[A-List] A Failed Revolution

[Sabri Oncu <soncu@xxxxxxxxxxx>]

Global Economic Forum - Morgan Stanley
Jnuary 17, 2003

Global: A Failed Revolution

Stephen Roach (New York)


The setting was perfect. I was the luncheon speaker for our tenth
annual Pan-European equity conference in London. There was a
noticeable buzz in the room where some 400 clients were gathered.
Unlike the previous nine occasions when I had appeared in person,
this was to be a video hookup from New York. With the logistics
of my complex life preventing me from making the physical trip,
technology came to the rescue. Or at least that was the plan.

After a stirring introduction from my colleague, Richard
Davidson, I spoke for less than one minute before the screens in
London went blank. Not to worry, I was told -- at least there is
the well-tested audio back-up. That, of course, also failed in
another 15 seconds. The "code red" alert then went out to our
support teams in London and New York, and swarms of technicians
descended on both sites. Finally, after a 22-minute delay, we
were reconnected and the speech went like a charm. Well, not
exactly. As is always the case on these video calls, body motions
were blurred and staccato-like. And the ever-present time delay
of 2-3 seconds gave new meaning to the concept of real-time
connectivity and spontaneity.

I am certain that none of this shocks you. This is the way it is
in the trenches of the New Economy -- technologies that
constantly fail to deliver, fully twenty years into the so-called
Information Revolution. Nor are the costs of these technology
failures to be taken lightly. They entail an enormous wastage of
time by an increasingly frustrated user community. And they are
strangling corporate returns of most businesses that have added a
new and extensive layer of fixed costs to support the requisite
IT infrastructure. What I have called the deadweight of the
Information Age is getting heavier and heavier (see my 29 August
2001 dispatch, "Deadweight in the Information Age").

Our tech people get really upset when I write about this. I feel
bad for them. They are extremely hard-working and dedicated and
will stop at nothing to fix those ever-present glitches. After I
penned my last salvo on this topic, I got an immediate response
from our senior IT managers. One of my complaints at the time was
unstable connectivity -- the remote dial-up that never seemed to
work. He gave me his personal assurance that he and his team
would fix that once and for all. I was to get my own dedicated
T-1 line to my home, the high-speed pipeline we reserve for our
branch offices around the world. I was thrilled and gladly took
the bribe. I promised to never write a critical piece on IT
again. I was that desperate to get my precious laptop to deliver.

A few months went by and no T-1 line. But I knew our IT team
wouldn’t let me down. And they didn’t. It was about a year ago
over the holiday break, when a convoy of telephone trucks
unexpectedly rolled down my street. The T-1 installation brigade
had arrived. I confirmed this with the office and was given great
assurance that the installation would be quick and painless.
Three days of digging and thousands of dollars of property damage
later, I threw them out. They were no closer to installing the
perfect connection than my plumber. I went off to the local
electronics store, bought a cable modem, and hired my own
"consultant" to install it. It purrs when I use it.

It was onward and upward from there -- at least so I thought at
the time. But then something mysterious happened in the fall of
2002 -- the Information Revolution started to go in reverse. Our
servers started crashing with great regularity. The message, "The
server has disconnected -- please try again" became a daily
occurrence. E-mail abuses increased exponentially -- not just the
overload of spam but increasingly frequent notices that my inbox
was too full. Then there was the day when several hundred of my
brilliant colleagues hit the "reply-all" in an effort to be taken
off a misdirected group e-mail list. Our inboxes were stuffed to
the breaking point. Chalk it up to carelessness or inexperience,
it really doesn’t matter. The time-intensive burden of the
cleanup was a price we all had to pay.

Sadly, my laptop also died in the fall of 2002 -- a fatal
hard-drive failure. Of course, it happened while I was overseas
and cut off from my loyal and dedicated IT support team. My life
flashed before my eyes. I was nothing without my laptop. It was
as if my heart had been cut out. Fortunately, I had been supplied
with a backup laptop that was sitting in my office in New York --
yet another cost redundancy of the Information Age. All we had to
do was get the backup to Paris and I was back in business. Easier
said than done. French customs are a nightmare. In the end, it
took upwards of 30 people working around the clock for three days
to get my sleek new ThinkPad to Paris. I will never forget the
joy when I saw it in my hotel room.

