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FA L L 2 0 0 7

V O L . 4 9 N O. 1

Cynthia Rettig

The Trouble With


Enterprise Software

Please note that gray areas reflect artwork that has been
intentionally removed. The substantive content of the article appears as originally published.

REPRINT NUMBER 49101

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The Trouble With Enterprise Software


Technology has always been about
hope. Since the beginning of the industrial
revolution, businesses
have embraced new
technologies enthusiastically, and their
optimism has been
rewarded with imp rove d p ro ce s s e s ,
lower costs and reduced workforces. As the pace of technological
innovation has intensified over the past two decades, businesses have come to expect that the next
new thing will inevitably bring them larger market
opportunities and bigger profits. Software, a technology so invisible and obscure to most of us that it
appears to work like magic, especially lends itself to
this kind of open-ended hope.
Software promises evolutions, revolutions and
even transformations in how companies do business. The triumphant vision many buy into is that
enterprise software in large organizations is fully
integrated and intelligently controls infinitely complex business processes while remaining flexible
enough to adapt to changing business needs. This
vision of software lies at the core of what Thomas
Friedman in The World Is Flat calls the WalMart Symphony in multiple movements with
no finale. It just plays over and over 24/7/365.1
Whole systems march in lock step, providing synchronized, fully coordinated supply chains,
production lines and services, just like a worldclass orchestra. From online web orders through
fulfillment, delivery, billing and customer service
the entire enterprise, organized end to end
that has been the promise. The age of smart
machines would seem to be upon us.
Or is it? While a few companies like Wal-Mart
Stores Inc. have achieved something close to that
ideal, the way most large organizations actually
process information belies that glorious vision and

reveals a looking-glass world, where everything is


in fact the opposite of what one might expect.
Back-office systems including both software applications and the data they process are a
variegated patchwork of systems, containing 50 or
more databases and hundreds of separate software
programs installed over decades and interconnected by idiosyncratic, Byzantine and poorly
documented customized processes. To manage this
growing complexity, IT departments have grown
substantially: As a percentage of total investment,
IT rose from 2.6% to 3.5% between 1970 and 1980.2
By 1990 IT consumed 9%, and by 1999 a whopping
22% of total investment went to IT. Growth in IT
spending has fallen off, but it is nonetheless surprising to hear that todays IT departments spend
70% to 80% of their budgets just trying to keep existing systems running.
According to a multiyear study of over 400 companies by MIT researchers Jeanne Ross, Peter Weill
and David Robertson,3 IT departments tend not to
be innovative leaders within organizations, but
rather conservative forces, viewed by business executives as cost sinks and liabilities. In many
companies, it takes the IT department one to two
years to implement a new strategic initiative
hardly the agility companies are striving for. The
research shows the typical IT structure is so dense
and extensive that its often a miracle that it works
at all. The researchers observe: Legacy systems
cobbled together to respond to each new business
initiative create rigidity and excessive costs. Every
change becomes a risky, expensive venture.

Has enterprise
software become
too complex to
be effective?
CYNTHIA RETTIG

This article, originally


published on the

MIT Sloan Management


Review Web site,
stirred up a good deal
of discussion in the
blogosphere, a sampling
of which is included in
the following pages.

The Proliferation of Complexity


How did this happen? James Cordata, who has
written extensively about the information economy, points out that as work became more complex
and specialized over the 20th century, the use of
data numbers and facts as fodder for more
and more analysis and fact-based decision making
intensified. And digital technology was perfect for
this kind of world.4 Of course, digital technology
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not only supported that complexity but also played


a large part in actually creating it, weaving a continuous web of unending data. More computers
are better than fewer remains a key belief of American business, Cordata says. There are no limits to
how much is good. Management became accustomed to the idea that buying more computers and
more software would continue to cut costs and improve operations.
But there are limits, some of which are inherent
in the nature of software itself. Software is code,
lines and lines of code that run sequentially. Building software programs entails accumulating more
and more code. Much of the seemingly boundless
complexity of enterprise software is founded on
conditional branching (if-then statements) and a
hierarchy of interacting objects, all of which manipulate information in a logical succession of
small steps. Each step contains explicit instructions. To build software, programmers routinely
break down processes into discrete steps, effectively
systematizing and standardizing how work is done.
An entire sequence of such instructions works
more like a calculator than a thinking machine.
Thus the so-called intelligence of digital technol-

