Re: Gartner Testimony
The link takes forever to load on my cable modem, so, to save people time, I've copied the text here (too graphic intensive):
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Statement of John Bace
Research Director, Gartner Group, Inc.
Testimony Before the Subcommittee on Oversight
of the House Committee on Ways and Means
Hearing on the Year 2000 Computer Problem
May 7, 1998
Good afternoon Madam Chairwoman and members of the committee. My name is John Bace and I am a research director for the Gartner Group. I would like to take this opportunity to thank you for inviting us here today to share with you the findings of our research on the year 2000 -- or Y2K as it is known -- and the state of work underway on year 2000 projects both here in the United States and around the world.
Before I get into the details of our research, allow me to tell you something about the Gartner Group. Founded in 1979, we are the world's largest information technology (IT) research and advisory firm with more than 33,000 individual clients at more than 9,000 organizations worldwide. We cover this very fast-growing industry with more 750 analysts located in 49 countries around the world.
We published our first research about the upcoming impact of the Y2K problem on IT organizations back in 1989. We are sorry to say that we can only deduce that our warnings and suggestions have gone mostly unheeded. Our current research -- completed in the first quarter of 1998 -- on the state of the IT infrastructure regarding year 2000 makes us very pessimistic.
Indeed, the year 2000 problem infesting the world's computer and IT systems has the potential to have a negative impact on to disrupt the normal flow of everything we do: from brewing our coffee in the morning and recording our favorite television show at night to putting into question our financial net worth or keeping track of who we are and where we work.
At the heart of this problem is, as you have heard time and again, the practice of using only two digits to record the year in computer programs, records, and database entries. Thirty-five years ago when hardware was expensive, storage was scarce, and the industry was evolving quickly, the use of two digits for years was considered a best practice. The programmers or systems analysts of the day never thought the programs they were writing would survive to the end of the decade, much less into the next century. Indeed, many companies faced mini-Y2K crisis in 1969, 1979 and 1989 as they wrestled with some computer programs that kept track of the year with only one digit.
However, the way the industry evolved, building the next generation on top of the previous, those best practices of yesteryear became the cracks in the foundation that threaten the entire house today. As a result, we stand on the threshold of a unpredictable and uncertain future. No one is completely sure what impact this year 2000 problem will have on us personally, on the economy, or on society in general.
Some will lead you to believe that the problem will begin at the stroke of midnight on December 31, 1999. Indeed some scenarios recall the 1950s science fiction movie "The Day the Earth Stood Still" with lights going out, motors grinding to a halt, and airplanes falling from the sky. These are not the subjects of our research at the Gartner Group regarding the year 2000. We believe that the fundamental computer programs, those that are used to run most companies, have in some cases already experienced a year 2000 anomaly. Indeed, some production planning systems that use a five year resource balance view, hit their Y2K wall three years ago. Insurance companies and financial institutions that calculate interest rates have been wrestling with and doing work-arounds the zero-zero year for some time.
In each case, as these companies hit their Time Horizon to Failure (THF), normal operations were interrupted and the resources of the enterprise were thrown in to fight the problem in a crisis mode. Most have handled these year 2000 problems successfully and have done nothing more than create a small ripple through the economic structure of the company.
What worries us at the Gartner Group is that as we approach New Year's Eve 1999, more and more companies will hit their Time Horizon to Failure on more and more different applications. As result, more and more business functions within each enterprise will be negatively impacted and need to be dealt with in a crisis mode. We are afraid that there just will not be enough talent and resources available, given the amount of time left, to handle all of the potential failures in a timely fashion. As a result, companies could lose the ability to process invoices, issue payroll checks, or collect taxes for an unpredictable amount of time as they wrestle with each system failure.
Other companies who are dependent upon electronic commerce, EDI, or just-in-time manufacturing need to be concerned about the integrity of the systems of their trading partners and their supply chain. For example, the inability of a parts supplier to be able to correctly read inventory levels at a manufacturing company, could shut down another firm's production line.
The result is that no one single year 2000 problem hits a major artery that could kill a company. However the combination of failures within the enterprise and from the outside might have the effect of disrupting business in such a way that the company bleeds to death instead from a series of paper cuts.
As normal business operations are interrupted there will be follow-on economic disruption. Some say that the impact will be mild, a two or three quarter dip in the Gross National Product that will feel like a speed bump on the road of the longest economic expansion in history. Others suggest that the year 2000 business disruptions will be the pot hole that finally puts to an end our growing economy. Indeed one estimate suggests the economic impact will be equal to the OPEC oil embargo of 1972.