Little did I know what I had gotten into. The new laptop was not
exactly a clone of the old one. The hardware was a step up but
the software was not. It came equipped with a Windows 2000
operating system -- supposedly an upgrade from the NT system on
my recently deceased clunker. With all due respect to Microsoft,
this must be the most unstable operating system ever designed.
There is literally not one day that has gone by in the past four
months that the system hasn’t crashed -- frozen applications that
can only be cured by the notorious "rebooting." When you call the
help desk -- and I have done so all too many times to remember --
that’s always the first thing they suggest. Once I asked them
why. The answer -- "I don’t know but it works more often than
not." My diary tells me I am now wasting at least 30 minutes a
day on the Windows 2000 syndrome. The good news is we’re all due
for an imminent upgrade to XP. I can hardly wait.

The final straw actually came earlier this week when I was hit
with the password-reset drill. For security purposes, we must
change the code every few months. I followed my normal routine of
simply changing the number at the end -- it’s worked like a charm
for several years and I am able to recycle old passwords
effortlessly. Not this time. Multiple unintelligible error
messages later and I was back on the line with my friendly help
desk. I was told that the new password had to contain an
upper-case letter, a lower-case letter and a numeral -- and that
it had to be at least eight characters long. I politely informed
the support staff that the error message offered no hint
whatsoever of what was required. He agreed and noted that he
would be mad, too. "I get at least four calls a day from irate
users like you, sir," he said matter-of-factly. Multiply that
experience by the ever-increasing number of passwords that are
emblematic of the Information Age -- what I have dubbed PPS
(password proliferation syndrome) -- and I think we have a
problem.

I am the first to concede that macro should not be based on
anecdote or personal testament. But I don’t think I’m alone. By
my count, America has some 42 million knowledge workers --
managers, executives, and professionals -- who are the warriors
of Information Revolution. Add in another 38 million
information-support workers -- technical, sales and
administrative support workers -- and we’re talking about 60% of
the total workforce that grapples with these types of issue on a
day-to-day basis. Several years ago, I kept a diary of the time I
wasted on IT. My guesstimate back then was around six hours per
week (see "The Dirty Little Secret of the Information Age" in the
July 21, 1999 issue of US Investment Perspectives). If anything,
that number has risen over the past few years.

That’s where the macro gets interesting. Two key implications
come to mind -- the first pertaining to productivity. Wasted time
is not productive time. And, as documented above, there is far
too much wastage in the Information Age. That only compounds the
problem of unmeasured work time in an IT-enabled society.
Courtesy of ubiquitous connectivity and portable information
appliances (cell phones, laptops, PDAs, and the Blackberry),
information workers are toiling around the clock -- a far cry
from the labor input (34 hours per week) that the government
builds into the official productivity calculus. I’ve long
stressed that productivity is not about working longer -- it’s
about getting more value added per unit of work time. I continue
to fear that we are seriously overestimating knowledge worker
productivity.

My second concern pertains to the macro of business sector
performance -- costs, earnings, and competitiveness. As noted
above, the IT spending binge has added a new layer of fixed costs
to Corporate America’s cost structure. According to government
data US businesses have spent some $3.3 trillion on IT over the
past decade alone. The service sector owns more than 80% of
America’s installed base of information technology. Courtesy of
the information revolution, that means once quintessential
variable-cost enterprises -- whose main assets were people --
have been transformed unwittingly into increasingly fixed-cost
companies. That puts a new and seemingly chronic squeeze on
profitability and competitiveness in America’s vast services
sector. The globalization of services only exacerbates this
problem. No wonder US businesses have been slashing IT budgets
over the past couple of years.

For years, we’ve all heard about the Promised Land of the New
Economy. Loaded up with the latest in new technologies, smart and
nimble knowledge workers would ride the productivity curve to a
new prosperity. The Information Revolution was supposed to give
us all that and more. A funny thing happened on the road to that
revolution. First, the asset bubble popped. And then the
technology disappoints. Maybe some day it will be different. But
for now, call it a failed revolution.