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By Steve Kelman

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Reminder: Corporate IT projects can also crash and burn

annual report

As my blog readers who own stock are probably aware, this is corporate annual report season. My mailbox has been filled with thick annual reports, 10-K statements, and notices of annual meetings. (I still get this stuff in hard copy.)

Reading one of these annual reports on a smallish-sized company that will remain nameless, I saw, buried on page 17 under the rubric "Other," the following disclosure:

"On February 7, 2013 the Board of Directors of the Company approved a change in the Company's IT software and systems strategy. The Company changed its IT... strategy from a previous project, involving an ERP reimplementation, to a project involving an ERP upgrade and some additional applications software. ... This new approach is expected to be completed by the Company, at a lower cost, in a shorter time frame, and with less overall business risk. The Company determined that continuing with the original project would result in increases in estimated costs and a significant extension in the time expected to complete the project.

"As a result of this change in IT strategy, the Company recorded a $1.8 million asset impairment charge in the quarter ended December 31, 2012. The original project costs were deemed to have no future fair value."

There are two lessons I think it is appropriate to draw from this incident, and two I don't mean to draw.

Lesson One: Many problems that agencies encounter in making IT investments work are not just problems for government. Getting returns from these investments can be challenging wherever they are undertaken. We sometimes have a tendency in government to dump on ourselves, to see only the bad side of things, and the public is seems to totally buy into a "waste, fraud, and abuse" narrative of government performance. These stories about the private sector provide a balance to the tendency to wallow in supposed, or supposedly unique, government incompetence.

Lesson Two explains why such perceptions about the government, particularly on the part of the public, develop. The fact is that problems, whether involving IT or other organizational issues, are much easier to keep from the public eye in private business than they are in government. Though there is now more investigative business reporting than before, companies are still more of a black box, with no inspectors general running around inside the organizations looking for scandal and no Freedom of Information Act that applies to companies.

It would be tempting to also conclude that this kind of problem is as prevalent in the private sector as in government. Maybe these problems happen once in a blue moon in companies (though I doubt it), and constantly in government. This one example won't answer that question. More importantly -- the second conclusion I do not want to draw -- just because failures are not limited to government doesn't mean that we should exempt ourselves from being concerned with the many federal IT implementation failures and feel a sense of urgency about increasing our success rate. The efforts at better program management, including agile development, should – urgently – continue. But let's not wallow.

P.S. The April 2 New York Times has an article on Apple's iPhone problems in China with allegations of poor warranty service, which led to an apology yesterday from Apple CEO Tim Cook. The article discusses the Chinese government television show on the topic, the controversy over cooked Chinese twitter posts by celebrities endorsing the criticism, and suggestions the attack on Apple is part of a larger political issue between the US and China – all of which I discussed in a blog post almost two weeks ago. Blog readers, you read it first here. :)

Posted on Apr 02, 2013 at 12:09 PM


Reader comments

Wed, Apr 3, 2013 Ned Shamon Boston MA

Having spent ~7 years in IT Project Management in the private sector (IBM and others), followed by 10 years with the federal government--I don't think that the government sector is necessarily more inclined to have mega-project failures. Rather it appears that way due to the openness under which the government operates. There's vigorous oversight, visibility and policing by Inspectors General, OMB, GAO, Congress itself, and, oh yes, Freedom-of-Information-Act inquiries from the press and others to find and expose failures. This is as it should be. The private sector has little of the same exposure of dirty laundry with publicly-traded companies (e.g. Professor Kelman's finding one example discreetly inserted into an annual report); while virtually no public exposure of the failures within privately held companies. Even with the secrecy that the private sector enjoys--mega IT Program and Project failures do sometimes become visible (e.g. JPMorganChase's cancellation of its $5 billion IT outsourcing contract with IBM in 2004. Yet, both companies spun the cancellation as not due to failure ).

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