Y2K and the Aloha State - the Devil is in the Details

COMMENTARY

Y2K AND THE ALOHA STATE --
THE DEVIL IS IN THE DETAILS

By Rob Kay & Jeff Bloom

The brokerage firm of Merrill Lynch recently released a report regarding the Y2K computer dilemma facing business in the year 2000. Its conclusions were sobering-to say the least. The big brokerage house concluded that while large U.S. corporations apparently are on top of the situation, that is not the case for medium and smaller companies. Said a Merrill Lynch spokesperson about large corporations, "in general, they're all a little bit concerned about everyone else." The report goes on to say that however compliant a Fortune 1000 company may be regarding Y2K, that corporation remains part of a chain of suppliers, vendors, customers that is only as strong as its weakest link.

What does this mean for the Aloha State, which remains mired in recession and far down the food chain? We took an informal survey of some of our clients and looked at a cross-section of other Hawaii companies. What we found was disturbing. In a large sense we mirror the rest of the mainland as far as Y2K readiness and vulnerability. Let's look at some of the major findings.

Nowadays virtually every business in the Aloha State is in some degree dependent upon information technology. However, what makes our state different from the mainland is that Hawaii is dominated by small business. Whereas ultra-sophisticated technology dominates mission critical tasks for the larger companies, in Hawaii vast majority of our businesses aren't as dependent upon machines that they don't have control over. In other words most Hawaii companies utilize PCs which are susceptible to Y2K but are much more easily made Y2K compliant. Thus, unlike a mainframe, if your PC goes down, the "fix" is simple and inexpensive.

That's the good news.

According to our research, as with the mainland, the larger Hawaii companies-the big banks, the airlines, the large shippers, the chain hotels and the larger hospitals have been attacking Y2K aggressively and are making progress. It's when you get down to the second tier transportation companies, the smaller hospitals, the independent hotels, the supermarkets, etc that we have a concern.

The bad news is that because we've been in such a terrible recession for the last seven years, many of these mid-sized and smaller companies have been reluctant to upgrade their computer technology. These undercapitalized businesses simply don't have the resources to fix the problem and those that still depend on mini computers will find that their buggy systems could bring their networks down. Despite the dangers, some companies are choosing to ignore their problems.

We believe they do so at their own peril. Let's take a look at some possible scenarios. The travel industry is linked by sophisticated computer networks that pass data between the airlines, travel agents, hotels, and tour operators. Let's assume that major American carriers will be fully operational for Y2K. However there is no way of knowing if the smaller Hawaii vendors such as the mid-sized hotels, tour operators, agencies, etc will be equally ready for the turn of the century.

Without preparation, chaos could result in form of lost reservations, missing monetary transactions and a host of unexpected other glitches. If the Y2K fix isn't in place the airlines might have to turn to other properties or destinations that will have Y2K compliant technology already in place. As a result, many Hawaii hotels, travel agencies and tour operators could be left out in the cold or in a state of confusion.

The same scenario goes with our shipping lines. We believe the Matsons, the Sea-Lands and their ilk will be on top of things. However what about the vendors that serve the larger companies or are served by them? These include everything from the tug boat companies, the supermarkets, and the trucking firms to the myriad of jobbers and retailers that feed off of the larger companies. A glitch in the computer technology, which would impact communications, banking and inventory control could cripple these smaller operations.

Then there is our vaunted heath care system. Sure, the larger hospitals like Queens, Kaiser and the like will be in good shape for the millennium. They have the resources to pour into their technology. However what about the less endowed institutions?

Keep in mind it's not just the mid-sized firms or the larger that will be in for a ride. Small businesses with older PCs will also have problems. Granted, the problems are more easily solved but how many small businesses are doing this? And it's not just PCs that will go ballistic when Y2K rears its head. Cash registers, point of sales systems and a host of other machines we take for granted could crash. Keep in mind that nowadays computers regulate everything from payroll, air conditioning and lighting to security systems. What happens when it's Y2K and the computer inventory software at a supermarket rolls over to the year 1900. All of a sudden, the inventory will be 100 years old!

As a wise man once said, "The devil is in the details". Like a well-oiled machine, our economy depends upon a number of smaller parts working together. Without sounding like an alarmist, if the parts (small and large businesses) aren't integrated with Y2K compatible systems, things could get messy.

The year 2000 is less than a few hundred days away, yet many Hawaii companies are behaving lethargically, believing either the problem "will go away" on its own, or if doesn't-will be prohibitive to fix. The Gartner Group, a mainland technology consulting firm (with a local Hawaii rep) reports that of 6000 companies and government agencies around the world that they surveyed, between 30% and 50% are likely to experience failures of their mission critical systems. We believe that in our state the numbers could be just as bad.

Life is full of unintended consequences. Who would have thought twenty years ago when computers first entered our professional lives that the change from the year 1999 to 2000 would cause such havoc? But the Y2K dilemma is fact, not fiction. We believe Hawaii companies must accept Y2K costs to remain competitive into the next millennium. It would be a tragedy, indeed, if our state were to be laid low by a flip of the calendar page. The 21st century is crowding down upon us, however, forcing us to live for the future, not in the past.

The Honolulu Advertiser - Sunday May 21 1999