

Risk management and modernization done right

Risk management should be built into any modernization program. Done right, the many benefits of modernization can be fully realized: achieving greater resiliency, extracting more value from exponential technologies, creating a more scalable and digital backbone, and delivering better customer experiences.

Gautam Khanna is VP and global head of modernization practice at Infosys.