Global: A Failed Revolution
By Stephen Roach
(Morgan Stanley - New York)
The setting was perfect. I was the luncheon speaker for our tenth annual Pan-European equity conference in London. There was a noticeable buzz in the room where some 400 clients were gathered. Unlike the previous nine occasions when I had appeared in person, this was to be a video hookup from New York. With the logistics of my complex life preventing me from making the physical trip, technology came to the rescue. Or at least that was the plan.
After a stirring introduction from my colleague, Richard Davidson, I spoke for less than one minute before the screens in London went blank. Not to worry, I was told -- at least there is the well-tested audio back-up. That, of course, also failed in another 15 seconds. The "code red" alert then went out to our support teams in London and New York, and swarms of technicians descended on both sites. Finally, after a 22-minute delay, we were reconnected and the speech went like a charm. Well, not exactly. As is always the case on these video calls, body motions were blurred and staccato-like. And the ever-present time delay of 2-3 seconds gave new meaning to the concept of real-time connectivity and spontaneity.
I am certain that none of this shocks you. This is the way it is in the trenches of the New Economy -- technologies that constantly fail to deliver, fully twenty years into the so-called Information Revolution. Nor are the costs of these technology failures to be taken lightly. They entail an enormous wastage of time by an increasingly frustrated user community. And they are strangling corporate returns of most businesses that have added a new and extensive layer of fixed costs to support the requisite IT infrastructure. What I have called the deadweight of the Information Age is getting heavier and heavier (see my 29 August 2001 dispatch, "Deadweight in the Information Age").
Our tech people get really upset when I write about this. I feel bad for them. They are extremely hard-working and dedicated and will stop at nothing to fix those ever-present glitches. After I penned my last salvo on this topic, I got an immediate response from our senior IT managers. One of my complaints at the time was unstable connectivity -- the remote dial-up that never seemed to work. He gave me his personal assurance that he and his team would fix that once and for all. I was to get my own dedicated T-1 line to my home, the high-speed pipeline we reserve for our branch offices around the world. I was thrilled and gladly took the bribe. I promised to never write a critical piece on IT again. I was that desperate to get my precious laptop to deliver.
A few months went by and no T-1 line. But I knew our IT team wouldn’t let me down. And they didn’t. It was about a year ago over the holiday break, when a convoy of telephone trucks unexpectedly rolled down my street. The T-1 installation brigade had arrived. I confirmed this with the office and was given great assurance that the installation would be quick and painless. Three days of digging and thousands of dollars of property damage later, I threw them out. They were no closer to installing the perfect connection than my plumber. I went off to the local electronics store, bought a cable modem, and hired my own "consultant" to install it. It purrs when I use it.
It was onward and upward from there -- at least so I thought at the time. But then something mysterious happened in the fall of 2002 -- the Information Revolution started to go in reverse. Our servers started crashing with great regularity. The message, "The server has disconnected -- please try again" became a daily occurrence. E-mail abuses increased exponentially -- not just the overload of spam but increasingly frequent notices that my inbox was too full. Then there was the day when several hundred of my brilliant colleagues hit the "reply-all" in an effort to be taken off a misdirected group e-mail list. Our inboxes were stuffed to the breaking point. Chalk it up to carelessness or inexperience, it really doesn’t matter. The time-intensive burden of the cleanup was a price we all had to pay.
Sadly, my laptop also died in the fall of 2002 -- a fatal hard-drive failure. Of course, it happened while I was overseas and cut off from my loyal and dedicated IT support team. My life flashed before my eyes. I was nothing without my laptop. It was as if my heart had been cut out. Fortunately, I had been supplied with a backup laptop that was sitting in my office in New York -- yet another cost redundancy of the Information Age. All we had to do was get the backup to Paris and I was back in business. Easier said than done. French customs are a nightmare. In the end, it took upwards of 30 people working around the clock for three days to get my sleek new ThinkPad to Paris. I will never forget the joy when I saw it in my hotel room.
