Some economist analyzed all of the leveraged buyouts of the 1980s and made a startling discovery: In about 70 percent of the cases the companies — generally profitable when acquired — did not generate enough cash to pay off the debt taken on in financing the LBO.

Everyone involved in these transactions knew they would fail, but it didn’t matter, since they all ended up wealthier than when they started.

Why do groups of people who are individually smart seem to act stupidly so often? A group is smart when its members’ personal short-term interests coincide with the group’s long-term interests. Otherwise the group will do stupid things.

That, far more than a bunch of dumb CIOs caught off-guard when a century sneaked up on them from behind, explains why we have a huge year-2000 problem.

The year 2000 is a crisis because until it reached crisis proportions, making this year’s numbers was more important than investing resources in surviving past 1999. Understanding these dynamics should change how you set IS priorities.

I remember raising the year 2000 question back in 1994. We spent exactly one sentence discussing it. Since we lacked the resources to satisfy immediate demand, the year 2000 could wait until 1995, when with luck we would all have different jobs and it would be someone else’s problem. (No, none of us actually admitted to that thought process … maybe I was the only one that shallow.)

What problems do you have with your systems architecture or applications portfolio that you could fix with little stress if you started right now? I’ll bet you have at least one.

Maybe your particular problem is an ancient system with old, fragile code nobody really knows anymore. You can fix it by rewriting modules that require maintenance instead of simply tweaking them, even though the rewrites will take twice as long.

Or maybe you operate a batch legacy environment, and you know in your bones that the company needs to operate in real time. Figure out how to switch one class of updates at a time from the batch queue to online transaction processing and incorporate this into your overall IS strategy.

Use your year-2000 crisis as a lever to sell a long-term program of technology grooming, so you never again experience this kind of difficulty. I know that right now, if you’re a typical CIO or IT director, the year-2000 problem seems like your greatest challenge and these other projects seem distant at best. And I have almost no useful advice to give you on solving your immediate problem except for these very obvious points:

• Make sure you have enough programmers assigned to the project. Then add a few more for good luck.
• Assign or hire the absolute best project manager you can possibly find and afford to run the project.
• Pay more attention to testing than to any other part of the project.

The immense cost estimates for the year 2000 fix are misleading. Yes, organizations will spend huge sums. These sums will have little adverse impact on the economy, though, because for every company that spends there are others, or individual employees, who receive.

The real impact of the year-2000 problem will be to reward far-sightedness: Competitors that have already fixed the problem can now afford to invest in projects that yield a competitive advantage.

Businesses have a lot in common with electric fish — a fact I can state with authority as the only person on earth who has studied them both.

One example: A deep knowledge of evolution helps to understand fish and business. IS Survivalist Thomas Munnecke recently shared an insight along these lines.

Tom differentiates performance from adaptation. IT contributes a lot of its value by improving adaptation. Since accounting systems measure only financial performance, they are blind to adaptation. Check out Tom’s paper at http://www.ncsa.uiuc.edu/SDG/IT94/Proceedings/Overviews/munnecke/www94.html if you like this thought.

A month ago, using similar arguments, I critiqued Paul Strassmann’s new book, The Squandered Computer, and his highly publicized conclusion that information technology hasn’t led to business benefits. Needless to say, Strassmann wasn’t happy with me.

After Strassmann accused me in a recent letter to InfoWorld of not reading his book he made this “point”: “Mr. Lewis’s attempt to prove that computers are essential, regardless of cost, because nobody ‘…types on Selectric typewriters or manages inventory on index cards…’ is without merit. There is no question that trucks are superior to horse-drawn carriages. However, if all firms use trucks, their freight-carrying productivity must be evaluated in terms of trucking, not in terms of horses. That’s exactly what I do. I compare the productivity of firms that use identical computer technologies.” (For the full letter, see To the Editor, Jan. 12, page 62.)

Strassmann is using a common polemicist’s trick — by speaking for me, he’s able to have me say something he can successfully refute. Regardless of cost? Puhlease!

Well, Paul, I did read your book … all 400 pages and $49 of it. It’s better than your “freight-carrying productivity” argument, at least. Seems to me if you’re trying to prove that investing in trucks hasn’t paid off, the best comparison is with other freight-carrying techniques.

Strassmann and I do agree on one basic point: that it’s important to align IT spending with business goals. It isn’t much of an insight, but it is valid.

But his daunting array of numbers cries out for statistical analysis instead of simplistic financial ratios. (I searched The Squandered Computer in vain for a multiple regression analysis, ANOVA, or even a simple paired T-test — probably the best test of Strassmann’s hypothesis.)

That’s one reason collecting facts and drawing proper inferences are two different matters. Inappropriate measures are another. Numbers folks don’t always accept that financial statements no more measure competitiveness than reproductive capacity measures biological adaptation. But they don’t.

Here’s another way of putting the situation into perspective: Imagine two Sumo wrestlers. We’ve all seen movies of these guys, pushing and struggling, expending all kinds of energy to move each other.

For a long time they don’t, though, and if you tried to measure the effectiveness of their energy expenditure by the amount one moved the other, you’d conclude they’re both wasting a lot of energy to no effect.

We know better: The moment one of them weakens, the other wins the match. The energy expenditure’s value is measured by lack of backward movement.

This isn’t just theory. A client I once worked with developed a financial outlook that was pretty grim. It showed profits plummeting to a fraction of current levels over a decade, due to fundamental competitive and marketplace changes. That client wisely decided to invest large sums of money into a business transformation, which requires significant IT spending.

Its forecast, with the investment, improves its profit picture from disaster to status quo. If all goes according to plan, profits will stay at current levels. Strassmann, seeing increased IT spending but flat profits, will conclude that this company wasted its investment.

Its executives, though, will compare their profits to the original financial outlook and be deservedly pleased.