Why Corporate America Still Runs on Ancient Software That Breaks

Joe Weisenthal (0:10)

Hello, and welcome to another episode of the Odd Lots Podcast. I'm Joe Weisenthal.

Tracy Alloway (0:15)

And I'm Tracy Alloway.

Joe Weisenthal (0:17)

Tracy, I forgot to ask you, and it's kind of embarrassing, like this late in January, but how is your New Year's, like how's your holidays? Do you have a good Christmas and stuff?

Tracy Alloway (0:27)

Aw, thanks, thanks Joe. I had an excellent Christmas. I stayed at home for a week with my husband and my dog, and we did hardly anything, and it was absolutely glorious.

How about you?

Joe Weisenthal (0:39)

It was all right. So the thing was, I was down in Texas visiting family, which is nice, but there was that huge cold blast, and it's worse in, when the weather gets really cold, it's worse in a place like Texas, because none of the buildings are insulated particularly well, none of them have that heat. So it's like when it's really cold, it's actually better to be in a cold place where people are used to it, so it's a little uncomfortable. But the good news is somehow I managed to travel back and forth without having any major airline disruptions.

Tracy Alloway (1:13)

Right. So this is the key thing that happened right before Christmas, which is we had that very big winter storm, the Arctic bomb blast, and it disrupted a ton of flights.

First off, because of the weather, but then what happened is you had this sort of cascade effect because the weather event was so large, a number of airlines, but one airline in particular experienced a lot of problems with its software, and Southwest had to cancel, I think in the end, it was something like 16,000 flights. You had millions of passengers affected, and you had disruptions that, you know, a weather-related disruption that lasted one or two days ended up lasting, I think, more than a week because of the impact of the computer glitches, I guess.

Joe Weisenthal (2:01)

Yeah, yeah, that's right. You know, airline travel, it always sort of cascades and ripples out, right, because a canceled flight is going to affect other flights and so forth. But it seemed like Southwest experienced something unique, which is that they turn into this major software problem. And it's sort of like a reminder that, okay, when we use the internet, when we use sort of like modern consumer software, it's all very zippy and quick and it has nice interfaces.

And then when you use sort of like backend corporate software, particularly at large legacy institutions, it's just like, it's nothing like the consumer internet. It's like clunky. It's like, we all know what it's like.

Right.

Tracy Alloway (2:43)

So this is something that came up quite a lot. I used to cover the big banks. And one of the crazy things that I learned relatively early on while I was doing this was just how much of their IT system was still these old creaky big iron mainframes. Some of them still running on COBOL, which is the programming language that I think it dates back to the 1950s or 1960s.

And I remember, you know, you hear this, you hear like, oh, I can't believe that these big banks, our entire financial system in some respects, is still running on these legacy computer systems. But on the other hand, if you look at what a big bank is, it's structurally a series of mergers and acquisitions. There used to be the...

Joe Weisenthal (3:26)

No, that's a good point. That's really well put, yeah.

Tracy Alloway (3:29)

There used to be this great flow chart that showed the formation of like a JP Morgan or a Bank of America. And you can just see it's like a series of roll ups of smaller banks, and you think every time they acquire a new bank, they have to integrate another system into their own system. And in the end, you kind of end up with this just incredibly like complex and kind of patchy IT structure that in some ways very much resembles the amalgamation of all these smaller banks into a larger bank.

Joe Weisenthal (3:59)

Yeah, that's totally right. Like you think of like banks and when they merge, it's just like, okay, like, you know, the capitals all merge together and the assets, et cetera. But like, right, like none of them are going to have like IT systems that work perfectly together. So they're like glued together with like duct tape and just over time, I think technical debt is a term that software engineers and so you accumulate all this technical debt. And I'm sure like nobody likes it inside the bank at any level, but I've always been curious like what are the economics such that it is just so impossible for these legacy institutions, banking, airlines, the public sector to like get with the times, you know?