From the Wall Street Journal


Business Technology Blog
http://blogs.wsj.com/biztech

Technology is supposed to simplify business. This has been true from


the Industrial Revolution to the Internet age. But did the large software
applications that were supposed to streamline large companies instead
irrevocably slow them down?
Theres a compelling argument to be made that they have. The average company spends $15 million on Enterprise Resource Planning
software, the monolithic systems of record from vendors like SAP and
Oracle, and many large companies have spent tens and even hundreds
of times that, according to [Ms. Rettigs article].
Some of this resonates. Certainly, companies that have tried to customize these systems to reflect their own customized processes have
spent a lot of time and money to do so. And ERP systems do introduce a
certain amount of rigidity. On the flip side, having a system of record is a
Ben Worthen
benefit in and of itself that shouldnt be discounted.

ogy arises not through magic, nor, in more


contemporary terms, through some emergent or
self-organizing principle, as some would believe.
The result is not greater than the sum of the parts.
Rather, its more akin to Adam Smiths division of
22 MIT SLOAN MANAGEMENT REVIEW FALL 2007

labor and Frederick Taylors scientific management, a process dependent on relentless analysis
and rationalization of the work to be done.
General software programming used in enterprise systems may contain intricate branching and
handle a huge number of conditions, all of which
allow it to control a certain amount of complexity.
It does not, however, tolerate ambiguity, inconsistencies or illogical conclusions. To be sure, there
are fuzzy logic programs, dynamic simulations,
genetic algorithms and neural nets with subtler
powers, but a vast amount of software working in
todays large organizations is not of these more advanced types. In fact, enterprise software systems
are more likely to succeed at relatively straightforward tasks such as procurement and order
processing. As the problems get more complex, so
does the software that solves them. It is estimated
that for every 25% increase in complexity in the
tasks to be automated, the complexity of the software solution itself rises by 100%.5
Business users and management inevitably want
changes in their automated processes as their needs
and markets evolve. And they expect to be able to
customize their software to fit their own needs.
Software is infinitely malleable, says computer
historian Martin Campbell-Kelly.6 This is in theory
true; however, as enterprise software becomes increasingly comprehensive and complex, the costs
and risks involved in changing it increase as well.
No single person within an organization could
possibly know how a change in one part of the software will affect its functioning elsewhere.
Softwares supposed flexibility and unending
ability to manage complexity contributed to the
discrepancies between the great expectations and
mediocre reality that plagued the first round of
implementations of enterprise resource planning
systems. In the middle to late 1990s, U.S. corporations rushed to purchase and install such systems.
These systems Germany-based SAP Aktiengesellschafts is the most common promised to
eliminate the complexity of multiple operating systems and applications by replacing them with a
single set of interconnected modules to run the financial, manufacturing, human resources and
other major functions of a typical multinational
corporation. Theoretically, a single monolithic system would seamlessly connect various distinct and
geographically separate locations through private
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networks. Companies understood that they could


customize these systems as needed to suit their
unique business processes.
That was the hope. But these massive programs,
with millions of lines of code, thousands of installation options and countless interrelated pieces,
introduced new levels of complexity, often without eliminating the older systems (known as
legacy systems) they were designed to replace. In
addition, concurrent technological and business
changes made closed ERP systems organized
around products less than a perfect solution: Just
as companies were undertaking multiyear ERP
implementations, the Internet was evolving into a
major new force, changing the way companies
transacted business with their customers, suppliers and partners. At the same time, businesses were
realizing that organizing their information around
customers and services and using newly available customer relationship management systems
was critical to their success.
The concept of a single monolithic system failed
for many companies. Different divisions or facilities often made independent purchases, and other
systems were inherited through mergers and acquisitions. Thus, many companies ended up having
several instances of the same ERP systems or a variety of different ERP systems altogether, further
complicating their IT landscape. In the end, ERP
systems became just another subset of the legacy
systems they were supposed to replace.

