Legacy technology refers to outdated hardware, software or systems that are still in use within organisations – despite newer and more efficient alternatives being available. It’s a highly common problem, impacting around 70% of organisations.

In recent years, legacy technology has become a more substantial issue. The explosion of innovation, through AI and automation, in recent years has caused systems to become outdated faster. This is fuelled by a cross-industry gap in technical expertise, leaving many businesses without the skills to drive technological transformation.

For many organisations, the extent of legacy technology is now significant. Which means a substantial bill to replace systems – not to mention potential disruption. So, leaders often deprioritise investment, in a bid to protect budget.

But this neglects the hard truth: legacy technology costs your business. In a time where many are seeking to control expenses and maximise productivity, these systems drive inefficiencies and costly downtime.

This blog delves into the real costs of legacy technology.

The financial costs of legacy technology

The cost of legacy technology can be split into different categories: the direct costs you’re likely to see and those that are more hidden.

Direct costs

Legacy technology carries significant direct costs that organisations cannot afford to ignore.

These expenses often arise from the ongoing maintenance and support required to keep outdated systems operational. Maintaining legacy hardware and software is inherently expensive, as replacement parts might be scarce, and updates are limited or increasingly complex. The scarcity of skilled professionals familiar with these older systems elevates the costs further, driving up expert fees. In some cases, this can amount to half of your overall IT budget.

Another area of direct costs comes from licensing and vendor lock-in. Organisations reliant on legacy systems often face the financial strain of expensive proprietary licenses, which are essential for continued use. By relying on a single vendor for updates and support, businesses are vulnerable to inflated costs and limited flexibility in resolving technical issues.

Cost of operational inefficiencies

Legacy technology also introduces significant operational inefficiencies that hinder business performance and growth, though these costs are often harder to spot.

These costs tend to relate to:

• Reduced productivity: Outdated systems can be slow and frustrating. Downtime and usability issues are more common. These inefficiencies slow down processes, forcing staff to waste time navigating clunky, outdated systems rather than focusing on value-driven tasks.
• Integration challenges: Legacy systems frequently struggle to integrate with modern tools, APIs and platforms, creating silos of data and functionality. This lack of interoperability makes it increasingly difficult to adopt newer, more agile technologies. Integration challenges can delay critical projects, increase costs and limit your ability to pivot in dynamic markets.
• Downtime and reliability issues: As systems age, their reliability declines. Outages and technical failures become more frequent, disrupting day-to-day operations and eroding customer trust. The downtime associated with legacy technology can lead to missed opportunities, strained client relationships and significant unplanned expenses for repairs, support or even temporary workarounds.

Costs related to security and compliance risks

Another potential cost of legacy technology is those stemming for security and compliance weaknesses.

Legacy systems are often more susceptible to cyber threats due to outdated security protocols and architectures. These vulnerabilities expose organisations to risks such as data breaches, ransomware attacks and unauthorised access, which can severely impact their reputation and financial standing. As cyber criminals continue to evolve their tactics, legacy technology will increasingly struggle to defend against sophisticated threats.

Another significant issue with legacy technology is the lack of regular security updates. As vendors phase out support for older systems, critical patches become unavailable. This leaves organisations unable to address emerging weaknesses, resulting in an ever-widening gap in their security posture.

Due to these risks, legacy technology can impede an organisation’s ability to comply with modern regulatory requirements. Outdated systems often fail to meet the stringent data protection laws and industry standards necessary to operate in today’s environment. This non-compliance can result in severe penalties, legal complications and loss of trust from clients and partners.

Costs related to innovation and competitive disadvantage

Legacy technology places organisations at a substantial competitive disadvantage by stifling innovation and reducing their ability to adapt to the fast-evolving business landscape.

Legacy systems often lack the flexibility required to pivot swiftly in response to market changes or customer demands. This harms your ability to seize new opportunities, leaving you vulnerable to more adaptive competitors.

This means businesses struggle to embrace modern advancements such as artificial intelligence, cloud computing and data analytics. This impacts strategic initiatives that rely on real-time data and performance optimisation.

Plus, this technological issue can impact your staff. Attracting and retaining a workforce skilled in modern technologies becomes increasingly challenging when an organisation relies on outdated systems. This further exacerbates the challenges of staying competitive in a technology-driven world.

Longer-term costs

Alongside the costs we’ve already listed, there are many hidden, long-term costs an organisation will experience the longer they put up with legacy systems.

As legacy systems remain in place, technical debt grows. When organisations avoid addressing system updates, they inadvertently create a backlog of inefficiencies, vulnerabilities and performance degradations. Over time, this debt compounds, requiring extensive resources to resolve and hindering the overall agility of the business.

Perhaps even more impactful is the opportunity cost associated with maintaining outdated systems. The reliance on legacy technology means organisations miss critical opportunities for growth, efficiency and innovation. Whether it’s the inability to adopt tools like AI and machine learning or the failure to streamline operations through cloud-based solutions, these missed chances can significantly hamper an organisation’s strategic potential.

Over time, this positions competitors with modern systems to outpace and overshadow those still tied to aging technology – putting your revenue and profit in danger.

Weighing up the costs of legacy technology against the price of transformation

If you have legacy technology, you have a choice. Stick with your systems and risk mounting long-term costs or invest in transformation now for future rewards.

Of course, investing in digital transformation can require a significant upfront cost, which can seem daunting at first. But while sticking with legacy systems might feel like the safe option now, but it’s a costly gamble in the long run. Modern systems save you massively on maintenance and inefficiency over time, freeing up resources for innovation and growth.

So, while the investment feels big initially, the payoff down the line is well worth it. There are a few reasons for this:

• ROI and business agility: Life becomes easier when your systems don’t hold you back. Modern technology lets you innovate faster, improve customer experiences and make smarter, data-driven decisions. It’s about staying agile in a fast-changing world. If your competitors are adapting faster than you, sticking with outdated systems is dangerous for your business’s longevity.
• Risk mitigation: Security is another area where legacy systems fall flat. The older your technology, the more vulnerable it becomes. Modern systems come equipped with top-notch security, compliance tools and disaster recovery capabilities. Investing now means fewer headaches later.
• Scalability and futureproofing: How ready is your organisation for growth? Cloud-native and modular systems can grow and change with you, adapting to new challenges and opportunities. This futureproofs your operations for the years to come.

Ultimately, the decision isn’t about spending versus saving. It’s about investing in your organisation’s ability to thrive.

Building your business case for digital transformation

One of the most significant sticking points for updating legacy technology is getting board sign-off, providing you the budget you need to enter the modern age.

A strong business case that proves the value of your chosen solution and directly tackles resistance is key.

If you succeed, you can get your change project signed off, ready to drive business performance, ease challenges and reinforce your credibility.

In our on-demand video series, we dive into everything you need to create a compelling business case. You’ll discover the basis of a great proposal, practical tips for information gathering and answers from real board members about what they’re looking for in a persuasive business case.

Access the video series for free here.