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Buggy software still takes a toll

Agilent's disclosure last week that a botched software installation caused a shortfall in revenue is putting a harsh spotlight on the software industry again.

Imagine buying an energy-saving dishwasher and seeing your monthly electricity bill double, and you'll understand how a growing roster of executives feel about their decision to install expensive business software.

Read more about struggles with software
Agilent Technologies last week joined the list of companies blaming balky software for crimping the bottom line. Agilent's claim followed similar charges from Hershey, W.L. Gore & Associates, W.W. Grainger, Whirlpool, Foxmeyer and Nike--all of which in the past few years have cited botched software installations for disrupting operations to the degree their finances suffered.

Considering that the advanced applications they'd turned to are supposed to enhance productivity and boost profitability, the failures are especially troubling to current and potential customers.

"These companies are developing software that people run their businesses on," said Jim Shepherd, an analyst at AMR Research, a technology research firm. "There is a responsibility that comes with that. It should do good, but at the very least it should not do harm. For too long, there hasn't been any mentality of responsibility at all with people writing software."

To be sure, the software itself may not always be the problem. In some cases the third-party company that tried to install the software may have been sloppy, or the customer simply had overly ambitious expectations. Or the customer's own data systems may have been in such disarray that it's a stretch to blame a company for a product not working.

Whatever the reason, the good news is that significant problems appear to be on the wane. The bad news, however, is that major customers such as Agilent continue to point an accusatory finger at software, adding to the perception that the industry pushes products to market before they're fully baked. And that could further crimp sales at a time when IT-targeted dollars are at a premium.

In Agilent's case, the company encountered problems transferring data into a new Oracle order booking and accounting system from its other computer systems. The problem halted normal production for the equivalent of an entire week after the new Oracle software was switched on in June, costing the manufacturer of semiconductor testing equipment $105 million in revenue and $70 million in operating profits.

Project management and data migration issues also may have contributed to Agilent's problems.

"It makes more sense that this was a project management problem, not a software quality problem," said Joshua Greenbaum, a technology analyst at Enterprise Applications Consulting. "Someone set expectations poorly. Someone made poor decisions."

Still, on Monday an analyst for Sanford C. Bernstein reduced his estimates for Oracle's fiscal first-quarter earnings, partly as a result of "recent negative press" about Agilent's revelation.

In another recent example, Lawson Software settled a lawsuit earlier this month with TeamStaff, a human resources services company, alleging that after a year of trying, it could not implement Lawson's software. TeamStaff said Lawson's human resources applications were missing key features that had been promised in its contract.

Signs of progress
But companies and customers generally agree that major strides have been made in mastering the often mind-boggling task of installing and setting up business applications on which companies depend for everything from taking orders to delivering products. As a result, problems like those encountered at Agilent and TeamStaff appear are less frequent than in the 1990s, when failed software projects involving SAP, PeopleSoft, Oracle and others regularly made headlines.

"No one ever said that enterprise business systems work was going to be easy," SAP spokesman Bill Wohl said. "After all, it changes the way a company does business and how it operates. But what I can tell you is that we are doing it in a more experienced way than ever before."

Even hard-charging Oracle Chief Executive Larry Ellison has tempered his tone in the wake of troubled software releases, adopting a surprisingly contrite image earlier this year when he pledged Oracle would be more sensitive to customers' needs.

The problem of buggy software has become a high-profile issue, with industry trade magazines Information Week and MIT Technology Review featuring cover stories recently on the quality problems dogging the software industry. According to a federal study, buggy software costs the U.S. economy nearly $60 billion a year.

Worse--and spreading the effect of software flaws far beyond the original customer--several devastating computer viruses have taken advantage of bugs and defects in common operating systems such as those sold by Microsoft, hobbling thousands of corporate computer networks last year.

Some analysts say it's up to the customers to change the software industry culture.

"Part of what caused quality in automobiles and electronics to change is when buyers began choosing Japanese products rather than American and European ones," said AMR's Shepherd. "We haven't seen that happen with software."

