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Learning From Disaster | Part One - Under Scrutiny

Learning From Disaster | Part One - Under Scrutiny

CIOs can expect to find themselves increasingly in the spotlight in the future as cries for more corporate accountability and transparency become a clamour.


Tools No Substitute for Planning

One point the corporate collapses illustrate as forcibly as anything that has gone before is that the amount of money invested in IT systems is a very poor determinant of their ultimate value. Take Enron. In April, CIO told the story of how Enron had spent millions to install unused database tools, build massive trading platforms that some say never worked, and pay outside firms to produce work that Enron could easily have done in-house, even as the business as a whole was spinning out of control.

"Enron IT was as cutting edge as it was Byzantine," Scott Berinato reported in "A Tale of Excess and Chaos". "There were plenty of great tools, but there was precious little planning. Any given piece of its technology was likely to be the best in the world - as much as a year ahead of the curve. And it didn't necessarily integrate with systems that it needed to work with."

Having great information systems can only take the company so far. The other side of the story was the way Enron was able to take in the world with its claims to be huge and profitable - claims that were clearly untrue - as the company engaged in what US PBS' Jim Lehrer's NewsHour economics correspondent Paul Solman calls "the fantasy finance game".

"How did Enron manage to fool the world? . . . The key was what you might call Â'accounting alchemy', miraculously turning lead into gold, water into wine, losses into profits, making debts and bad investments or anything they wanted to simply disappear. Or to put it differently, Enron played the all-in-the-family fantasy finance game, manipulating hundreds of subsidiary companies with names out of Star Wars, Jurassic Park [and] medieval Scotland," Solman says.

So on the face of it Enron's profligate IT spending had no clear link to its accounting scandal, even though several experts believe the situation in IT would eventually have caught up with the company. And some experts believe Enron might have found it somewhat harder to get away with finance games had its systems been better integrated.


Oh Captain, My Captain

Questionable partnerships, over-aggressive investments and shady accounting practices top a long list of factors in Enron's downfall. But as they look for lessons from history's biggest bankruptcy, analysts say IT is still failing too many organisations. CIOs should - but rarely do - deliver vital information to CEOs and board-level officers continuously, says Gartner vice president Ken McGee.

"If you provide the captain of a ship real-time GPS [position data] and other information, it will help them determine if a change in course is required," McGee told US Computerworld recently. He contends that there are few if any companies doing an effective job of delivering real-time operational and financial information to executives, since most IT managers have focused on a back-office, service approach.

Certainly the systems at HIH seemingly failed to fit that bill. HIH administrator Tony McGrath, of KPMG, went in to sort out the HIH mess and found an organisation born from a marriage of other insurance companies that was still running up to four separate legacy systems.

"The reality is that like many large organisations, keeping the information flow in an insurance company is very complex," McGrath says. "That's obviously a major issue with all modern business: how do you actually integrate on amalgamation?

"I have to say the CIO and the information people we dealt with at HIH were of an appropriate standard and we still employ most of them, because as you can imagine there are a huge number of projects that need to be completed," McGrath says. "The people that provide leadership for the group provide enormous support to us. But I think you'll find the Royal Commission has brought out in HIH the fact that there wasn't a fully-integrated knowledge of information. That there were, for instance, some things that were done offline that weren't then brought back to the main system."

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