The Challenge of Legacy Systems

Legacy systems pose a particularly complex challenge in the mid-market. Many of these systems were developed more than a decade ago and are now considered outdated because they only meet current market demands to a limited extent. They often lack flexibility for change, scalability, and contemporary security standards. When called legacy systems, these are usually applications with extensive, rarely documented code and historically grown interfaces. These properties make operations stable but further development arduous.

We frequently see legacy systems remain in operation for years or decades because business units are closely familiar with them and shutting them down feels risky. At the same time, high maintenance costs ensure that a substantial part of the IT budget is tied up without these investments driving innovation forward. According to one study, companies invest up to 70 percent of their IT budget solely in maintaining outdated systems (Redwerk, https://redwerk.de/blog/best-practices-fur-die-modernisierung-von-altsystemen/). For us, it is therefore clear that this status quo cannot work in the long term and severely restricts the room for action in the mid-market.

When we talk to decision-makers in mid-sized businesses, we often hear about uncertainty regarding the modernization of IT infrastructure. Who hasn't experienced lengthy implementation projects or the fear of downtime in ongoing business? Such concerns are legitimate. But with the right approach, sensible solutions can be realized from both the user and budget perspective. Legacy systems are by no means a pure IT issue but affect corporate strategies, work cultures, and entire process chains.

Let's stay briefly with the risks of outdated software: security is one of the most important points. Systems that are barely maintained and updated are particularly vulnerable to attacks. Especially with business-critical applications, this can have fatal consequences — be it through outages, data losses, or security gaps. Added to this are possible compliance issues when new regulations such as the GDPR impose unified requirements on data storage and access controls (see also GDPR and legacy systems). From our perspective, modernization is therefore unavoidable in order to be economically successful in the long term.

The Mid-Market Strives for Modernization

In the mid-market, IT leaders and managing directors increasingly perceive that the potential of new technologies extends far beyond pure optimization. Modernized systems enable not only more performance and higher security standards but also open up new business models. For example, service orientation, cloud integration, or API connectivity allow rapid response to market changes, which in turn brings competitive advantages.

We observe that companies are increasingly considering incremental modernization models. According to a 2024 recommendation, transforming legacy systems in small steps is often considered best practice and minimizes the risk of outages [1]. This step-by-step approach is particularly attractive for small and mid-sized companies, since larger Big-Bang projects transfer a very high outage risk to day-to-day operations.

In addition, the topic of cloud strategy plays a decisive role in 2024 and beyond. In our experience, cloud platforms are by no means reserved for large corporations. They are often referred to as game-changers because they provide flexible and scalable resources [1]. Anyone integrating cloud solutions can absorb load peaks and thus better control costs. Above all, new services such as AI models or complex analytics can be integrated more easily on cloud platforms, which gives the company more innovation power.

Not infrequently, however, we hear: "We have a limited budget, our legacy systems are largely self-developed, and we don't know where to start." Here we recommend a careful assessment that not only examines technical aspects but also defines goals. What added value should be achieved, and which processes have priority? In the mid-market, this prioritization is essential. We consider it a proven approach to formulate explicitly measurable business outcomes at the start, such as reducing maintenance time or improving release cycles by a defined percentage.

Strategies for Sustainable Renewal

When we talk about legacy systems in the mid-market and modernization, we think of a variety of possible modernization routes. Among others, AWS's 7R model has become established, naming seven common approaches: Retire, Retain, Relocate, Rehost, Replatform, Refactor, and Rearchitect [2]. Each of these patterns brings certain advantages and disadvantages in terms of cost, complexity, and benefit.

1. Retire – Applications are decommissioned when they no longer offer added value.
2. Retain – Proven systems remain unchanged for the time being and continue to be maintained.
3. Relocate – The hosting environment is changed, for example to another data center.
4. Rehost – The well-known Lift & Shift moves applications as they are into the cloud.
5. Replatform – A variation of Rehost, with minor adjustments to take advantage of cloud functionalities.
6. Refactor – The code is partially reworked to benefit from cloud-native features.
7. Rearchitect – Major redesign of the architecture, often combined with breaking up monolithic applications.

We have often seen that mid-sized businesses choose a hybrid approach. Some application components may remain, while others are transferred to SaaS solutions or cloud infrastructures. This may mean, for example, that a dedicated team first refactors partial components and thus improves maintainability by up to 80 percent [3]. The important thing is to keep the before-and-after benefit in view. We recommend creating an application portfolio map to systematically capture business relevance, costs, and risks of individual areas.

In this context, we usually adapt well-known patterns to the company's reality. For businesses that maintain long-term customer relationships or manage international supply chains, reliability is the top priority. Each modernization step must therefore be safeguarded so that no interruption arises and no data is lost. Security plays a key role, because a migration to the cloud without sufficient data protection is a serious risk. Modernized systems should therefore cover routers, firewalls, access rights, and data flows with up-to-date encryption technology to fully ensure compliance and smooth operations [1].

Costs, Funding, and Compliance

Budget questions almost automatically push themselves to the fore. Many mid-market decision-makers are aware that legacy systems remain a hidden cost factor because maintenance costs add up year after year. Often it is not only direct license and support costs, but also the operational effort for workarounds, manual processes, and security updates. According to investigations, companies in the DACH region invest 60 to 80 percent of their IT budgets exclusively in maintaining outdated software systems [4]. For us, this underlines the urgency of not putting modernization off any longer.

