ORCL still cheap.
Turning The Y2K Bug Into The Y2K Boom
By Mel Duvall and Todd Spangler, Inter@ctive Week
December 20, 1999 12:00 AM ET
The time bomb is only days away from going off. Planes will fall from the sky. Elevators will stop operating. Entire countries will be plunged into darkness. And corporate America will have to divert millions of dollars in spending to clean up the mess. Just because some computer systems will not be able to handle the change of date at the turn of the millennium.
Yeah, right. Enough with the year-2000 doom prophecies. Instead, get ready for the Y2K boom.
As the century ends, an informed consensus is that the Y2K bug appears to have been squashed. While no one is predicting the new year will proceed without a hitch, most computer systems experts now believe the problems that do arise will be manageable and more of a nuisance than a recession-inducing disaster.
Shift into overdrive
"I think we're in remarkable shape," said Len Neuzil, senior vice president of production systems at Chicago-based Options Clearing, which has a $35 billion financial liability on the line. "I am really, really comfortable that if anything goes wrong, it will be something the industry can handle," he added, referring to the financial services sector. "Nobody should be panicking over this."
In fact, after a few weeks of holding their collective breaths to make sure everything is OK and to work on any unforeseen problems, corporations of every size are expected to shift into overdrive and begin investing heavily again in new information technology (IT) projects. And at the top of their priority lists will be projects that can help them take advantage of the electronic commerce revolution.
Corporations such as McKesson HBOC (www.mckesson.com), the world's largest health-care services company, have a raft of projects on the table to extend their ordering and payment processing capabilities to suppliers and customers over the Web. Manufacturers such as Ford Motor (www.ford.com) and General Motors (www.gm.com) are planning massive efforts to link all of their suppliers and dealers over the Internet, and local and state governments such as the state of Missouri (www.state.mo.us) said their biggest problem is in deciding which project to tackle first.
"What we're clearly seeing is a pent-up demand resulting from the intense focus on Y2K," said Lynn Edelson, head of PricewaterhouseCoopers' Operational and Systems Risk Management practice. "Clearly, most organizations have been reluctant to embark on major IT projects with that Jan. 1 deadline looming on the horizon. That will change soon after the new year."
In a survey of 100 chief financial officers and chief information officers at major corporations, PricewaterhouseCoopers (www.pwcglobal.com) found that roughly 50 percent had deferred or aborted IT proj ects in order to concentrate on solving millennium bug issues. Of those, 73 percent said they would implement the deferred projects in the first three months of 2000, while another 20 percent said the projects would be resumed in the second quarter.
Edelson said she expects corporations will go through a "lockdown" period of one to two months, during which no projects will be launched and IT systems will be closely monitored for problems. But following that hiatus, she expects companies will try to make up for lost time.
"The fact is companies can't afford to sit back and wait any longer," Edelson added. "If the brick-and-mortar companies in particular don't get more aggressive, they're going to get hurt, because the speed at which the 'dot com' companies are moving is incredible."
The rosy forecasts are quite a turnaround from the dire predictions of a year or two ago. Warnings from so-called Y2K experts — often eager to sign up clients that needed help in finding the two-digit fields in their software systems that would not be able to tell whether the date "00" meant 1900 or 2000 — were scary enough to cause people to empty their bank accounts, hoard food in basements and create a run on gas-powered electric generators.
Now, as the new year gets rung in, the widespread belief is the world will not come to an end — perhaps because the warnings were heeded. Peter de Jager, who created the Year 2000 Information Center (www.year2000.com), said it required a tremendous amount of ranting and raving to get people's attention, but the hyperbole was necessary. "We finally got over our denial that it was an issue," he recently stated. "I believe that, for the most part, we have put the worst of the scenarios behind us."
Billions & billions of bucks
This rescue, didn't come cheap. GartnerGroup (www.gartner.com) estimated that companies around the world spent about $436 billion to fix the problem. International Data Corp. pegged the repair bill at closer to $363 billion.
Of course, no one really knows what will happen when the clock strikes midnight on Dec. 31 and, for that reason, even companies that have declared their millennium bugs dead will have strike forces in place just in case.
Comdisco (www.comdisco.com), a Rosemont, Ill., company that specializes in disaster recovery and continuity services, will be on full alert on New Year's Eve and in the days following. John Jackson, president of the company's continuity services unit, said as many as 400 staff members will be on standby at five command centers in Chicago, London, New Jersey, Rosemont and San Francisco, hopefully eating pizza and drinking soda.
"I've been in this business for 30 years and actually wrote some of the code that won't work," Jackson said. "I'm optimistic that we'll have a pretty boring night."
The message is much the same at major telecommunications companies, most of which believe their biggest problems will be coping with the usual midnight phone calls to friends and family.
Malcolm Petty, vice president at Sprint's business information and technology solutions division, said the carrier will have spent $315 million on Y2K projects through the end of this year. He said Sprint (www.sprint.com) did not have to table any major projects, such as the rollout and development of its Integrated On-Demand Network, to get the job done. However, it is now in a holding pattern that began around mid-November and will extend through the first weeks of January.
"We did have to take some of our key resources and put them onto Y2K efforts in 1998 and 1999," Petty said. "The approach we took, though, was not to eliminate projects. In some cases it elongated projects."
After the Y2K storm passes, Sprint plans to put its energy into new initiatives. "Clearly, Y2K requires you to take some of your best people who are experienced on the network and put them on remediation efforts," Petty said. "There will be thousands of man hours that will free up across the gamut of network and application groups that had been devoted to Y2K efforts."
