Communications of the ACM
Communications of the ACM
Managerial IT Unconsciousness
Three IT projects over the past six years in Australia have been catastrophic or near catastrophic for their organizations. There are many IS success stories throughout the literature, but examining IS failure provides rich insights into both good and bad practice. A major element of good practice concerns IT governance, that is, the patterns of authority for key IT activities in business firms, including IT infrastructure, IT use, and project management [8]. The three case studies we cover here all show that senior management sometimes lacks awareness of the importance of IT and its governance on the success of large IT projects. Yet the importance of IT governance is largely ignored in the failure literature (see [3] for a review of that literature). We call such failure in governance of IT projects "managerial IT unconsciousness."
What seems to have happened is that governance was neglected or even withdrawn under the mistaken belief that `IT doesn't matter'.
Sydney Water is a public utility company that in June 2000 invested AU$61 million in a customer relationship management and billing system. It abandoned it in October 2002 with an estimated AU$61 million written off from a total project cost of more than AU$153.1 million (estimated initial project cost AU$38.2 million) of public money [2]. It is unlikely that a private company of this size (2003 revenue base AU$1.4 billion) would have survived the debacle. The taxpayers' money was simply written off according to the annual accounts audited by the New South Wales state auditor-general, though legal action against consultancy PricewaterhouseCoopers is under way, and the managing director of Sydney Water resigned in November 2002. The state auditor-general wrote a condemning report [2], particularly concerning the utility's senior executives.
The Royal Melbourne Institute of Technology (RMIT) in Melbourne sought to implement an academic management system using the PeopleSoft enterprise resource planning (ERP) system. The system went live in late 2001, but the original attempt at implementation was ultimately deemed a failure by the university's vice-chancellor. There was significant corruption of the student database and difficulties billing fee-paying students. The Victoria state auditor-general's 2002 report [5] identified problems meeting statutory and legislative reporting requirements. The original project budget was AU$12.6 million, but the anticipated cost to the end of 2003 subsequently increased by nearly four times to AU$47.3 million [7]. This amount would be certain to threaten the existence of any equivalent-size private company.
One.Tel was a private Australian telecommunications company founded in 1995 in Sydney and ceased doing business in 2001. We previously argued in [3] that the failure of One.Tel's billing system was largely responsible for the company's downfall. In particular, that system was unable to cope with new services and legislation and sent out inaccurate and late bills, leading to a major liquidity crisis and the company losing the trust of its customers and its investors.
Our analysis of these three case studies draws on in-depth, comprehensive external investigations of the organizations. Both RMIT and Sydney Water were subjected to audits by government audit agencies. One.Tel was the subject of a book [4] and a well-publicized court case. However, the three disasters, all from Australia, differ markedly in many ways from one another (see the table here). We've sought to identify the themes that might be common to all of them.
RMIT. Looking at RMIT, the auditors attributed the failings in the student system directly to the issue of governance. A report by the Organization for Economic Co-operation and Development (OECD) found that RMIT did not plan comprehensively and apply governance arrangementsincluding senior management involvement and supportto ensure its project was properly managed. As a result, the system did not provide the desired functionality, and RMIT today faces significant challenges in moving to a higher-quality student administration system [7].
The auditors' report examined the project's implementation, the system's functionality, and the financial consequences in detail. The software was complex and needed tight governance for the overall system to be implemented successfully. The report lists numerous problems. For example, the project steering committee responsible for project management was judged to be ineffective. The committee included a representative of senior RMIT management, the overall project director, and project managers from both RMIT and PeopleSoft. The auditors found that weekly project status reports to the committee were inadequate, with an absence of information on the overall status of the project, as well as an absence of milestones and key deliverables.
Other problems indicated a lack of sound project management. For example, business users were not sufficiently involved. The Web portal was not tested properly, leading to extensive corruption of the student database during initial system operation. The system became operational during a critical processing period, but there was no pilot or parallel conversion. In addition, a series of poor technical decisions led to undersized application servers and an inappropriate operating system configuration. The auditors also noted that project staff lacked relevant experience and that there was poor control of their performance. These deficiencies were evident due to the extent of customization, which made implementing the system especially complex and difficult.