Little did I know what I had gotten into. The new laptop was not exactly a clone of the old one. The hardware was a step up but the software was not. It came equipped with a Windows 2000 operating system -- supposedly an upgrade from the NT system on my recently deceased clunker. With all due respect to Microsoft, this must be the most unstable operating system ever designed. There is literally not one day that has gone by in the past four months that the system hasn’t crashed -- frozen applications that can only be cured by the notorious "rebooting." When you call the help desk -- and I have done so all too many times to remember -- that’s always the first thing they suggest. Once I asked them why. The answer -- "I don’t know but it works more often than not." My diary tells me I am now wasting at least 30 minutes a day on the Windows 2000 syndrome. The good news is we’re all due for an imminent upgrade to XP. I can hardly wait.
The final straw actually came earlier this week when I was hit with the password-reset drill. For security purposes, we must change the code every few months. I followed my normal routine of simply changing the number at the end -- it’s worked like a charm for several years and I am able to recycle old passwords effortlessly. Not this time. Multiple unintelligible error messages later and I was back on the line with my friendly help desk. I was told that the new password had to contain an upper-case letter, a lower-case letter and a numeral -- and that it had to be at least eight characters long. I politely informed the support staff that the error message offered no hint whatsoever of what was required. He agreed and noted that he would be mad, too. "I get at least four calls a day from irate users like you, sir," he said matter-of-factly. Multiply that experience by the ever-increasing number of passwords that are emblematic of the Information Age -- what I have dubbed PPS (password proliferation syndrome) -- and I think we have a problem.
I am the first to concede that macro should not be based on anecdote or personal testament. But I don’t think I’m alone. By my count, America has some 42 million knowledge workers -- managers, executives, and professionals -- who are the warriors of Information Revolution. Add in another 38 million information-support workers -- technical, sales and administrative support workers -- and we’re talking about 60% of the total workforce that grapples with these types of issue on a day-to-day basis. Several years ago, I kept a diary of the time I wasted on IT. My guesstimate back then was around six hours per week (see "The Dirty Little Secret of the Information Age" in the July 21, 1999 issue of US Investment Perspectives). If anything, that number has risen over the past few years.
That’s where the macro gets interesting. Two key implications come to mind -- the first pertaining to productivity. Wasted time is not productive time. And, as documented above, there is far too much wastage in the Information Age. That only compounds the problem of unmeasured work time in an IT-enabled society. Courtesy of ubiquitous connectivity and portable information appliances (cell phones, laptops, PDAs, and the Blackberry), information workers are toiling around the clock -- a far cry from the labor input (34 hours per week) that the government builds into the official productivity calculus. I’ve long stressed that productivity is not about working longer -- it’s about getting more value added per unit of work time. I continue to fear that we are seriously overestimating knowledge worker productivity.
My second concern pertains to the macro of business sector performance -- costs, earnings, and competitiveness. As noted above, the IT spending binge has added a new layer of fixed costs to Corporate America’s cost structure. According to government data US businesses have spent some $3.3 trillion on IT over the past decade alone. The service sector owns more than 80% of America’s installed base of information technology. Courtesy of the information revolution, that means once quintessential variable-cost enterprises -- whose main assets were people -- have been transformed unwittingly into increasingly fixed-cost companies. That puts a new and seemingly chronic squeeze on profitability and competitiveness in America’s vast services sector. The globalization of services only exacerbates this problem. No wonder US businesses have been slashing IT budgets over the past couple of years.
For years, we’ve all heard about the Promised Land of the New Economy. Loaded up with the latest in new technologies, smart and nimble knowledge workers would ride the productivity curve to a new prosperity. The Information Revolution was supposed to give us all that and more. A funny thing happened on the road to that revolution. First, the asset bubble popped. And then the technology disappoints. Maybe some day it will be different. But for now, call it a failed revolution.
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