Three Big Breakdowns of 2001By Baselinemag | Posted 2002-01-28 Print
It's still easy to lose your shirt if you don't make the right choices. Here's how big names in entertainment, retailing and computing turned technology into a disadvantage.
Technology mishaps were hard to miss in 2001. Much attention was paid a debacle starring an alleged $400 million investment in i2 Technologies software that led Nike to say that inventory problems hurt earnings.
But there were plenty more botched tech projects, marked by the usual issues: bad vendor relationships, poor planning, strategic redirection and project abandonment, among others. Read on about the foul-ups that stood out last year.
The total write-off Disney's Internet Group took in 2001 to close its Go.com portal. Last January, Disney shut its Go.com Web portal, taking $58 million in cash and $820 million in noncash charges against earnings. Disney also dropped its Internet tracking stock and dumped WallofSound.com and MrShowbiz.com.
Disney executives said Go.com failed because it didn't keep up with rival Yahoo's content and services. Yet, from a technology standpoint, Disney failed to build or buy a system that would keep it competitive with AOL or Yahoo in instant messaging.
In addition, Go.com lacked focus, according to independent search-engine analyst Danny Sullivan, and neglected what could have been the portal's most successful feature, its search capabilities. For instance, Disney relied far too long on outdated search technology from Infoseek, which it bought in 1998, even as fresher, more on-target technology emerged from Google.
Larry Shapiro, executive vice president of Disney's Internet division, says Disney has changed its game plan to focus on its key brands. These include: DisneyVacations.com, ESPN.com, DisneyStore.com and ABC.com. These days, the Go.com Web address leads Web surfers to a site that largely aggregates content from Disney's other Web sites. The difference now? "It costs almost nothing to operate," Shapiro says.
In September, Kmart wrote off $130 million for supply chain hardware and software and another $65 million for replacing two distribution centers.
Kmart identified its supply chain as its "Achilles heel.'' But before 41-year-old CEO Chuck Conaway could repair it, the company filed for Chapter 11 bankruptcy protection.
Part of its problem: Kmart would never come right out and say what operating benefits it achieved using new software from i2 Technologies. Instead, it moved less product off its shelves in Christmas 2001 compared with 2000, while its rivals had hearty gains.
I2's work to speed up Kmart's supply chain process appeared to stall, as Kmart's financial troubles grew. But, individuals close to the project say i2's software failed to deliver in areas such as "micro-merchandising," a practice intended to help the retailer deliver the right goods to stores based on local demand. Meanwhile, Kmart hired a "chief restructuring officer"—but is still without a chief information officer.
Gateway abandoned $143 million worth of information technology projects that no longer fit its strategy.
Gateway, once a fast-growing seller of computers to consumers, took $876 million in restructuring charges as sales in the first nine months of the year plunged to $4.9 billion from $7.1 billion a year earlier, and a $381 million profit in the first three quarters of 2000 turned into a $1 billion loss a year later.
As a result, the San Diego computer maker began to "redefine its information technology strategy." The costs of abandoning projects piled up: $74 million in the first quarter, $4 million in the second and $65 million in the third. Among projects being "redefined": a foray into online customer relationship management.
A much-touted project using Microstrategy software was supposed to give Gateway a "360-degree view" of customers' interactions with the company in its stores, over the phone and on the Web.
But by midyear, the heads of that project were gone and Gateway said it would standardize on a suite of Siebel Systems customer software. Analysts estimated the cost of switching at between "$20 million and $30 million." The Siebel software will be used by 20,000 Gateway employees in sales, support and marketing.
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