Triumphs & Trip-Ups In 2003

By Larry Dignan Print this article Print

Government is a common theme in 2003's triumphs and breakdowns.

Regardless of a project's success or failure, there is usually some slice of the government involved.

That's the common theme in 2003's triumphs and breakdowns, as four out of the six projects below involve government in some way—energy deregulation, wireless number portability, Iraq and the State of New Jersey's antiquated systems.

"There's a huge transformation process going on in the federal and state governments," says Warren McFarlan, professor at the Harvard Business School. "The whole notion of e-government is becoming more prevalent. Add in regulatory requirements and there's a good chance government will touch a technology project."



The rate of growth this year in Sears' online sales, as the company upgraded its Web sites and sharpened its service across different sales channels.

The venerable retailer outpaced healthy industry numbers—online retail was up 22% to $52 billion last year—by making it easier for customers to learn about and receive complex products.

Sears' gaudy growth benefitted from a low starting point: Baseline estimates that less than $500 million of the company's $41 billion in revenue came from online sales (including its Lands' End catalog unit). But its success in creating an integrated shopping, purchase and delivery experience across its stores, Web sites and catalogs had Sears.com primed for further growth.

Sears.com fits snugly into the company's 870 bricks-and-mortar stores. Online shoppers can pick up their orders at a store of their choice, often within two hours of purchase, thanks to inventory-management software custom-built by Sears. About 40% of online sales are fulfilled at Sears stores, a proportion that climbs to 70% for products like consumer electronics and tools.

"People want instant gratification, and they want to save on shipping," says Chris Shimojima, vice-president of customer direct marketing and merchandising for Sears.


The number of "high-value targets," including Saddam Hussein, captured or killed, out of top 55 Iraqi fugitives tracked by U.S. intelligence services.

Tracking down the malefactors pictured on the special deck of playing cards distributed by the U.S. military was a sophisticated information-management project. Like most successful projects, it benefitted from a well-defined mission, cooperation among organizational units and good tech support.

But although Saddam was nabbed by elements of the Army's 4th Infantry Division, the key to his capture was a prototype "digital division"—outfitted with networked computers that provide intelligence and weather information to combat units in real time—combined with human skill and logic. The U.S. military engaged in an intensive data-gathering campaign, including the arrest and questioning of about 600 men in the small village near Tikrit where Saddam was found—roughly half the male population of the village.

Hand-drawn charts of tribal relationships, interrogations of suspects apprehended earlier and a tip from a foe led U.S. forces to Saddam. While troops could monitor cell-phone calls and track enemy units in their vehicles, they only found Saddam by pacing off a farm until a soldier spotted his hiding place.

The value of the Army Battle Command System, the battlefield intelligence system already in use by the 4th Division—and slated to modernize frontline information systems servicewide at a cost of $20 billion over 9 years—will have to be proved elsewhere.


The number of defective parts per million turned out by one of American Axle & Manufacturing's 20 factories worldwide.

Richard Dauch is about to deliver zero defects.

When Dauch took over as chief executive of General Motors' axle-production business in 1994, its five plants were turning out 13,414 defects per million parts. Now, he has the "driveline" and "chassis systems" nearing perfection.

In the last six months of 2003, defects averaged 16 per million. In November and December, four. The goal this year: At least one month with zero defects. Then Dauch will see how far American Axle & Manufacturing can go.

Not bad for a company producing 19,000 axles a day, each with 180 parts from 400 suppliers on four continents. Bad steel, bad casting, bad machine work, bad assembly, bad logistics all can kill perfection. It is, Dauch says, "a mathematical permutation that is out of control."

Dauch tried to control it anyway, wholly replacing processes and systems he inherited from GM and its one-time subsidiary, Electronic Data Systems. To get there, he uses an around-the-clock information exchange with suppliers, 3-D anytime collaboration on designs with partners worldwide and heavy investments in training and maintenance.

Annual sales have reached $3.5 billion and profits $176.1 million, from $2 billion and $70.6 million in 1995. It now takes five hours of work to generate $1,000 of sales, down from 11 hours when he took over.

