Gartner CIO Bart Stanco took the job in the spring of 1999 at the height of the dotcom boom. At that point, the IT department had no system to determine which projects would best support the company's strategy. "There were multiple projects for the same function, projects at cross-purposes," Stanco says. "We found that we were working on too many of the wrong things."

For example, when Stanco took the reins, Gartner had two teams working on two projects, both intended to support pricing structures for research services. One group was developing a software tool to customise research and prices for individual clients' needs. The other group was working on systems to streamline pricing by offering the entire array of research on a per-user basis.

Stanco worked with Gartner executives to pull the plug on the project to tailor individual offerings and adopt a new community-based pricing scheme. This method took the latter approach - providing a client with the complete menu of Gartner research services. However, those changes were made only after Gartner had wasted months working on both projects with approximately 50 staff members and consultants, Stanco says. With costs of around $US1500 per day for each outside IT consultant, that kind of effort easily added up to $US1 million a month.

Lack of communication among IT groups and Gartner's worldwide business units also caused the company to miss opportunities to cut costs. For example, nearly 80 per cent of the company's 4600-member workforce uses laptops, but there was no centralised purchasing process as there is now. The cost of extra support and missed opportunities for volume pricing came to more than $US8 million a year, estimates Stanco.

Another troubling symptom of Gartner's misalignment was poor morale among staff and executives at all levels that was generated by an almost complete lack of communication. "You and the person you were working with in [IT] didn't know for sure whether anyone in the company was thinking about anything similar to what you were thinking about," says Moira Collins, senior vice president of worldwide marketing.

The project-decision processes and budget prioritisation were a mystery. In the absence of a clearly understood decision-making process, employees often ascribed obscure motives to any project approval decision. "It began to look more like a political decision than a good business decision," Collins says.

Digging the Hole, Part II: Trying to Have It All Gartner's aggressive acquisition strategy strained the company further. Since it went public in 1993, Gartner has acquired or made significant investments in 30 companies, including Inteco, the Internet research and advisory service, and market research company Dataquest. "We were on a course to diversify the company's product line to gain market share, and over the long run that would give us greater sustained profitability," says Gartner CFO Regina Paolillo.

Competitors like Forrester Research were growing faster than Gartner, partly by jumping on the Internet bandwagon, notes Sandra Notardonato, an analyst with Boston-based investment company Adams, Harkness & Hill. "Whether they liked it or not, Gartner became known as the Â'Y2K shop', while competitors became known for tackling the Internet and tomorrow's technology," she says.

Integrating the numerous acquisitions that resulted from Gartner's diversification strategy was a challenge. "You want to integrate the offerings and drive efficiencies, integrate billing and sales, check security, integrate infrastructure, and ultimately as a research organisation you want to take the knowledge you've acquired and plug it into the company's intellectual capital," Stanco says. When a company has existing alignment problems, though, that's tough to do, he acknowledges.

The duplication of effort and projects at cross-purposes, to which Stanco refers, were not only a symptom of existing misalignment during this expansion but also an indication that miscommunication may have impaired Gartner's ability to make sound, strategic acquisition decisions. To catch up in the Internet space, Gartner bought the TechRepublic professional IT services and news Web site in March 2000. The decision was questioned by observers and ultimately undermined by its timing. While TechRepublic's content was within Gartner's realm of expertise, its business model was not. As a research and consulting company, Gartner had no expertise in fostering a revenue stream by selling online advertising.

In the downturn that followed the acquisition, it would have taken years to realise TechRepublic's revenue potential. Gartner ended up selling it for $US23 million in April, after buying it for $US80 million and sinking $US50 million into the site for maintenance and updates, thus losing about $US107 million on the deal. A few weeks after that, Gartner experienced a slump in share price - which dropped from about $US18 in March 2000 to about $US6 a year later - that kicked off a conversion provision for the $US300 million bond Gartner had used to help fund its aggressive expansion strategy. As a result, bond issuer Silver Lake Partners became a 36 per cent owner of Gartner, diluting the value of other investors' shares. Sources familiar with the company's plans say Gartner was also in talks to be acquired by Reuters, but its offer price was too low.

"Investors are a little unhappy," CFO Paolillo acknowledges. "Where we wandered off the farm was to say we were gonna get into the Internet space."