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Sun 13 Nov 2005 04:00 AM

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When is honesty not the best policy?

Sometimes it pays to be honest. Other times… well, let’s just say you can be a bit too honest.

|~|comment37body.jpg|~| “I bit off more technology projects than my colleagues could chew," admitted Byrne. |~|Sometimes it pays to be honest. Other times… well, let’s just say you can be a bit too honest.

US internet retailer Overstock CEO Patrick Byrne may feel that recently was one of those times.

While many firms’ CEOs would try to hide bad financial performance behind a wall of jargon and a series of excuses, Byrne’s opening statement was a little blunter: “Q3 was rough. My bad,” he told investors in a statement announcing the results.

Considering he was telling investors that the firm had just made a net income loss for the quarter of US$14 million, it is debatable as to how impressed they were by this honesty.

Byrne’s rationale for his problems however, was one that many a CEO has turned to before: blaming it on IT.

“I bit off more technology projects than my colleagues could chew. The last bite, an ERP implementation, was one bite too many, and we choked on it,” he continued to tell investors.

Some IT projects that were supposed to lift margins through improved efficiencies in logistics or customer service were either late or remain incomplete, Byrne claimed.

Other IT projects that were supposed to yield marketing gains went unfinished. The conclusion for any casual observer would seem to be that IT had failed to deliver for Overstock (perhaps ironically, as it is itself a high-tech company) and that the business executives had suffered as a result.

Such a claim is hardly original. Perhaps the most famous example of a CEO blaming IT for his company’s business shortcomings was given by sneaker giant Nike’s chairman, president and chief executive Phil Knight.

His ire was raised by a forecasting debacle five years ago, when the company’s implementation of technology from i2 Technologies led to a loss of more than US$100 million in sales.

Despite spending more than a year on the implementation of a planning system, when it came time to throw the switch, the result was a massive supply chain mess, with unpopular items overstocked and supplies of best-selling items falling short. “This is what we get for our US$400 million?” Knight famously whined to analysts in a conference call.

The publicity generated by this outburst was to affect i2’s own earnings, and hit its share price. However, a then-declining market for footware sales in the US also hit Nike’s sales and reports also suggested that staff for the firm had failed to enter orders correctly on to the system, making it difficult for it to be accurate.

Despite this, the public perception was that IT was to blame for Nike’s problems.

In Overstock’s case, what seems to have created the problems is Byrne’s admission that the firm simply bit off more than it could chew: attempting to do too many IT projects at the same time proved to be a recipe for disaster for it.

The firm had attempted to implement an enterprise resource planning (ERP) software system based on Oracle’s eBusiness suite.

According to reports, Oracle had estimated the implementation should take between 12 and 18 months: Overstock attempted to carry it out in five and a half.

That, and the decision to take on a number of other IT projects at the same time, seems ultimately what caused Overstock’s problems.

Which is, of course, as much a management issue as it is an IT one. A point that, to be fair, Byrne seems to have acknowledged.

“I lost US$14 million of our money and I’m sorry,” he told investors in a conference call after his company’s results were announced. Sorry may be the hardest word to say: blaming problems on your computer systems still seems easy.||**||

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