Finally, before I get into the details of our research, allow me to share one last observation about the year 2000 marketplace. Some estimate that Y2K has the potential to become the most litigious event in the history of civilization. Indeed, if the Internet is any indication, and depending upon the type of search engine you use, you may find nearly one-half of the results from a search on "year 2000 or Y2K" to be from law firms or class action groups preparing for the result of the new millennium crossover. Lloyds of London, at an underwriter's conference in June of 1997, estimated the impact of year 2000 total cost for just the United States at one trillion dollars. The Lloyds figure included not just the cost of hardware, software, and services for remediation, but also the cost of litigation, actual and punitive damages, and lost opportunity cost.
Five years ago, Gartner Group begin work on a measurement tool called the COMPARE Scale. COMPARE stands for COMpliance Progress And REadiness. Our clients told us they wanted a universally understood yardstick that could be used to communicate within the enterprise, the board of directors, auditors, trading partners, and customers about the status of their year 2000 remediation efforts.
The scale, which is seen in Figure One, is graphically illustrated as a smooth set of equal steps. In reality, the scale is logarithmic, which means it is nearly twice as difficult to go from step three to step four as it was to go from step two to step three.
Figure One
The scale begins, of course, at Level Zero, which means no awareness of the year 2000 problem. At Level One, the enterprise is in the information gathering stage, planning resources, and establishing vendor compliance requirements.
At Level Two, the enterprise has a full and complete inventory of its IT portfolio, the core team for the Y2K Project Management Office has been selected, test scripts are being developed, non-IT and embedded systems are being reviewed and an impact analysis is underway.
At Level Three, the key requirements that need to be met for the enterprise are that the budgets are fully approved, assessment is complete as well as the impact analysis and the test scripts are fully developed. By this point in time, the enterprise needs have completed at least 20 percent of mission critical systems remediated, tested and reimplemented as well as 20 percent of its PC and desktop assets.
At Level Four, the remaining 80 percent of all mission critical systems are fully remediated, tested, and reimplemented. Which means, the IT systems provide the enterprise operational sustainability to reach the millennium crossover point.
At Level Five, the key factor for success is that all of the trading partners, electronic commerce links, and supply chain systems for the enterprise are fully remediated, tested, and functional.
In the first quarter of 1998, Gartner Group undertook a survey of 6,000 companies in 47 countries to determine the worldwide status of year 2000 projects. This survey sample was developed in such a way as to give us the most accurate and detailed status by size of enterprise, industry, and geography. Figure Two shows the results of our worldwide findings.
Figure Two
Worldwide COMPARE Scale Results
as of 1Q1998
COMPARE Scale Percentage Level Zero25% Level One 20% Level Two 15% Level Three 25% Level Four 10% Level Five 5%
The most telling numbers here are the cumulative additions for Levels Zero, One, and Two. That translates into 60 percent of the world's companies which have yet to remediate, test, and reimplement at least 20 percent of their IT systems. Additionally, our research shows that the five percent reporting themselves at Level Five are either very small companies or those with extremely limited, non-automated interaction with other firms.
How does the United States and how do key industries show up on the COMPARE Scale? I call your attention to Figure Three, which at first glance looks to be extremely complicated, but allow me to walk you through this chart.
Figure Three
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We can see a large oval stretching primarily from the Level One 10 percent curve to just beyond the 50 percent complete curve at Level Four. This represents the status of the United States, Australia, Canada, Israel, the United Kingdom, and Ireland. Within that oval, you can see that the large investment services, large insurance companies, and large banking institutions are the furthest along on this scale, which translates into the lowest probability of a mission critical system failure due to year 2000 anomalies.
Figure Four
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Our research indicates that governmental agencies in the United States -- state, local, and federal -- are generally at about 15 percent complete in their year 2000 projects, which would place them on the threshold of entering Level Three on the COMPARE Scale. There are, of course, some agencies further along than others, however the majority are still far behind in their work.
Figures Four and Five provide an overview of the worldwide results by both geography and industry.
Figure Five
If these trends continue, our predictions for completion of year 2000 projects by January 1, 2000 are very pessimistic. Figure Six summarizes our estimates based on current trends. These translate into only half of worldwide enterprises reaching operational sustainability with 20 percent reaching Level Five and 30 percent at Level Four. This does not mean we are predicting one half of these companies will fail. What we are suggesting here is that these companies will experience disruptions in normal business procedures and operations due to year 2000 computer related problems.
Figure Six
COMPARE Scale Predictions
as of January 1, 2000
COMPARE ScalePercentageLevel Zero20% Level One 5% Level Two 10% Level Three15% Level Four 30%Level Five 20%
As a citizen of the Republic and an investor in the economy, I wish I could be more optimistic. However, as a technologist who wrote his first computer program in 1968 I am painfully aware of the impact even two simple wrong digits can have on the operation of any IT system. As result, this is a very real problem that needs to be addressed quickly.
I thank you for your time and this opportunity.
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