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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.
The price tag for the 2-1/2-year project, which began in late 2000 and was completed last May, was $5.5 million for development work, $1.2 million for hardware, and $1 million for software licenses. Ross says the project ran over time and over budget, though he declines to say by how much.

It's starting to save Giant Eagle money. The retail-pricing application it put into production in June will need only half the nine maintenance workers the legacy system did, and the supermarket chain has trimmed operating and maintenance costs.

The effort needs to go further to get the big payoff, however. The company still has three applications running on the mainframe, despite eliminating 60% of the mainframe workload by retiring the old pricing app. It's replacing the warehouse-management software with a packaged application from Manhattan Associates Inc. and is searching for packaged order-management and accounts-payable approval software to replace the remaining two. The retailer hopes to get that done and do away with its mainframe altogether by April, Ross says.

So have all these legacy replacements--with their multimillion-dollar prices tags--worked? Giant Eagle's new system is capable of handling pricing- and promotion-management tasks for as many stores as the company might add, Ross says. And in contrast to the inaccessible legacy application, several hundred Giant Eagle employees, including merchandising and marketing managers and operational managers in individual stores, can access data in the system using Cognos Inc.'s Impromptu software to make ad hoc queries about product prices.

At PG&E, the new application is much more flexible, Harizal says. Because the old system was organized by residence, for example, new accounts had to be created if customers moved. Today when people move, their accounts stay with them. And the application can more easily be adapted for changes in regulations using tables in the software rather than the software code itself.

Unilever's new SAP order-management applications' integration with other SAP apps provides smoother operations, and the Unilever operation closes its financial books much quicker, Marshall says. Management has better visibility into the entire manufacturing, procurement, order-processing, and distribution process. Unilever is even exploring ways to tie its sales force into the system. "It worked. It paid off for us," Marshall says of the SAP implementation.

Menlo Worldwide's new freight-forwarding system is more cost-effective, taking only about half the IT staff to operate and maintain, and adding new capabilities such as a .Net-based portal for customers is much easier than before. But most of all, Feitzinger says, the real edge comes from the fact that the shipper worked hard and developed a flexible, efficient freight-forwarding system.

"Right now, we think it's a competitive advantage because we don't think many of our competitors have started down this path," he says.

It's not an easy or cheap path to follow. But for companies that believe their legacy systems cost too much and hold back their business innovation, there's no place else to go.

Illustration by David Plunkert