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If you want to go out of business, ignor... It's out of the office and into the futu... Peace at a price in standards wa... A reference library in your pocke... Get a fast 'brain' to stay ahead in the... It pays to get it in writin... |
If you want to go out of business, ignore the Y2K bug
As the millennium approaches, the cost of corporate survival - making computer systems Year 2000-compliant - will rise to staggering levels, writes TANYA ACCONE
Hopes that the Millennium Bug is a hoax, that a silver-bullet solution will be discovered and revealed just in time, or that organisations are covered through their contracts, are in vain. According to NatWest expert Achi Racov, "if you don't already know what the Millennium Bug is about and have not started to work on it, do not worry -- you have less than two years to remain in business". To date, companies have shown three stock responses to the Y2K problem: some take it seriously and institute programmes to address the problem, while others resort to the ostrich option or, like David Starr, chief information officer of the Reader's Digest Association, dismiss it as "the biggest fraud perpetrated by consultants on the business community since re-engineering".
Unfortunately, far too many SA companies are not taking the issue seriously. According to a survey by consultant Richard Weeks, only 33% of IT managers report that the Y2K issue is being raised at board level. The Software Futures survey of SA's 31 largest companies reveals that less than half of companies are a quarter of the way and only 6% have reached the halfway mark in doing anything. The survey shows huge problems in budgeting for the fix-up.
A survey by The Economist found that groups already a year into their repair programmes reported that, had they done nothing, they would have faced consequences such as the complete failure of their billing and accounting systems or the inability to do business at all.
Even the most conservative local estimates predict that at least 10% of all businesses will be forced to close in the new millennium. This has prompted some companies to view lack of compliance as a reason to switch suppliers.
There are moves in the US to legislate that all public listed companies declare what they are doing regarding Y2K compliance, how much they have spent on the project and what stage they have reached in their programme. This is seen as a vital protection to shareholders and potential investors, justifiable on the grounds of the risk to individuals and the economy. It is feared that a widespread Y2K crash could trigger a recession.
Locally, this kind of transparency is lacking among the companies who are even tackling the issue. First National Bank has been one of the few to give any details regarding its Y2K programme, saying it has set aside R130-million to upgrade 6 000 ATMs, 20 000 point of sale terminals, 30-million lines of code and embedded chips.
Some pooling of common knowledge has occurred among companies tackling the problem. Useful experiences and time-saving tips - like using relative comparisons with a 28-year cycle to apply 1972 data as effective test data - is occurring among groups such as one called the Year 2000 Forum.
For some companies, the choice has been merely to accelerate the changeover to new client-server systems, but it is too late to consider this as a viable option now. Most companies have no choice but to fix what they have or go out of business.
As the seconds tick away, the cost of fixing the problem increases and this is nowhere more so than in SA, where programmers and computer science graduates are being lured away in significant numbers to better-paying positions abroad.
Technology Management Reports (TMR), a San Diego research firm monitoring the global impact of the fix, released a report on the increasing costs to fix each line of code. Costs are projected to increase to R17.74 in the last months of 1999. The Gartner Group predicts a 10% monthly cost escalation.
Increased levels of litigation are also expected. Typically, the lawsuits are expected to involve Year 2000 consulting groups and their clients, contractors and suppliers, shareholders as well as management. In the US, the Y2K problem is seen as a legal feast, but in SA many firms maintain it will be business as usual, in slightly higher volumes.
"The Year 2000 per se is a legal non-issue," says Dairmuid Short, a partner in Webber Wentzel Bowens. "Essentially the litigation will involve contractual issues when one party to a contract fails to fulfill its obligations owing to a Year 2000 problem. They will not be able to claim that they were not aware of the problem."
Legally, managers who endanger the health of their companies and those they do business with by ignoring the millennium warnings, will be hard put to find a defence. One local financial director has already tendered his resignation to highlight the personal liability he and other directors would hold if his company continued to ignore the problem.
"Directors, especially executive directors, could be held liable by shareholders through a derivative action, as well as being held liable by the company itself and those relying on its financial information," says Short. "It is important to disclose the possibility that the company may not be Year 2000-compliant in the audited reports if that is the case."
It is equally critical that the executives responsible are also directly involved in, and committed to, their company's Y2K project. Strong leadership and executive sponsorship are essential, as is the realisation that the Y2K problem is a business problem, and not merely an IT predicament.
"'The decisions that need to be taken are business decisions," says IBM's Y2K executive, Richard Vernon. "Some projects will have to be deferred and others reprioritised because there is only a finite amount of human and financial resource in any organisation."
NatWests's Racov warns those adding Year 2000-clauses to contracts that both parties must understand the crucial difference between being "Year 2000-ready" (the fixed system works with today's data) and being "Year 2000-compliant" (the fixed system works with 2000 data and beyond). The difference is more than mere semantics, but a clear compliance standard remains to be set.
To date, only two insurance companies - AIG and First Bowering - have developed Y2K products, although others are following suit. Because of the high risk involved, companies will be covered only if they are able to show that they tried to avoid losses and in AIG's case, the product is self-funding.
"Corporations can still make it in time," according to Software Futures director Andrew Proctor. "But it is going to cost them a lot of money and resources."
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