YOU’RE DONE. YOU’VE FOUND and fixed the date fields, installed the new software
and filed compliance letters from your suppliers. You’ve put contingency plans
in place, documented all remediation efforts and held meetings with the company
lawyers. But, still, are you ready? And if you are ready, are the other
companies on which you depend ready? And will your customers act rationally?
On an individual company basis, the answers depend on myriad issues, including
the age of the software code base, the diligence with which the Y2K problem has
been attacked, the skills and methods of those addressing the problem, and,
yes, probably a little luck. But on an aggregate basis, U.S. businesses look
well prepared. What’s more, that preparation will pay off.
These are the key findings of a research project currently underway at
International Data Corp., a market researcher based in Framingham, Mass., and a
sister company to CIO Communications Inc. Known as Project Magellan, the effort
captures years of IDC research surveying IT professionals and CIOs on their Y2K
remediation efforts. In the project, IDC uses its global research data to
forecast the impact that the millennium bug will have on the economies of more
than 50 countries, countries where most multinational companies do business.
The outlook is not pretty. (For more information, see “Globetrotting with
But first, the good news. In the United States, we are well prepared. In the
last five years, U.S. businesses have spent $109 billion to fix the Y2K
problem. And this includes only spending on staff, software, hardware and
services targeted specifically to Y2K. It excludes normal product upgrades or
enhancements, unless they were rushed into place more than six months early.
As a result of that spending, 85 percent of the more than 1,000 companies
responding to a recent IDC survey said they had completed Y2K remediation by
Sept. 30; less than 3 percent expected to miss the deadline. Even better news:
Large companies with complex environments were even further along and had
conducted more extensive testing. You have done your homework. Good job.
Now the Bad News
That might be the end of it if many of us didn’t work for international or
global organizations. Here the story is a little different. While countries
outside the United States have spent some $149 billion to fix the Y2K problem,
as a percentage of their overall spending on information technology, they have
spent considerably less than our country has spent. We compared the relative
spending in 1999 on fixing Y2K bugs in seven major regions of the world and
found that the United States spent more last year to fix Y2K problems than it
did this year and spent the same amount in 1997 as it did in 1999. Not so in
In Western Europe, for instance, corporations have spent only 60 percent as
much as their U.S. counterparts on fixing the problem when measured relative to
IT budgets. Even lower on the charts were developing regions like Latin America
(18 percent), Eastern Europe (16 percent), the Mideast and Africa (26 percent
combined). Asia-Pacific’s figure (62 percent) would look worse, except that
that number represents only 1999 spending, and the region, particularly Japan,
has been playing catch-up.
Particularly worrisome, as other studies and government advisories have pointed
out, are activities in developing countries. In a global survey of 15,000
businesses around the world early in 1999, the Project Magellan team found that
over 90 percent of the companies surveyed in the developed world expected to be
done with Y2K remediation by the new year. In the developing countries, that
percentage was just less than 20 percent. In addition, more than 25 percent
said they didn’t think they had a Y2K problem to begin with. If you are running
a multinational with remote offices, you already know the rest of the world is
not as prepared as the United States.
What no one has done until now, however, is quantify what this means. We know
how much work we’ve done to fix Y2K. Will that work pay off? What will be the
impact of Y2K? Will, for instance, Deutsche Bank economist Ed Yardeni’s
prediction that there is a 70 percent chance that Y2K will cause a global
recession come true? Or will Y2K blow over as calmly as did Sept. 9, 1999, the
global positioning system 20-year date rollover and the U.S. government’s new
The Metrics of Pain
How much pain will the Y2K bug inflict? The researchers and economists on
Project Magellan puzzled first on how to measure its impact on the economy.
When all was said and done, the simplest way seemed to be in revenues lost as a
result of downtime. These would have to be revenues that weren’t just shifted
from one company to another, or from a week in January to one in February, and
so on. But they could be, and will be, revenues lost throughout the year, not
just in the first days of the year 2000.
