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Software // Enterprise Applications
11:08 AM
Rick Whiting
Rick Whiting

Money Machines

Replacing trusted legacy apps has risks and up-front costs. But leaders at these companies decided that keeping them around was even riskier.

For 38 years, Pacific Gas & Electric Co. had the same software application at the heart of its customer-information-management system. The application handled the California utility's billing and credit-history tasks, managing 6.5 million customer accounts and cranking out 250,000 gas and electricity bills every day. Other PG&E systems, such as customer-service and maintenance apps, tapped into it for customer information.

By the late 1990s, the system was showing its age. The mainframe application had become an unwieldy mass of spaghetti code with myriad modifications and ancillary apps bolted on. Any modification was extremely difficult--a big problem in an industry with frequently changing government regulations. Sometimes the daily billing cycle took more than 24 hours, and crediting payments often took two or three days. Without a PG&E service representative stepping in, consumers could have their power cut off when overdue payments weren't credited in time.

Tracy Harizal, customer information systems director at Pacific Gas & Electric

PG&E's new system lets customers keep their accounts when they move, Harizal says.

Photo by Eric Millette
Late last year, after $208 million and a three-year implementation project, PG&E went live with what it says is the largest packaged customer-management and energy-billing application in the world. The new system is more efficient, more scalable, and easier to adapt to business and regulatory changes. And there's less chance of customers getting their power cut off unnecessarily. "The big advantage is that more data is available for our call-center representatives to work with our customers," says Tracy Harizal, customer information systems director.

There's so much cost and risk associated with replacing a legacy system like PG&E's that it usually takes serious problems to force that decision--problems that boil down to high cost and lack of flexibility. Four out of 10 managers describe their legacy systems as "useful, but a barrier to innovation and flexibility" in a recent survey of 115 business-technology professionals done by Optimize magazine, InformationWeek's sister publication. More than 20% consider maintenance costs a problem. "Innovation was expensive. Integration was expensive. And just operating it was expensive," says Edward Feitzinger, senior VP of shipping and logistics company Menlo Worldwide, about the company's legacy freight-forwarding software.

Regulations put some companies over the edge. PG&E's system was too brittle to adjust to changing utility regulations. Menlo Worldwide, a unit of CNF Inc., found its system far too cumbersome to meet new shipping regulations, such as the rules enacted after the Sept. 11, 2001, terrorist attacks.

Customer demands and revenue growth cause others to scrap their legacy systems. Unilever Home and Personal Care North America couldn't provide its retail customers with customized pallets that included assorted products, because its 20-year-old order-management system struggled with anything other than one-product pallets. In the case of Giant Eagle Inc., retail-pricing software assembled 10 years ago in IBM's nearly forgotten CSP programming language wasn't up to the sales-growth goals the supermarket chain set.

Driven by cost and inflexibility, Menlo Worldwide spent more than $50 million and has almost completed a more than two-year rollout of new transportation and supply-chain event-management applications that replace 30-year-old legacy software. Shutting down the mainframe-based apps cut the company's IT costs by $11 million a year through lower maintenance expenses, reduced staffing, and elimination of redundant networks, says Ron Berger, managing director of IT.

Menlo Worldwide had been in the process of reworking its collection of legacy transportation and supply-chain-management applications, known as Emcon, even before the federal Transportation Security Administration, in the wake of the Sept. 11 attacks, created the "known shipper" program to electronically match cargo to legitimate shipping companies. But that change made Menlo Worldwide's problem painfully clear. Because the 30-year-old Cobol software lacked a component-based architecture, the changes required for compliance had to be propagated throughout the entire system. Ditto for when the company needed to update the software to reflect its expanding ocean shipping business.

Development work had begun as far back as 1996, but over time, its size and scope grew and the project began to drift, says Berger, who joined Menlo Worldwide in '98. Berger put the project back into a business context and narrowed its scope, including a redesign of some of the base architecture to remove complexity, and a decision to delay some components, such as handheld devices for delivery drivers, until later in the project.

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