Bada-Boom

By Baselinemag  |  Posted 2001-12-10 Email Print this article Print
 
 
 
 
 
 
 

Bad news about your latest technology project is not just the subject of water-cooler gossip. Increasingly, it's being treated as material information by investors.

There are a lot of smart people who contend that you can never tie good financial results directly to a technology initiative.

It's a pity the same's not true of bad financial results.

Increasingly in recent years, failed or abortive technology deployments have been disclosed as material information by companies reporting financial results. And even when the companies themselves don't divulge such problems, their revelation in news reports often takes a toll on a company's market value.

Indeed, a new study, being reviewed for possible publication in an academic journal, puts the stock-price impact of negative news pertaining to technology deployments at 1.75%. That is, the revelation of a troubled technology initiative usually drives down the stock of the underlying company by that amount. Not quite the impact that a good old-fashioned accounting scandal would have, but still nothing to earn the gratitude of a beleaguered CEO struggling, in these difficult times, to build the confidence of shareholders and give them a return on their investment.

"It's very significant," Anandhi Bharadwaj, one of the authors of the study, says of the market-value impact. That's certainly true in absolute terms: At the relatively large companies studied by Bharadwaj, that 1.75% decline translated into the disappearance, on average, of $650 million in stock-market value over a two-day period.

Altogether, Bharadwaj (of Emory University) and her coauthor Mark Keil (of the J. Mack Robinson College of Business in Atlanta) studied 241 events at businesses of various sizes over 10 years, from 1990 through April of 2000. They found that negative news about technology deployments tends to sting small companies hardest—largely because the small firms had fewer resources to fix the problem.

The authors stopped short of telling CIOs how they might maneuver around such problems. Indeed, Bharadwaj noted that some such episodes—in particular, the sort of sudden systems crashes that have hit eBay in the past few years—are completely unpredictable. She acknowledged the higher predictability of snags with multiyear projects—such as the Greyhound Lines reengineering effort of the early 1990s, or the 1998 ERP disaster at Hershey Foods—but suggested there is little a CIO can do to avoid the attendant news disclosures. Certainly a CIO can't stop trying just because he might fail.

He might get blamed anyway. "Sometimes it's easiest for top management to pin it on the technology," says Bharadwaj, who did not study the fate of CIOs after technology blowups, but says she might do so in the future. "It may actually be masking a lot of other problems in the corporation."



 
 
 
 
 
 
 
 
 
 

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