There could be a decline in IT budgets in the new year once companies take out the portion of spending dedicated to Y2K. But that reasoning is now being questioned. Dave Johnson, a spokesman at AT&T's network operations center in Bedminster, N.J., noted that even though AT&T (www.att.com) spent $650 million on Y2K fixes over the past three years, it still makes up a relatively small portion of the communications giant's $10 billion IT and infrastructure budget.
According to the PricewaterhouseCoopers survey, 51 percent of CFOs and CIOs said Y2K spending represented the largest technology project ever undertaken by their organizations. But despite the fact that work is now over, 36 percent said their IT budgets will increase in 2000, and a further 42 percent said their budgets will remain the same. Only 22 percent expect their budgets will decrease.
Where will that money be directed? E-business, e-business and more e-business, Edelson at PricewaterhouseCoopers said.
Corporations are expected to focus their resources on four key areas: install ing Enterprise Resource Planning (ERP) projects with hooks into suppliers and customers over the Internet, customer relationship management (CRM) systems , supply chain management (SCM) systems and Internet commerce applications.
IDC (www.idc.com) predicted the Internet commerce application market will grow from a mere $444 million in 1998 to $1.7 billion in 1999, then leap to $4.2 billion in 2000. By 2003, it will become a $13.1 billion market.
AMR Research (www.amrresearch.com) predicted the ERP market will jump from $20.2 billion in 1999 to $27.7 billion in 2000; the CRM market will climb from $3.7 billion in 1999 to $5.4 billion in 2000; and SCM revenue will grow from $3.9 billion to $5.8 billion. So much for a Y2K-induced recession.
In addition to corporations, local, state and federal governments are expected to focus their attention on major e-commerce projects in 2000. Michael Benzin, CIO for the state of Missouri, said the difficult part will be in narrowing down priorities.
"Elected officials are hugely interested in improving the state's interactivity with the public," he said. "Government looks a lot like industry when it comes to e-business." According to Benzin, 80 percent of the activity will be focused on "government-to-business" activity. "Of course," he added, "it's the government-to-citizen projects that get all the noise."
Missouri plans to work with Relativity Technologies (www.relativity.com) to begin "Web-enabling" as many as 50 of its legacy systems in the new year. Relativity provides software that can transform older legacy applications, such as those written in COBOL, into more modern architectures, such as C++ and Java.
The goal, Benzin said, is to develop Internet links to those applications so citizens and businesses can access information, pay tax bills and apply for drivers' licenses and various permits such as fishing or hunting without the intervention of human hands.
"It's going to result in a huge cultural change for government," Benzin said. If the turn of the year goes as smoothly as he thinks it will, new IT proj ects will be launched by the end of January. And he's expecting his $250 million IT budget will get boosted, even with Y2K spending taken out.
Health-care services giant McKesson has just completed a mammoth SAP (www.sap.com) ERP installation. The project, initially plagued by a series of starts and stops, took four years to complete and came in at $50 million.
Armen Tekerian, vice president of enterprise systems at McKesson, said the company doesn't plan to cut back on spending now that the ERP system is in place. In fact, he said it simply provides the backbone to begin a variety of new e-business initiatives. McKesson plans to implement or expand systems in the new year that will allow it to order pharmaceuticals from all of its suppliers and in turn allow its customers to order products online. McKesson supplies drugs to many of the nation's largest retailers, including CVS, Rite Aid and Wal-Mart Stores.
"The fact of the matter is we can't afford to sit back," Tekerian said. "We're going to have to continue making these kinds of investments if we want to grow and protect our business. We don't have a choice."
Options Clearing (www.optionsclearing.com) is in a lockdown that is expected to last until after another odd date: Feb. 29 — leap day. However, after that, it plans to embark on a number of new projects, primarily aimed at extending trading hours and providing real-time information to brokerage customers.
"Once we get through [the lockdown period], I expect the floodgates to open" on projects put off in the last quarter of 1999, Neuzil said.
Ford and GM, the nation's largest automakers, have teamed up with Oracle (www.oracle.com) and Commerce One (www.commerceone.com), respectively, to build Internet marketplaces. The marketplaces will allow the automakers to buy parts and supplies from thousands of vendors worldwide, producing big savings on the $160 billion they spend each year on parts and supplies.
The two big American car companies hope to test these marketplaces by the end of the first quarter and have them operating by the end of the second quarter.
For all of the turmoil it created, McKesson's Tekerian said, the Y2K bug did have one major benefit: It elevated IT into the corporate boardroom — an evolution that had to take place if executives were going to fully understand and be able to react to the changes lying ahead.
PricewaterhouseCoopers' Edelson couldn't agree more. "There has been a great awakening," she said. "CIOs are now regularly in attendance at management and board meetings, and the linkage of technology and corporate strategy is clearer than ever."
Beware the brick-and-mortars
What could be one of the results of this redirected spending and intense management focus? The long-awaited revenge of brick-and-mortar companies. "Dot com" companies have had it easy while traditional competitors focused on their Y2K concerns. Now they'll have to compete against traditional players that not only have tremendous financial and IT resources to bring to the table, but are also anxious to make up for lost time.
This slingshot effect is part of the reason behind the $6 billion merger last week between Internet systems integrator USWeb/CKS (www.uswebcks. com) and back-end systems specialist Whittman-Hart (www.whittman-hart.com).
"I think people are just counting the days to get past this event," USWeb/CKS Chief Executive Robert Shaw said following the announcement of the merger. "Once they do, we're expecting to see an explosion in activity."
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