Using the results of several major research studies, ongoing information on
automation levels and IT budgets in different countries, the Project Magellan
team developed a model for the impact of Y2K. Out of this model came three
scenarios that varied based on how Y2K problems are likely to travel through
the economy. In the Ho-Hum Scenario, problems are relatively well contained and
the effects are isolated to individual companies. In the Cascade Scenario, lost
revenues cascade through the economy similar to the way value-add is developed
in the economy. One company’s lost dollar is another company’s lost 70 cents.
Problems diminish as they propagate from company to company. In the Cascading
Cascade Scenario, lost revenues filter through the economy twice as far as they
did in the previous scenario. But problems’ effects ultimately dwindle. One
company’s Y2K problems—especially in billing and supply chain systems—affect
seven other companies before petering out.
A fourth scenario not computed in the model might best be termed the
“civilization ends as we know it” scenario. This is the one where problems
propagate through the economy and get worse as they go along—one company’s
dollar of lost revenue is another’s lost $10 and so on. The Project Magellan
team considers the probability of this to be so remote that it’s not even worth
calculating. In this scenario, CIOs would have been better off spending their
Y2K remediation dollars on lottery tickets.
Was It Worth It?
Based on our research, IDC believes the Cascade Scenario will prevail. If so,
the world economy will lose $19.2 billion to Y2K bugs in the year 2000, a
pittance compared with the money spent fixing the bugs and on the overall world
economy, which is measured in the tens of trillions of dollars. (The more
drastic Cascading Cascade Scenario would take more than $60 billion out of the
world economy, still a small amount on a global scale.) Losses by region
fluctuate. Despite the work done to date, the United States has such an
automated economy that what few problems are left will have more impact than
problems in less automated economies (total: $4.9 billion). Latin America’s Y2K
losses will outstrip its share of total IT spending by a large margin ($1.2
An older software base and fairly automated economies in Japan and Australia
drive the Y2K losses in Asia-Pacific ($7.4 billion) past those of the United
States, accentuated by the prevalence of pirated software in the lesser
developed Asia-Pacific countries. Y2K problems in Eastern Europe ($1.1
billion), especially Russia, which are expected to be widespread, will be
offset by the fact that most of the local economies are not dependent on
The 10 countries of the 50 largest that will be the most affected by Y2K as
measured as a percentage of their economies include Bulgaria, Hong Kong, Japan,
Korea, the People’s Republic of China, Portugal, Romania, Russia, Taiwan and
Vietnam. Note, however, that even in the countries hardest hit, losses will be
less than 0.1 percent of the year 2000 economy.
If the Project Magellan forecast comes to pass, you’ll soon be breathing a sigh
of relief. Staff will be taking comp time, and vendors will be beating down
your door to discuss new projects. The Y2K problem will fade, no worse a memory
than a major operating system upgrade from the IBM System 360 to the System 370
was in the old days. In fact, more than likely there will be questions on
whether the whole Y2K “scare” was justified. That’s the irony of it. The more
smoothly we enter the next millennium, the more that management, pundits and
the public will second-guess whether the last five years of remediation were
Once the final impact is tallied, the Project Magellan team will turn to its
Y2K impact model to run ROI calculations. In a first pass, the team determined
that if the scenarios don’t change—just the number of bugs and the time to fix
them—then all the money spent to fix Y2K will be matched by revenues that could
have been lost but weren’t. Fixing Y2K bugs then was an insurance policy, with
some side benefits triggered by the system upgrades required.
But quite likely, if no Y2K efforts had been undertaken, then we would be
favoring a different scenario, one where problems compound one another in
accelerating fashion. In that case, we wouldn’t just be looking for jobs after
Y2K. We might be looking for food, gasoline and batteries.
John Gantz is chief research officer for IDC in Framingham, Mass. He can be
reached at firstname.lastname@example.org.