InformationWeek

May 10, 1999

Y2K Under Control

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The Y2K Package:

Y2K Under Control

Financial Services

Transportation

Government

Telecom

Utilities

Other, less-tangible benefits are also apparent. New tools and disciplines have been created and harnessed by IT organizations to make sure that their Y2K projects come in on time. And because business executives had to get involved in Y2K projects, there's a heightened awareness among top managers of how pervasive and critical IT is to the business. "The good news is we'll never again have managers running corporations that don't fully understand IT, which will be considered a critical component of running a company," says Edward Yardeni, chief economist of investment bank and brokerage Deutsche Bank Securities. "We're all basically in the same business these days--managing IT."

Yardeni maintains a less-than-optimistic view of the year 2000's impact on the economy, mostly because of the scant signs of progress overseas, as well as among small businesses and government agencies in the United States. Also, Yardeni predicts that businesses will stockpile products, moving from "just-in-time to just-in-case inventories." This will create a record accumulation of inventory in the fourth quarter and a subsequent drop in business in the first quarter of 2000 as businesses use up excess inventories, he says.

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Yardeni puts the odds for a global recession of some sort at 70%. His latest forecast involves five scenarios, two of which fall short of recession: a 10% chance that year 2000 will be a nonevent, and a 20% chance that it will be similar to a natural disaster--disruptive for a few weeks, but an economic stimulant because of rebuilding. But three scenarios add up to a 70% chance for recession: a 25% chance for a six-month recession, 40% for a 12-month recession, and 5% for a depression lasting up to two years, similar to the oil embargo of the 1970s.

Other Y2K prognosticators have tempered their gloomy predictions. Peter de Jager says "doomsday was once a possibility, but no longer," because utility and financial services companies, for example, have made good progress. Still, de Jager predicts spending on Y2K projects will be less than the repair bills to fix damages, and litigation will skyrocket once problems surface. The third and fourth quarters of this year will be like a "nuclear winter" for IT vendors, he says, because time has run out for Y2K replacement and remediation efforts and many companies won't augment their Y2K-compliant systems until next year.

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The slump may be overrated, though, for all but IT services firms that have a high percentage of revenue from Y2K work or enterprise resource planning implementations, which have served as system-replacement strategies to achieve Y2K compliance. While most businesses will enforce system freezes during the transition to the new year to avoid introducing changes that affect compliance, IT development work and IT spending should continue apace. According to an InformationWeek Research survey of 100 IT executives in March, 70% said their IT spending will increase this year.

In fact, some companies plan to continue with system implementations throughout this year and into next. At Eli Lilly & Co., for example, stringent change management has been instituted to avoid contaminating Y2K-compliant systems as the pharmaceuticals company continues its global SAP R/3 rollout. The R/3 project isn't a Y2K replacement strategy, although fewer systems have needed remediation, says Mike Rudicle, information officer of the year 2000 program and solutions center at the company.

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Eli Lilly, which expects to spend up to $190 million on its Y2K project, began the effort in 1996 and was 97% complete with remediation at the end of last year. It expects to be fully compliant by the middle of this year. The company is focused on risk mitigation, especially with its supply chain. "Overall, we are pretty confident about our supply chain in the U.S., and we've put contingency plans in place for overseas areas," Rudicle says. Eli Lilly's biggest concern: "We want to make sure we can continue manufacturing," he says.

For Eli Lilly and others, Y2K hasn't just kept them in business--it's made them better businesses. "We're a lot smarter about our business as a result" of the Y2K project, says Rudicle. Because of the risk associated with year 2000, he adds, "we couldn't just eyeball projects; we had to make sure we were delivering on the investment."

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Year 2000 project managers are feeling better, too. At railroad company Burlington Northern Santa Fe Corp., Kenneth Crane, director of business continuity and year 2000, has already begun easing into his post-2000 career as director of electronic commerce. Willie Kennedy, senior program manager for millennium planning and conversion at financial firm Key Services Corp., says "this was my first opportunity to go into the boardroom and make a presentation," developing skills that are transferable to other projects.

The evidence suggests the threat of year 2000 has been reduced to a manageable nuisance, much of the spending is largelydone, and benefits are emerging. It all adds up to a solid victory over the Y2K dilemma.