Generally, however, software companies now acknowledge that products were rushed out during the go-go days of the Internet in attempts to catch up with or pull ahead of hungry competitors. At the time, their customers were in high-growth mode and more willing to embark on the costly installations and upgrades.

"Fear of competition causes one to race to market with poorly tested features because you believe feature differentiation that will win you sales," Forrester Research analyst Laurie Orlov said.

Attitude adjustment at Oracle
Ellison's Oracle became a poster child for this sort of situation. The company's E-Busines Suite 11i, released in 2000, was inordinately buggy, with estimates of some 5,000 glitches that had to be fixed. Oracle executives admit that first version was rushed to market, and they say that times and attitudes have changed.

"If we put something out that jeopardizes the perception of the quality of the whole suite, it's just not worth it," said Alan Fletcher, vice president of operations at Oracle. "It's definitely a mind-set shift from where we were three years ago when we were rolling out new applications like customer relationship and supply chain management."

Oracle's mistakes with that release caused a lot of ill will among customers, and two years later, the company still battles the perception that it has quality problems even though it has fixed 11i, Fletcher said.

Other software companies also say they are working to improve quality, partly because the long-term benefits outweigh the short-term sales gain.

Manugistics, which makes a set of complex applications to help manufacturers plan the production of their products, is investing more in testing and quality assurance processes with a new program it started last year, called FLEX, which stands for flawless execution. The company says it increased worker power dedicated to quality assurance by 30 percent.

"It's not so much a buying criteria but a reference-ability criteria," said Lori Mitchell-Keller, senior vice president of market strategy at Manugistics. "We can provide tons of positive customer references which helps sales down the road. That's been a huge competitive advantage."

Plus, it's more cost effective to do it right first than to spend hours troubleshooting later, she said.

Truly bug-free software is, of course, just a pipe dream, considering the complexity of these products. Lawson Software, for instance, tests for 75 percent of as many as one million permutations in its software's settings, according to Joanne Byrd, senior vice president of Lawson Global Consulting Services.

"We don't test every single possibility," said Byrd. "It's impossible, but every year we try to get that percentage higher and higher."

Wall Street antics
Analysts point out that even as software companies and their customers seem more comfortable with slowing down the process to get a better product, Wall Street is still laying on the pressure for revenue growth.

Meteoric growth in the range of 30 percent to 80 percent annually was common and was handsomely rewarded during the IT boom. But rapid growth lead to many problems for customers, especially for those of large software companies with hundreds of millions in revenue and thousands of customers to support.

"Like everyone else, software companies became captives to the expectations of the stock market," Shepherd said.

Software company i2 Technologies, whose highly publicized problems with customers Nike and Siemens, has fallen prey to such pressure in the past.

"Wall Street expectations can put pressure on companies to grow at all costs, including at the expense of their customers," said Pallab Chatterjee, president of i2 Solutions Operations. "We are taking a long-term, customer-centric approach that we believe will pay greater dividends down the road."

Shares of i2, which peaked at more than $100 in early 2000 (adjusted for splits), now trade near $1.

Another way to improve the customer's experience is to make sure software companies have a hands-on role after the sale, instead of handing off maintenance and support to a third-party.

"The way to hold software vendors accountable is to have their implementation arm play a significant role in your project," said Bill Henry, vice president of marketing and strategy for PeopleSoft Global Services. "Give them one throat to choke, a single point of accountability."

PeopleSoft has adopted that tactic and reports increased customer satisfaction and improved installation times. Half of all PeopleSoft projects are now completed in 4 months or less, the company said. Several years ago, it was not uncommon for such projects to take years.

The changes bode well for the industry, analysts say.

"It will be a long time before we see the software industry go back to the practices that got it in trouble," Shepard said. "That's good for the industry and good for customers. This was an industry that stayed in adolescence way too long. I think we'll see a much more mature, careful industry emerge."