Apocalypse Then

A Closer look at the lingering legacy of fixing the Y2K problem

If a major city had blacked out, if a payments system had collapsed or, as the editor of this journal observes, if Portugal had gone haywire, we'd probably all feel, if not better, then at least a sense of righteousness about Y2K. We would know the problem had been real and we had not been duped by the doomsayers. A handful of corralled catastrophes could have been useful; CIOs could have pointed to Portugal and told their bosses: "If we hadn't spent all that time and money on Y2K that could have been us."

However, Portugal survived unscathed. Raise the spectre of Y2K today and all you hear is the clack of saloon doors swinging in the breeze as tumbleweed barrels down a dusty street. But there is a lingering legacy of fixing the Y2K problem - an exercise that Wikipedia claims cost the world $US300 billion. Because of the Y2K experience, organizations have tightened project management, implemented more rigorous testing regimes, overhauled or replaced core legacy applications leading to productivity improvements and kick-started the offshoring phenomenon.

Anne Myers, executive director of IT for ING Direct, believes that more was spent than needed to fix the problem, although she does accept that there was a problem. At the time Myers was at Macquarie Bank, on the business side of the house in funds management. Her take on Y2K is that "we overdid it. But had we not addressed the problem then there would have been failures in the payment system.

"The vendors saw it as a fabulous opportunity to sell solutions and consulting. I see parallels with the disaster recovery systems which have been sold since 9/11. If you want a disaster recovery specialist today then you pay a fortune," Myers says.

Certainly the ability to name your price as a computer programmer during Y2K was not lost on the general public. There were even butchers who abandoned their chopping blocks in order to cut code and make a motza. (I am not making this up.)

But even an army load of butchers was not going to be enough to tackle all the Y2K code cutting needed, and Myers traces the rise of offshoring back to Y2K, saying that companies experimented sending code offshore in the late 1990s, which she believes catalyzed the offshoring era.

In spite of some of the problems Y2K threw up, Myers believes there were significant benefits. "In a way it was a really good opportunity to replace some really old and dodgy systems, and also to build better testing regimes and invest in testing tools. Ordinarily there would have been no way business would have invested in regression testing tools," she says.

A more rigorous testing regime has also been the legacy of Y2K at QBE Insurance. Mike Sheppard, group IT manager for QBE, now has a governance rather than operational role, but in the lead-up to Y2K was group manager of corporate services with Y2K responsibility. Sheppard says even before the event it was clear that there was a significant beat-up of the implications of Y2K and he describes as "nuts" the recommendations being made by some pundits that people stockpile supplies.

He also feels that some of the regulatory requirements such as reporting to the ASX were onerous, although he acknowledges that did ensure boards took the issue very seriously. Overall though, he says, "I think that as an industry we beat it up and said there was more risk in it than there was. That was probably fear because we didn't know what was in some of the systems.

"Some of the stuff talking about embedded chips worried me a bit, but I wasn't nearly so worried about our own software. It was more the stuff on firmware that worried me. That said, we didn't go round and check all our photocopiers. We took the attitude we could survive anyway," Sheppard says. "But we took it very seriously; we had a lot of remediation to do. It helped us a lot with a much improved testing process. We developed a lot more rigorous testing, which has paid dividends since then.

"Another lesson for us was to keep stuff up to date. We had tended to be behind in operating system upgrades and infrastructure. Now we see infrastructure as more of a strategic investment, although arguably in 1998 IT wasn't as integral to the business as it is today."

John McCarthy, director of research for Forrester in Asia Pacific, confirms that Y2K acted as a catalyst for the "rehash of a lot of old, brittle systems".

"You have to look industry by industry," McCarthy says. "In financial services it was a real deal. There was a lot of legacy. A lot of date-based transactions. For smaller business that was not so real-time dependent it was a bit overhyped."

Nevertheless it was the overhaul of older IT systems prompted by the Y2K issue that led to a US productivity boom, according to McCarthy. He says that from 1999 to the third quarter of 2005 US organizations enjoyed a 3 to 5 percent increase in productivity, which was more than double what had previously been experienced. "I guess that there are pretty similar numbers here," he says. He believes the Y2K remediation deserves much credit.

Even More Productivity

In March this year the Minister for Communications, Information Technology and the Arts, Senator Helen Coonan, released a report suggesting that ICT will act as a significant spur to productivity improvements in Australia over the coming 20 years and follows strong productivity performance by ICT in the past few years. Without drawing the Y2K bow that McCarthy does, Coonan acknowledged that "by 2003, the OECD had observed that ICT was an important driver of growth and productivity and that Australia was second only to the United States in gaining benefits in both labour and multi-factor productivity growth from the use of ICT.

"Recent research commissioned by my department and undertaken by Diewert and Lawrence [noted international economists Professor Erwin Diewert and Dr Denis Lawrence] shows that technology has contributed up to 85 percent of productivity growth in the manufacturing sector over the 17 years to 2001-02; and ICT has also directly contributed up to 78 percent of productivity growth in the services sector."

McCarthy argues that this productivity surge might not have manifested without the global Y2K effort, which significantly reformed corporate computing.

A further consequence of the Y2K effort was more rigour when it came to project management. McCarthy says CIOs moved to manage more tightly their IT projects after Y2K. "They manage projects on much shorter cycles - in six- to nine-month segments - so there are not as many runaway projects."

More broadly, he believes that the "perfect storm" conditions of Y2K remediation, coupled with the dotcom bubble deflating (see "Dot Karma", right), prompted the entire IT sector to become far more mature. "And all the Y2K and dotcom issues meant that the technology IQ of the boardroom went up dramatically. Executives wanted more control [of IT] but were much, much more engaged. That was one of the biggest positives coming out of Y2K.

"It helped the relationship between the CEO and IT, and improved alignment. It was clearly an inflexion point for the maturation of the industry," McCarthy says.

20:20 Hindsight

At the apex of the inflexion was Maurice Newman, chair of the Year 2000 National Steering Committee and also chairman of the Australian Stock Exchange. By 1998 the Y2K steering group had fleshed out a plan where all listed companies and government entities would have to publicly disclose their readiness for the dawn of 2000.

Still chairman of the Australian Stock Exchange and also chancellor of Macquarie University, Newman believes the approach taken was appropriate. "It's easy with the benefit of hindsight to take a more cavalier approach to the thing. But then, with respect, we did not have that luxury so we crossed every 't' and dotted every 'i'."

He believes that the rigorous approach taken stopped any potential cascade effect from taking hold. "I believe this approach let us avoid what could have been a very serious problem for the country," says Newman. Asked if the problems had been overhyped, Newman agrees that was a charge at the time. "There was an element of that based on the commercial opportunities [for vendors]."

However, he believes that the compliance effort demanded by Australia's approach was important. "One thing I did take away from this was that until people are presented with a crisis on their doorstep they are very slow to move. I believe there is a propensity to avoid problems and people do tend to wait until the last minute.

"Small business was very slow to move, perhaps because they didn't believe anything would happen," says Newman, who adds that he still would not have started the Y2K program earlier because it might have prompted companies to procrastinate. Having relatively short lead times meant companies had to get on and address the problems quickly.