Anyone planning long-term in this context is often interested in funding. In Germany in particular, there are public funding programs such as the KfW funding, which subsidizes digitalization steps in companies. We recommend conducting early research and carefully checking the requirements of the funding agency. A viable concept including a business case is often necessary to receive a grant. Detailed information can be found, for example, under KfW funding for digitalization. In our projects, we have experienced how such funding can be a real opportunity to sensibly augment existing IT budgets.

Compliance aspects are equally important. Through the interplay of new technologies and legal requirements such as NIS2, the EU AI Act, or the Energy Efficiency Directive, businesses must ensure that data flows and interfaces meet all required standards. Above all, the GDPR remains a central topic that strictly regulates the handling of personal data. In the course of modernization, legacy systems can be upgraded so that they manage personal data without concern. Our experience confirms that often only new system architectures enable the necessary transparency, for example through significantly more granular access rights. In parallel, documentation, monitoring, and logs must be implemented to pass audits smoothly.

Concrete Steps to Success

Modernizing legacy systems usually consists of several phases. In our practice, a six-step approach has proven itself: assessment, strategy development, proof of concept, gradual migration, testing, and finally go-live with hypercare phase [5]. These iterations ensure that risks are minimized and quick wins become visible.

1. Assessment We usually start with a thorough inventory. Cost factors, critical processes, dependencies, and security gaps are identified. From this picture, we derive initial priorities by asking: "Which application is business-critical?" and "Where does modernization create the most added value?"

2. Strategy Development Then we set a modernization strategy together with the customer. This includes determining whether a system is rehosted, replatformed, or even completely redeveloped. It quickly becomes clear that there is no one-size-fits-all solution. Decisive factors are budget and available resources, but also corporate goals such as growth in new markets.

3. Proof of Concept Before migrating across the board, we recommend a proof-of-concept project in a particularly urgent area. We thus see in reality how new technologies can dock onto the legacy system and how well teams handle them. If this PoC is successful, the trust of all stakeholders solidifies, which provides important momentum for the rollout.

4. Gradual Migration Now the actual migration follows. One can orient oneself by the so-called Strangler Fig Pattern, in which partial functions are detached from the monolithic legacy system and gradually replaced [4]. In this way, ongoing operations are not suddenly switched off but kept in parallel until it is ensured that the new functions run stably.

5. Testing Our experience shows that extensive testing before go-live is indispensable. We look not only at technical functionality but also conduct load tests, security checks, and integration tests. The more legacy systems and third-party applications are involved, the more important test planning becomes.

6. Go-Live and Hypercare The last step is official productive operation. We always plan a hypercare phase in which the team responds closely to any problems. Especially in the first days and weeks, unforeseen states can arise that require quick solutions. With a clear escalation path, we manage to secure user trust so that everyone quickly gets used to the new processes.

What Role Do AI Tools Play?

An increasingly important component is the use of AI-supported tools to make modernization more efficient. According to current insights, code analysis, translation, refactoring, and testing can often be accelerated by months with the help of AI [4]. We see, for example, that such tools transform legacy code into more modern programming languages, generate test scripts, or update documentation. This pays off directly in shorter project lead times and lower costs. At the same time, a strong focus must be placed on quality assurance so that automated steps deliver valid results.

SAP ECC and Other Large Systems

Mid-sized companies often face the question of how to deal with complex ERP landscapes, for example when SAP ECC is replaced in 2027. For many businesses, this deadline plays a major role because traditional support services for older SAP versions will no longer be guaranteed. We advise developing a modernization concept now and not becoming active only shortly before this deadline. Anyone who also wants to ensure comprehensive compliance and integration capabilities should incorporate new functionalities into the roadmap in good time. More on this can be found under SAP ECC replacement 2027.

Conclusion and Outlook

Modernizing legacy systems in the mid-market is a process that requires a clear vision and careful planning. We believe that a focused approach in several successive steps brings valuable advantages: gradual assessment of the current state, close involvement of all stakeholders, realistic budget planning, and continuous progress measurement. In this way, companies can develop future-proof IT structures despite limited finances. The decisive question is no longer whether to modernize, but how effectively and with how little risk this change is designed.

In our experience, a continuous improvement process ensures stable IT structures and secures a rapid return on investment. Anyone who has already successfully modernized in a partial area and can demonstrably measure this success generates momentum throughout the company. Measurable KPIs, such as shorter response times or reduced TCO, can be excellently communicated internally and give the IT department backing for further steps. More information on the ROI of modernization can be found under IT modernization ROI.

In closing, we want to emphasize that modernization is not synonymous with blindly replacing. Often, it is about cleverly combining old and new systems, switching off unused legacy assets, and deliberately tapping new use cases. Many companies opt for hybrid scenarios and use cloud platforms partly for development, partly for productive operations. Security guidelines and compliance also remain fully in view. Anyone who plans in time and implements in a structured way leaves legacy systems hardly any room to block day-to-day business.

We are convinced that the mid-market can best unfold its innovation capability with creative, well-thought-out modernization strategies. The time for change is ripe, because the demands from competitive pressure, customer expectations, and regulatory requirements are rising. A future-oriented IT infrastructure becomes the central success factor. By carefully evaluating, deliberately transforming, and forward-looking management, we open up the opportunity to continue reacting flexibly to new market developments — and thus to remain competitive in the longer term.