August 17, 1998, Issue: 728

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Section: News & Analysis

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Corporations Still Behind In Race Against Millennium Bug

Tim Wilson

With 500 days to go before the new millennium, the IT industry is looking deeply into the mirror to take stock of its progress in solving the Year 2000 problem.

Many in the industry say they aren't too pleased with what they see.

"Some sectors are ahead of others in solving the problem, but really, everybody we talked to said they are behind" in their remediation efforts, said Howard Rubin, president of Rubin Systems Inc., a consulting firm that last week published the results of a Y2K survey along with Cap Gemini America.

Several other new studies support Rubin's assessment. Gartner Group last week published a Year 2000 update study which indicates that 23 percent of companies have not yet started any Y2K remediation effort. About 80 percent of those are small companies with fewer than 2,000 employees, according to the Gartner Group study.

In a survey to be published this week, InformationWeek reports that nearly 80 percent of IT executives believe that fixing the date bug is having moderate to high impact on the rest of their departments' projects. Many Internet-related projects are among those suffering from the millennium effect, including corporate Web sites, intranet-to-legacy applications, electronic-commerce, supply chain applications and extranets (see charts).

Want more data? The Cutter Consortium earlier this month issued a study indicating that Y2K remediation efforts at non-U.S. companies are lagging U.S. efforts by three to 12 months. And Miller Freeman, in a survey conducted with Software AG Americas, reported that with fewer than 350 business days to go, only 21 percent of U.S. companies have certified all of their mission-critical software as Y2K-ready.

"According to our study, only about 15 percent of companies expect to have more than 75 percent of their applications Y2K-ready by the end of this year, but about 88 percent of companies expect to have more than 75 percent of their applications fixed by the end of 1999," Rubin said. "What that means is that there are a lot of companies that expect to get a lot done in the eleventh hour."

Reviewing The Situation

What-or who-is holding up the worldwide effort to fix the date bug? Researchers and other observers offered many different answers to that question.

Experts agree that the problem is worse overseas than it is in the United States. "Eastern Europe, Russia, India, Pakistan, Southeast Asia, Japan, most of South America, most of the Middle East and central Africa all lag the United States by more than 12 months," said Gartner Group analyst Lou Marcoccio in his Y2K status report.

The Cutter Consortium report concurred. Non-U.S. firms rate Y2K project priority lower than do U.S. firms, and Y2K spending at non-U.S. companies is about 50 percent less than at comparably sized U.S. firms, the report said.

But some segments of the U.S. economy-particularly government agencies-are even further behind, according to the Cap Gemini study. "The public sector is 16 percent behind the least-prepared private industry category," the study said.

In his first major remarks on the millennium problem, President Clinton last month told the National Academy of Sciences that "this is not a challenge that is susceptible to a single government program or an easy fix."

But Rubin said Clinton's statements-and more importantly, funding and resources for government Y2K projects-are coming too late. The public sector "is just ordering [its] soup while the rest of U.S. industry is already halfway through its entree," he said.

Other U.S. industry sectors that are behind in their remediation efforts are health care, farming and construction, Gartner Group reported. The insurance and investment sectors are frequently cited by Gartner Group and other researchers as being furthest ahead.

The extent of the problem remains difficult to assess because many companies are reluctant to release information about the status of their Y2K projects.

The U.S. Securities and Exchange Commission last month moved to break down that barrier, voting unanimously to require all publicly owned firms to disclose risks of Y2K-related failures in their quarterly and annual reports.

"I am concerned that many companies are not adequately disclosing their Year 2000 readiness," said SEC chairman Arthur Levitt Jr.

in testimony before Congress. "Our economy is more interconnected than ever before. One company's lack of readiness could have adverse consequences for countless other companies."

That sort of interdependency is an area that most firms have only just begun to consider. Only about 23 percent of companies have evaluated the Y2K problem's effects on the supply chain, Gartner Group found.

"On the other hand, some companies are already saying they will not do business with companies that cannot demonstrate Y2K compliance," Rubin said.

Embedded systems-the microchips used in everything from elevators to manufacturing gear-are another factor that is largely unknown, according to the Gartner Group report. Only 11 percent of companies have even begun to investigate potential Y2K-related problems in embedded systems, the report said.

And what will happen when systems fail, as experts say they inevitably will? Nearly half (47 percent) of the companies surveyed by InformationWeek didn't have an answer to that question, because they have not yet begun development of a Y2K contingency plan.

What's The Cost?

Although research firms and other industry observers continued to raise the alarm on the status of Y2K problem resolution, they also offered some detailed information on the cost of the date bug effort.

Several researchers said organizations that started their Y2K proj-ects late are now spending more than those that started earlier.

Organizations that report below-average compliance are spending an average of 52 percent more on their Y2K efforts than organizations that report above-average compliance, according to the InformationWeek study.

But Rubin said companies will not be able to make up lost time by throwing money and resources at the problem. "You can't buy time," he said. "No matter what resources you have, there are still only 500 days left."

IT departments will spend about 30 percent of their budgets on Y2K remediation efforts in 1998, Gartner Group projected. That figure is up significantly from 1997, when IT departments spent about 5 percent of their budgets on the date bug. Yet, 91 percent of companies said their IT budgets decreased or remained the same between 1997 and 1998, the Gartner Group report said.

The costs of fixing the problem are raising some eyebrows, according the the Miller Freeman/Software AG study. About 15 percent of IT executives expressed surprise at higher-than-expected costs of resolving the millennium problem. Another 15 percent said they were surprised at the length of time it is taking to find and fix the date problem.

No matter what the size of the company, internal staffing makes up the largest chunk of Y2K remediation costs, according to the Gartner Group study. Large companies of more than 20,000 employees spend about 68 percent of their Y2K budgets on internal staff; medium-sized firms of 2,000 to 20,000 spend about 59 percent; and small firms of fewer than 2,000 employees spend about 29 percent.