IT Project Delays Put Overstock.com On The Spot

This isn't the way that I.T. likes to make its presence felt on the bottom line.

Overstock.com CIO Shawn Schwegman found himself at the center of a firestorm when company president Patrick Byrne announced that the online retail outlet's warehouses were packed with inventory, and it would fall short on sales for the current quarter because of a computer-system upgrade that caused delays in new products being uploaded to the company's Web site. The fallout: Wall Street analysts promptly downgraded Overstock's stock.

The series of events serves as a reminder to CIOs that IT does, in fact, matter, and that technical glitches can have major business implications. In the case of Overstock, the problems resulted in a five-week delay in posting new items on the site. It took Overstock's IT team longer than expected to fix bugs found while testing a new set of Oracle applications considered key to the company's ability to continue doubling its revenue each year, and Schwegman concluded that functionality in its legacy system couldn't run during the testing, keeping Overstock from posting new inventory on its site.

Schwegman makes no excuses, but he's also pragmatic. "Sometimes, if you make an omelet, you have to break a couple of eggs," Schwegman says. "IT is like the CIA. Nobody knows our successes, but the failures are public knowledge."

The problems arose as Overstock was preparing to go live with Oracle financial and order-management apps designed to reduce the load of the company's proprietary shopping engine. Before the Oracle deployment, Overstock relied on its homegrown system to route orders to the appropriate distribution facility. But Schwegman says it wasn't good at detecting and correcting order and delivery errors, a problem that required a great deal of manual oversight and one the growing company could no longer live with. The Oracle apps handle five pieces of the fulfillment process: order flow, item quantity and cost updates, shipping confirmations, new items, and purchase orders.

Last month, Schwegman sent a memo to suppliers that sell goods on the site to inform them that problems they'd been experiencing, such as failed inventory updates and missing orders, were due to the old architecture's ineffective design. As if that weren't enough, the CIO's problems were compounded late last month when it was revealed that he sold a sizable portion of his stock. Schwegman says he had no knowledge that Byrne was planning an announcement and that he sold only stock he had purchased on the open market, not his company-supplied options.

From an IT perspective, Schwegman would do one thing differently if he could start the project over again, and that's start the effort earlier. The company began planning for the Oracle deployment back in February knowing that the system upgrade had to be completed in time for the holiday season.

The IT staff's ability to make fixes now exceeds the number of bugs being detected, a sign that the system is nearing stability. The problems are largely behind the company now, Schwegman asserts. It has seen a reduction in Web-page load times from 2.4 seconds to 1.6 seconds, which he calls "huge for our customers."

Despite all the negative attention, the Oracle technology will help Overstock be flexible enough to support continued, expected growth of 100% a year, Schwegman says. "In the grand scheme of things, this puts us in a much better position for the future."

But the lesson for other CIOs is clear: Never underestimate the time it takes to successfully complete a software implementation. Says Schwegman, "The more you put into the front of a process, the easier the end of that process is."