is little statistical evidence, especially about


whether the benefits of ERP implementations outweigh the costs and risks. Researchers even have
suggested that ERP implementations are so difficult that those companies that actually complete

From Rough Type: Nicholas Carrs Blog


www.roughtype.com

Over the last two decades, companies have plowed many billions of dollars into enterprise resource planning (ERP) systems and the hardware
required to run them. But what, in the long run, will be the legacy of
ERP? Will it be viewed as it has been promoted by its marketers: as a
milestone in business automation that allowed companies to integrate
their previously fragmented information systems and simplify their data
flows? Or will it be viewed as a stopgap that largely backfired by tangling
companies in even more systems complexity and even higher IT costs?
In The Trouble with Enterprise Software, Cynthia Rettig deftly lays
out the case for the latter view. Enterprise systems, argues Rettig, not
only failed to deliver on their grand promise, but often simply aggravated
the problems they were supposed to solve. Different divisions or facilities
often made independent purchases, and other systems were inherited
through mergers and acquisitions. In the end, ERP systems became just
another subset of the legacy systems they were supposed to replace.
So whats the solution? Rettig doesnt offer one, beyond suggesting that top executives do more to educate themselves about the
problem and to work more closely with their CIOs. That may be good
advice, but it hardly addresses the underlying technical challenge. But
Rettig nevertheless has provided a valuable service with her article.
While some will argue that her indictment is at times overstated, she
makes a compelling case that the traditional approach to corporate
computing has become a dead end. We need to set a new course.
Nicholas Carr

The Costs of Implementation


ERP systems were expensive, too, costing companies more than they had ever paid for software
when costs had been based on per-workstation
usage. But that price tag was dwarfed by the installation charges, because companies had to
hire brigades of outside consultants, often for a
number of years, to actually get the software up
and running. While the average installation cost
$15 million, large organizations ended up spending hundreds of millions of dollars. Even such
large expenditures did not guarantee success,
however. In fact, 75% of ERP implementations
were considered failures.7
Try as they might to measure the productivity
gains of ERP implementations or IT in general, researchers have yet to arrive at any coherent or
consistent conclusions. One problem is that there
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them with relative success gain a competitive advantage in the marketplace.8 It seems that ERPs,
which had looked like the true path to revolutionary business process reengineering, introduced so
many complex, difficult technical and business issues that just making it to the finish line with ones
shirt on was considered a win.
All that complexity and all those options created
another conundrum. As Nicholas Carr famously
pointed out in his book, Does IT Matter? Information Technology and the Corrosion of Competitive
Advantage,9 simply implementing the plain-vanilla
business processes that your competitors have does
not provide any competitive advantage. On the
other hand, as many companies learned the hard
way, customizing the already complex ERP software
created yet more complexity and even larger risks.
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Without intimate knowledge of how the integrated


pieces of these modular software packages actually
worked, customizing could lead to in-house bugs
and glitches that were hard to foresee and expensive
to fix. Perhaps even worse, customization made
changing the software later or upgrading to a
newer version far more difficult, and in some
cases prohibitively expensive. Christopher Koch,
executive editor of CIO Magazine, tells the story of
one head of a corporate SAP installation group who
bragged that he had his installation time down to a
mere three months for various facilities around the
world: It didnt matter that he was honing his skills
on a 10-year-old version of the software because the
costs of upgrading are so huge tens, even hundreds of millions of dollars, or as much as it cost to
install the stuff in the first place that he keeps in-