Today, American Axle, a 100% union shop, is winning business not just against domestic competitors such as Dana, but foreign rivals as well.


$6.4 billion

The value sucked out of the U.S. economy by the Aug. 14 energy blackout in the Northeast.

When a company's information systems fail, it rarely affects cities in two countries or sparks an energy deregulation debate. But the Aug. 14 blackout did both.

For sheer size and impact on the economy, FirstEnergy's computer-system meltdown is Baseline's top loser for 2003. The 29-hour blackout cut about $6.4 billion of corporate earnings from the U.S. economy, says the Anderson Economic Group, an economic-research firm.

According to a November report released by the U.S.-Canada Power System Outage Task Force, FirstEnergy gets most of the blame. FirstEnergy failed to trim the trees surrounding its transmission lines, lacked the procedures and systems to notice that its electric grid was collapsing and neglected to tell neighboring utilities such as American Electric Power (AEP) that its system had unraveled.

A report by Michigan utility regulators released in early November partially blamed AEP, citing the lack of communication. But the task-force report absolved AEP ("Hero or Zero?", November 2003, p. 69).

FirstEnergy, operating a General Electric system last updated in 1998, took nearly two hours to realize the extent of its problems. According to task-force transcripts, just minutes before New York City went dark one unnamed FirstEnergy official said, "I think we've got something seriously sick."


The estimated number of subscribers that AT&T Wireless failed to get when it flubbed the installation of a new customer-management system.

Just weeks before AT&T Wireless faced a Nov. 24 deadline to meet the government's mandate for wireless local-number portability, the company decided to upgrade its Siebel Systems customer-management software used to service customers on its new GSM network. Deloitte & Touche was charged with installing the software, sources close to AT&T Wireless say.

But the installation faltered because the software wasn't ready. As a result, AT&T Wireless in early November couldn't sign up or service new customers. Customer-service reps couldn't access the Siebel systems and customer records were unavailable. And according to analysts and anecdotal surveys, AT&T Wireless also seemed unprepared for wireless number portability itself.

All parties involved were mum on who was to blame for the mishap, which is expected to dent AT&T Wireless' fourth quarter results, say Wall Street analysts. Merrill Lynch analyst Linda Mutschler estimates that AT&T Wireless had only 18,000 net subscriber additions in the fourth quarter. Before the company's software glitches and its wireless number portability failures, her estimate was 318,000. The company reports earnings later this month.


Deaths Confirmed from the failure of the New Jersey Division of Youth and Family Services (DYFS) to adequately monitor the health of wards of the state.

On Jan. 5, 2003, the mummified body of a 7-year-old was found in a Newark, N.J., basement. In October, four malnourished brothers were found in Collingswood, N.J., with the oldest one, 19, weighing just 45 pounds.

The state had 37 suspected and confirmed child-abuse and -neglect deaths in 2003, 18 of which were investigated by DYFS. Previous tallies dating back to 1998 ranged from 23 to 27 deaths a year.

A February report commissioned by Gwendolyn Harris, the now-resigned commissioner of the state's Department of Human Services, outlined antiquated processes, which rely on a combination of paperwork and an interim Web-based system to track family visits.

Andy Williams, spokesman for the state's human-services division, said a multiyear project to implement a new system will begin in 2004. The system, to be installed by Fairfax, Va.-based American Management Systems, will show data trends in cases, such as four seemingly unrelated events that may reveal a larger trend of abuse, Williams said. Previous visits and deadlines for future visits would also be tracked in the system, he said.

This article was originally published on 2004-01-13
Business Editor
Larry formerly served as the East Coast news editor and Finance Editor at CNET News.com. Prior to that, he was editor of Ziff Davis Inter@ctive Investor, which was, according to Barron's, a Top-10 financial site in the late 1990s. Larry has covered the technology and financial services industry since 1995, publishing articles in WallStreetWeek.com, Inter@ctive Week, The New York Times, and Financial Planning magazine. He's a graduate of the Columbia School of Journalism.
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