Sydney Water. The auditors' review of the customer information and billing system at Sydney Water, developed under contract by PricewaterhouseCoopers, covered governance, project management, and contractor selection. Noting problems with governance, they concluded that the board of Sydney Water did not oversee the project as effectively as it should have, and its understanding of the project, particularly in light of its complexity, was limited. The project was managed by an executive steering committee, whose governance charter was not spelled out. The project might not have proceeded at all if there had been a timely analysis of the technical proof of contract. The auditors also found that contract administration was deficient. For example, one protocol in the contract transferred significant responsibilities and risk from PricewaterhouseCoopers back to Sydney Water.
Concluding that Sydney Water had problems with project management, the auditors found that planning was inadequate, testing was neither timely nor comprehensive, and risk management was ineffective. In addition, it found that the project team lacked some necessary skills. For example, when the team was formed in 1999 its members had minimal experience with large and complex IT projects (such as this one). The auditors also expressed concern that the PricewaterhouseCoopers project manager was "young and inexperienced."
One.Tel. This young, aggressive startup prided itself on enlightened management techniques, operating a flat unbureaucratic organizational structure with small functional teams, each measured against a set of key performance indicators used as the basis for calculating employee bonuses. The 2000 One.Tel annual report indicated that directors worked in hands-on mode and that there was almost no middle management.
The traditional principles of good project management practice were not in place. Developers would write and test their own code and release it directly into production. The bonus system meant there were significant incentives to deliver code by a particular date no matter how it was written or how it performed, even if there was no documentation and involved only the most cursory testing.
The billing system's problems became more apparent over time. The original system was developed quickly and lacked flexibility, so it was difficult to adapt to changing requirements. The system also lacked the most basic financial integrity checks, so the total revenue associated with customer bills produced in a billing run could not be reconciled with general ledger amounts. In 1999 most funding for information and communication technologies, along with the most talented staff, were diverted away from the billing system, which was seen by top management as unglamorous and technically unchallenging. However, this reading of the situation turned out to be incorrect. The billing system was indeed complex and technically challenging because it involved a number of different types of customer each brought in through a different marketing scheme, along with an enormous volume of data to be processed and new complex tax systems.
The Case Studies reflect systems that have been catastrophic or near catastrophic to their organizations as a result (largely) of management complacency.
By 2000, bills were regularly late by up to six weeks, and a large number of them were calculated incorrectly. The delay in billing had a dramatic effect on cash flow, as well as causing significant damage to the company's image for operational efficiency and customer service. The company ultimately went bankrupt in June 2001.
Common Themes/Causes
Despite marked differences, three common themes emerge from these case studies:
Complexity of application system software. All three applications were (arguably unnecessarily) complex. For example, RMIT undertook extensive customization to a standard ERP system. The Sydney Water system combined billing, customer relationship management, and electronic interaction with commercial land developers; it required a solution that would be integrated with 12 existing major internal business systems and more than 60 external party interfaces. And though the One.Tel billing system was originally relatively simple and effective, it was extended and modified to incorporate increasingly complex marketing plans, a new tax system, and a growing customer base.
Poor IT governance. Senior management in all three organizations had not ensured that prudent checks and balances were in place to enable them to monitor either the progress of the projects or the alignment and impact of the new systems on their business. Proper governance, particularly with respect to financial matters, auditing, and contract management, was not evident. Also, project-level planning and control were notably absent or inadequatewith the result that project status reports to management were unrealistic, inaccurate, and misleading.
Relatively inexperienced and/or powerless IT staff lacking clout among corporate decision makers. At RMIT and Sydney Water the need for more-experienced project management staff was recognized, though only part way through the projects. At One.Tel, the IT staff included young inexperienced IT staff, as well as more-experienced staff and many contractors; however, the company's flat management structure meant its can-do style helped produce a swashbuckling approach to systems development. One-Tel executive management did not listen to suggestions from IS experts that systems development and maintenance ought to be planned and executed more carefully.
These cases suggest that where software applications are large and complex, experienced IT and IS staff are needed, and there must be tight governance of the project, including good project management. What seems to have happened is that governance was neglected or even withdrawn under the mistaken belief that "IT doesn't matter" [6].
All such issues are the direct responsibility of senior management; only it could have changed these aspects of the projects for the better from the start, rather than, in the case of RMIT and Sydney Water, after crises were evident and an external audit had been conducted to identify problems and deficiencies. In the case of One.Tel, such an audit was never carried out, and the company went under.
