Application Modernization and Business Agility in Banking

Introduction

Application modernization refers to the redefinition of a business's software system so that it aligns with modern business needs and fulfills newly arising customer demands (Johnson and Mulder, 2015). The refactoring of an application should be carried out in a way that reduces business costs, producing maximum benefit for both customers and the business itself. Accordingly, codebase quality and application feature sets are becoming central concerns in modernization efforts. Keeping up with changing customer preferences, achieving quickness in product and service delivery, and creating an innovative customer experience are all priorities that organizations must address. Organizations must therefore be thoughtful about deploying application modernization in order to enlarge business opportunities, facilitate customer satisfaction, augment sales, and expand profits.

This paper presents a research proposal focused on the following research question: examining the effect of application modernization on business agility in organizations, specifically within the banking sector. The three hypotheses developed for this purpose are:

The primary recipients of this research are the academic institution and pertinent staff, along with the thesis supervisor. Additional recipients include banking industry personnel who may reduce their costs by recognizing the increased pressures of globalization and global disruptions — such as pandemics — that impose extra costs and heighten the need to deliver excellent digital services to clients during times of uncertainty. Financial institutions are consistently driven to search for new ways to innovate and modernize their legacy applications so that a revolutionized IT infrastructure can strengthen their functionality and service delivery.

Literature Review

Recent research has placed increasing emphasis on business agility — a firm's capacity to adapt to new market changes, whether in the form of shifting consumer demand, new competition, or emerging information technology resources that may introduce uncertainty. Businesses must be able to handle the turbulence arising from such situations. Mathiassen and Pries-Heje (2006) stress the significance of infusing IT into businesses and building strong foundations for future preparedness. Firm-level and business-level analysis following IT infusion for service enhancement should align with broader business strategy in order to keep workflows smooth, minimize disruptions, and improve agility in delivering quicker service to consumers. After deployment, supply chain management should be streamlined, with clearly defined roles and responsibilities.

Application modernization involves agile development practices that businesses have increasingly adopted, bringing with them both challenges and benefits. For example, firms generally regard agile methods as conducive to improving business performance; however, agile and lean software development approaches have also introduced several obstacles during transformation (Dikert, Paasivaara, and Lassenius, 2016). A systematic literature review of 52 publications based on numerous industrial cases identified 35 self-reported challenges and 29 success factors, all hinging on salient features of software development that drive business agility.

Several recent articles underscore the importance of integrating information technology in service-sector businesses such as banking. One such study addresses business agility and the infusion of IT in service organizations, noting that managers regard IT as one of the most crucial support systems during times of uncertainty (Oosterhout, 2010). Although IT cannot eliminate uncertainty, it can help minimize risk, cope with unpredictability, and respond to changing consumer preferences. It enables new product innovation and eliminates delays that might cause customers to switch to competitors. A competitive advantage is secured when less time is required to bring products and services to market. IT systems can also be relied upon to forecast service demand, build flexibility into offerings, and distribute those offerings on schedule. As this body of research documents, new IT applications built on modernized infrastructures still require time for deployment and carry inherent risks and challenges.

Retail banks have recently undertaken digital transformation; however, this process is frequently misunderstood, as it entails risks alongside its benefits. Krasonikolakis, Tsarbopoulos, and Eng (2020) employed a grounded theory approach — conducting interviews with senior banking professionals — to explore the effects of digital transformation on retail banking. Their findings indicate that using digital transformation to improve business performance in banking is not as straightforward as expected. Change must be implemented comprehensively, encompassing organizational culture, policies, institutional structure, and the technological interrelationship with a regulatory framework.

The application of next-generation technological transformation through application modernization — including cloud computing in financial services — has also been studied by McKinsey & Company, whose research again highlights challenges and possible solutions for IT infrastructure modernization (McKinsey & Company, 2020). That report stressed banking agility while keeping costs and risks low, emphasizing that infrastructure cannot be digitally transformed without carefully rethinking issues related to marketing timelines, security, customer confidentiality, service quality, reliability, and employee satisfaction and retention.

Modernization of legacy systems and applications in the banking and financial sector primarily involves transforming mainframe software into modern equivalents. Modern technology provides problem-solving features to customers (Quinn and Hirsch, 2020). One notable method involves application programming interfaces (APIs), which have been favorable for both customers and banks by enabling fast service delivery. Fintech has provided prominent services such as mobile payments, automated investment applications, online payments, and cryptocurrency, contributing to some of the fastest IT-based financial diversifications in competitive markets (Nguyen, Dinh, and Nguyen, 2020). Nevertheless, banking sector experts have identified challenges in incorporating Fintech and similar adaptations in application modernization, particularly in Vietnam. The authors cite five challenge categories that Vietnamese companies have encountered: issues related to the company itself, legal frameworks, infrastructure, human resources, and customers.

Certain gaps in the literature motivate the currently proposed research. First, there is limited recent data on this topic — specifically regarding business agility and application modernization in the banking sector. Existing research tends to focus on IT infusion and its impacts on the service industry broadly, or discusses challenges and risks in isolation. The effects of application modernization on reducing business costs in banking, on the number of services offered to customers, on efficiency of customer service, and on the time available to bring those services to market have not yet been systematically examined in the context of service upgrades in the banking industry. Furthermore, studies incorporating the views of bank managers through quantitative and correlational research methods are scarce.

Research Methodology

The study design is quantitative. A quantitative survey would be conducted among bank managers who have either observed improvements in their bank's services following application modernization, or who hold informed opinions on the expected outcomes of such modernization. This approach allows measurement of the effects of application modernization in terms of the dependent variables specified in the hypotheses.

Since this is a correlational study with independent and dependent variables, quantification is essential. The quantified survey results will help measure the extent to which bank managers believe application modernization is valuable for improving customer service and reducing costs. The independent variable is the adaptation of application modernization, while the dependent variables are time to market, cost reduction, and the number of services offered. Awareness of these variable relationships and their accurate measurement is central to the research design.

The researcher conducting this study requires familiarity with correlational research methods, quantitative survey design, data extraction, statistical analysis, and interpretation of quantified data. Relevant academic coursework in qualitative and quantitative methods of data collection provides a foundation for this work. Prior professional experience within a banking environment — including direct work with bank applications and software and familiarity with customer service delivery methods — further supports the researcher's capacity to contextualize and interpret the survey data.