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So you won't be ready for Y2K.

Will the world end if your firm's computers can't meet the immovable Year 2000 deadline? Or can you profit by knowing your limitations?

Most companies have looked at the Y2K problem from a technology perspective. In the majority, employees overseeing Y2K efforts have been mid-level technology managers. The dominant question has been, "Will my AP or billing or inventory or manufacturing system run on 1/1/2000?" Many firms refer to their Y2K efforts as "Y2K compliance" - compliance with a technical standard like Windows or ISO 9000.

But the issue is broader. Information technology is now deeply entwined in the day-to-day operations of every firm. Indeed, for many companies, IT is a source of competitive advantage - or disadvantage.

The Y2K problem is, in fact, threefold, encompassing business systems, business processes and business strategies. Nearly every company is looking at systems. Some are looking at the business process aspect. But few seem to have a position on the strategic component. And a comprehensive evaluation of a firm's Y2K position should include a look at each part of the troika.

In general, business processes are highly dependent on business systems, and some business processes are more important than others. A firm could get along for a while, for instance, with a manual AP process should its AP system fail. But if it depends on a system to keep its customer order center up, and that system fails with no backup, there's the potential for significant revenue loss.

Thus, you should ask several strategic questions:

* What are the most critical processes for my firm - the ones that must keep running, no matter what?

* How dependent are they on systems - my own, my customers', my suppliers'?

* How vulnerable are these processes to Y2K-related disruptions in infrastructure outside my control - government systems, power generation, telecommunications, networks?

* Has the firm developed contingency plans for keeping these processes running - manually, if necessary - if any unforeseen Y2K event disrupts their smooth operation?

No IT Manager Is an Island

Those aren't questions technology managers can handle alone. An IT manager should be responsible for a system; he or she can't be held accountable for the full operation of the business process the system supports. Operations and general managers need to be deeply involved in the planning to circumvent or surmount potential disruptions from Y2K failures.

So, if you know your firm won't be Y2K-compliant in time, draft strategic contingency plans well before Dec. 31, 1999, using the following steps to build "what-if" bridges to the future.

1. Identify your most critical business processes and the degree to which they depend on information technology. The criteria for "most critical" will vary from company to company, but should focus on factors like revenue, quality and customer satisfaction. Similarly, the criteria for evaluating IT dependence need to include company systems as well as customer and supplier systems, where relevant. Also, consider the potential for infrastructure disruptions, particularly in telecommunications, networks, electric utilities and government systems. (Many observers point to the electric utility industry as one that may be especially vulnerable to Y2K disruptions.)

2. Within each critical process, identify key points that might be disrupted by technology. You can use process mapping techniques, with a particular focus on the degree to which each step might rely on technology - and of what sort. For instance, incoming calls to a call center depend on a working telecommunications provider; accessing a customer record depends on a firm's internal systems.

3. The next step becomes a "what if" process. For each point of disruption, identify a contingency plan. Thus, the firm might want to work with its telecommunications provider to seek redundancy to support incoming calls. Or it might want to have a place to prepare paper [TABULAR DATA OMITTED] copies of critical customer records that could support the business if electronic files were temporarily unavailable.

4. Integrate the various actions into a comprehensive contingency plan. Most significantly, management, IT and operations people all need to be thoroughly familiar with the plan to be able to execute it. For particularly critical processes, try doing a run-through, if possible.

Accentuate the Positive

Y2K, for most firms, is a disruption or discontinuity in normal operations. As such, it's normal to look at it as a short-term downside. But disruptions or discontinuities can force strategic change. What you need is really commonsense contingency planning or business continuation planning applied to the particular situation of Y2K (see box). Firms highly dependent on technology for their operations already think this way. Large-scale airline and financial operations, for example, routinely do business continuance contingency planning. The lesson is: Most other firms ought to think about it.

In the most basic terms, dealing with Y2K creates an opportunity for strategic shifts. If a firm doesn't deal with the situation effectively in one or more of its businesses, it risks permanently damaging the value of those businesses. Customers are notoriously fickle; if a company can't serve them as the result of a disruption (or for any other reason), they're likely to pack up and go to a competitor who can.

Conversely, if a firm deals with Y2K more effectively than its competitors, it creates the potential for that firm to win customers from others who may not be as "on the ball," thereby increasing the value of its business.

There's evidence that thinking of this sort exists. In the banking industry, for example, several firms are making some explicit strategic moves around Y2K. They have their internal systems and processes well under control - and are seeking acquisition targets that don't. Given that the financial services industry has been under particular scrutiny over Y2K issues, with a great deal of public disclosure, banks with less-than-perfect Y2K records face a daunting combination of high costs to fix the problem, a short time in which to do so and lower valuation as a consequence.

Those firms with secure Y2K systems and processes, in effect, are acquiring a new customer base at a significantly reduced price - particularly relative to the high valuations in the banking industry over the past several years.

So, there are several things senior management can think about at this strategic level:

* Is there a significant gap between the status of our Y2K systems and processes and that of our competitors? Are we ahead or behind?

* Might the long-term attractiveness of some businesses diminish?

* Can we exploit the situation to acquire other businesses or customers?

One powerful technique for analyzing these questions is scenario planning, in which an analysis team identifies key uncertainties and then evaluates various business strategies against them, to identify threats and opportunities.

The Y2K problem is three-dimensional. To fully deal with it requires a range of actions beyond fixing and replacing systems. But appropriate action will bring benefits. Your firm will be able to greet the new millennium confident that it has contingency plans that look at the full process impact, including (but not limited to) systems - and can therefore keep running. And it can identify key competitive threats and opportunities.

William Smith is director, CEO|solutions, at AnswerThink Consulting Group, based in Chicago. You can reach him at (312) 474-6006 or
COPYRIGHT 1999 Financial Executives International
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Title Annotation:year 2000 computer date transition problem
Author:Smith, William
Publication:Financial Executive
Date:Mar 1, 1999
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