The senior management of all three organizations exhibited what could be termed a lax management attitude toward IT and IS. There was a lack of awareness (managerial IT unconsciousness) of the importance of the IT projects being undertaken and a reluctance to tackle complex matters and ask tough questions. Other evidence of this lax attitude is that little timely action was taken, even when problems were evident. Consider the following quotes relating to the three organizations:
- RMIT. "The project reports that came through to me and then went on to the council showed that the project was on time, on budget, and meeting its milestones. We all thought that this project was actually going OK" [1].
- Sydney Water. "There was a belief in Sydney Water that IT projects of this nature and complexity would inevitably go over budget and be delayed." ... "The culture of Sydney Water suggests a belief that the outsourcing of major projects will effectively transfer all risks" ... "Reporting by management to the board on the status of the system was deficient. However, there were cases where the board should have pressed management for more detailed information on the relevant issues, including project costs and project management" ... "The board did not ask their financial department to review the project's business case and take a proactive role over the project's financial issues. An external auditor was not appointed, though the project governance policy specified this requirement" [2].
- One.Tel. The attitude of Jodee Rich, one of One.Tel's joint managing directors, could be summed up as "Why bother with petty concerns like faulty billing systemswhen you can be thinking about global communications?" [4]
All these quotes exemplify IT-doesn't-matter management attitudes in practice [6]. Applications like word processing and email are fairly standard, but information systems are by no means standard and are indeed complex undertakings that require good governance. Articles like [6] suggest that management complacency about IT and IS need not be a concern but is a big mistake. These case studies reflect systems that have been catastrophic or near catastrophic to their organizations as a result (largely) of management complacency.
Conclusion
Management may be seduced by the abstract nature of software, the ubiquity of PCs on every desktop, and the availability of generic applications (such as word processing and spreadsheets) into thinking IT doesn't matter. However, the experience of RMIT, Sydney Water, and One.Tel show that such management thinking can have disastrous consequences. Where software applications are large and complex, experienced IT and IS staff are critical to even basic implementation, and there must be tight governance of the project, including effective project management.
Software is flexible, and IS specialists can develop systems to support almost any business application. But they are complex and need rigorous design, careful construction, and exhaustive testing to ensure they actually do what they are intended to do. Management must understand, track, review, and control their progress, particularly their impact on the rest of the organization.
Not doing so is an abrogation of management's responsibility. Project success can be achieved only by applying proper and prudent management controls to the development of these systems. They certainly do matter, and senior management cannot afford to be unconscious of them.
References
1. The Age. Vice-Chancellor Ruth Dunkin, Royal Melbourne Institute of Technology. Reported in The Age (Feb. 28, 2003), 4.
2. Auditor-General of New South Wales. Review of Sydney Water's Customer Information and Billing System. Report to Parliament, Canberra, Australia, Mar. 2003; www.audit.nsw.gov.au/agrep03v1/SpecialRevSydneyWaterCIBS.pdf.
3. Avison, D. and Wilson, D. IT failure and the collapse of One.Tel. In Information Systems: The E-Business Challenge, R. Traunmuller, Ed. Kluwer Academic Publishers, Amsterdam, The Netherlands, 2002, 3146.
4. Barry, P. Rich Kids. Bantam, Milsons Point, NSW, Australia, 2002.
5. Cameron, J. Report on Public Sector Agencies: Results of Special Reviews and 30 June 2002 Financial Statement Audits. Melbourne, Australia, Feb. 2003; www.audit.vic.gov.au/reports_mp_psa/psa03cv.html.
6. Carr, N. IT doesn't matter. Harvard Business Review (May 2003), 41.
7. Fearnside, R. Implementation of the RMIT University's academic management systems. In The Hidden Threat to E-Government. Avoiding Large Government IT Failures, OECD Public Management Brief No. 8., J. Kristensen and B. Buhler, Eds. Organization for Economic Co-operation and Development, Paris, 2001; www.oecd.org./pdf/M00004000/ M00004080.pdf.
8. Sambamurthy, V. and Zmud, R. Research commentary: The organizing logic for an enterprise's IT activities in the digital era: A prognosis of practice and a call for research. Information Systems Research 11, 2 (June 1999), 105114.
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