Blog: Claudia Imhoff

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Overstock.com's (Too) Honest CIO?

Here's another good one for you. Overstock.com's CIO, Shawn Schwegman, recently sent a note to the company's key business partners apologizing for a number of problems that these partners have had to endure due to Overstock.com's poorly architected IT systems...

As if that were not bad enough, the CIO's problems were compounded late in August by the revelation that he sold a sizable chunk (about two-thirds) of his Overstock.com stock right before the company disclosed a shortfall in its sales due to the 5-week long inventory software upgrade glitch...

Seems like the CIO's candor upfront was not all it was cracked up to be? Or perhaps he should not have written anything? Was his stock sale just unfortunate timing or some form of insider trading?

I will let the regulators sort that last bit out. Read on to see what was in his letter and the lessons he learned.

The letter did not mince words -- in it, Mr. Schwegman states:

"I'll start by saying that the vast majority of system problems we have are problems related to updates... At the end of the day, all of these problems boil down to Overstock's failure (read, my failure) to architect a system that can handle real-time updates promptly."

The updates involved a new set of Oracle applications and "the ability to send small files containing inventory updates, orders, image data, status changes, etc., back and forth" between the Oracle database and a Vcommerce database -- basically message processing between the two databases. According to the CIO's letter, "The 'fire and forget' approach is killing us. In reality, a file might not send properly, become corrupted in transfer or produce errors when the receiving system attempts to process it... The architecture is horribly architected."

Haven't we been saying for years that the architecture is everything...? But that is an aside. The story goes on.

Needless to say, the five week delay due to the technical glitches had major business implications. Wall Street analysts immediately downgraded Overstock's stock upon hearing of the missed sales figures. The stock was trading around $41/share on the time of the first article containing the CIO's mea culpa. Today it closed at $34.21. Pretty substantial drop.

What does Schwegman say he would do differently if he could do it over again? Start the effort earlier. According to him, you should never underestimate how long it will take to successfully complete a software implementation. "The more you put into the front of a process, the easier the end of that process is." Truer words were never spoken.

As always, I welcome your comments. Should the CIO have issued his letter? What responsibility does IT have to warn its partners of troublesome internal systems? And what will happen to Overstock now that the (hopefully) worst is over?

Yours in BI success,

Claudia

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