The culprit is legacy information technology. Lurking deep within the guts of many businesses are systems that can’t handle the requirements of modern-day supply chains. They are the enemy of all attempts to revamp the way that companies interact with suppliers upstream, and customers downstream.

There’s also the issue of corporate security. Old systems, riddled with dead code, leave companies vulnerable to attack. “It’s a perfect place for people with malicious intent to hack in and write code,” says Miten Marfatia, CEO of EvolveWare. “When the time is right, they will activate it.”

The presence of old I.T. goes against the “lean-and-mean” philosophy that so many companies practice today. They might be laser-focused on driving out wasteful inventory and redundant business processes, but that level of diligence doesn’t necessarily extend to software applications.

Obsolete systems can frustrate those other goals. They make it impossible to share critical data among corporate departments, subsidiaries and supply-chain partners. Often there’s no central database that’s accessible to all.

“That leads to pure inefficiency,” Marfatia says. “And it reflects on the performance of the CEO.”

In an uncertain economy, companies are reluctant to devote their limited resources to potentially expensive I.T. initiatives. But doing nothing is no longer an option, either.

“Legacy systems run on very large mainframe computers,” says Marfatia. “Today, the people who understand those languages are far and few between.”

Blame both attrition and staff cuts made during the recession. One telecommunications company with which EvolveWare has worked had 246 personnel supporting its legacy systems in 2005. Today, the staff numbers just 23. Some older systems were retired during that period, Marfatia says, but it doesn’t fully explain the drop.

It’s becoming increasingly expensive to find experts who understand legacy coding and language. As a result, companies are forced to outsource the maintenance of older systems to India, China and other overseas locations. In the process, says Marfatia, they could be compromising the cyber-security of their organizations.

Face it: moving with the times means spending more money on scrutinizing I.T. The alternative is a loss of profits, which further constrains capital budgets and makes it even tougher to afford modern-day applications. Meanwhile, says Marfatia, “the CEO is not going to meet his numbers.”

The consequences can be more serious than a lower stock price. Government agencies and the military are susceptible as well. The U.S. Air Force was relying on an application written in COBOL to determine promotions all the way to three-star general, Marfatia says. After several breakdowns, the system eventually crashed and was out of commission for a month and a half.

Marfatia had thought the widespread retirement of older I.T. support personnel back in 2005 would lead to “a groundswell of support” for modernizing systems. That didn’t happen. The Great Recession choked off resources and a number of efforts came to a sudden halt.

He understands the reluctance of businesses to spend more money on I.T. today. As in the case of manufacturing, the trend has been to look overseas for personnel who can take over the increasingly expensive job of supporting legacy systems. But even those individuals are retiring or becoming more expensive to hire.

Marfatia does blame some of the big consultancies and systems integrators, who he accuses of blocking new automation efforts because they mean less revenue, in the form of reduced system-support fees. They prefer to make incremental changes in legacy applications, retaining large amounts of old code and sub-optimizing performance. “Service companies have a fair amount of stranglehold over organizations,” he claims.

It’s only over the past year and a half that corporate attitudes toward I.T. modernization have begun to change, he says. EvolveWare has witnessed a recent rise in inquiries from companies shedding their inertia and looking to update system architectures.

Yet true modernization is far from a simple task. The effort often requires the support of multiple subject-matter experts, who must scrutinize millions of lines of old code in order to determine what needs to be updated.

The job has to be done in phases. It’s not a question of throwing out all of the old code at the very start, Marfatia says. First, I.T. experts need to extract all of embedded information from the old application.

“Unless you know what you have,” he says, “you really shouldn’t be deciding what to do with the system.” The best solution – whether it be a complete overhaul of internal systems, or purchase of an off-the-shelf product with minimal customization – will depend on the diagnosis.

I.T. systems today are in a transition period, Marfatia says. Companies are realizing that the price of running older programs has become too high to tolerate. “You don’t want to get to a Y2K situation, where suddenly you wake up and nobody is able to understand or decipher the systems.”

CEOs are just beginning to realize that their most ambitious plans will fail without an accompanying overhaul of key information systems. Says Marfatia: “It’s coming to an inflection point.”

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