From Andrew McAfees Blog


http://blog.hbs.edu/faculty/amcafee

It is certainly true that enterprise systems have failed in many companies,


and its also true that, as [Ms. Rettig] points out, many others have not
been able to shut off legacy systems to the extent they expected after ERP
went live. But it is simply not the case that researchers have been unable
to draw any coherent conclusions about these technologies.
Rettigs argument falls into a long line of pessimistic writing about the
value of corporate IT. Much of this writing takes the implicit, and at times
explicit, view that the executives who make technology decisions are
dupes, perennially falling for a triumphant vision of software. The only
way I can see for the IT pessimists to be right is if the delusion about ITs
benefits is both persistent and virtually universal. And I dont buy that.
ERP doesnt help is a testable hypothesis, and some colleagues
of mine have tested it. NYUs Sinan Aral, Georgia Techs D.J. Wu, and
my friend and coauthor Erik Brynjolfsson at MIT recently published a
wonderful paper, Which Came First, IT or Productivity? Virtuous Cycle
of Investment and Use in Enterprise Systems (http://papers.ssrn.com/
sol3/papers.cfm?abstract_id=942291). [This paper] contains a vital insight: If IT were not delivering value, rational decision makers would not
keep investing in it.
I agree that its important not to naively accept anyones triumphant
vision of corporate IT. But its also important not to make claims in the
other direction that are too sweeping. Perhaps most fundamentally, its
critical at some point to stop floating hypotheses about ITs impact (or
Andrew McAfee
lack thereof), and to start testing them.

stalling old versions of the software so that it will


line up with the old software they already have.10
Unexpected bugs present another type of difficulty that increases with complexity. Robert
Pool, technology journalist and author of Beyond
24 MIT SLOAN MANAGEMENT REVIEW FALL 2007

Engineering, explains it this way: Its possible to


go through a program line by line and make sure
that each individual instruction makes sense but it
is not possible to guarantee that the program as a
whole has no flaws.11 The average professional
coder makes 100 to 150 errors for every 1,000 lines
of code, according to a Carnegie Mellon study
conducted by Watts Humphrey.12 That means for
every million lines of code there would be 100,000
mistakes. Software developers do extensive testing
on the paths users seem likely to take and correct
many of these errors. Nevertheless, they cannot
test or even anticipate every possible usage path, so
released software inevitably contains unknown
defects. Civilization depends on software. So although much software code is poorly written, you
cant just stop the world to fix it, says Bjarne
Stroustrup, the Danish-born computer scientist
who designed the popular C++ programming
language. On the other hand, Stroustrup does
concede that muddling along is expensive, dangerous, and depressing.13

The Vagaries of Data


The data that software processes and generates is
another constant and growing problem. Estimates
of errors are astoundingly high. Single systems can
have error rates of 50% or more from myriad
sources everything from mistyped data to stale
information to data placed in the wrong fields
within the database structure. But the really nasty,
intractable data problems erupt when companies
integrate multiple data sources, as was necessary
for ERP implementations, so that they could have
all their product, inventory and production records
stored in one place. Because of differing formats,
conventions, abbreviations and so on, such integrations can result in a 100 or more records that
actually point to a single product or customer. In
the case of enterprise system implementations,
data problems alone precipitate many of the failures perceived by business users and much of the
added expense as well. Overwhelmed by the sheer
difficulty and complexity of the new software itself,
companies literally forgot about the data, as executive vice president John Nicoli of Harte-Hanks
Trillium Software in Billerica, Massachusetts, describes it, until the tail end of the project, thereby
necessitating enormous reworking to properly
clean up and integrate the data.14 And with corpoSLOANREVIEW.MIT.EDU

rate data stores doubling every three years, such


data issues are only compounding.
Is enterprise software just too complex to deliver on its promises? After all, enterprise systems
were supposed to streamline and simplify business processes. Instead, they have brought high
risks, uncertainty and a deeply worrying level of
complexity. Rather than agility, they have produced rigidity and unexpected barriers to change,
a veritable glut of information containing myriad
hidden errors, and a cloud of questions regarding
their overall benefits. Leaders in computer science
are clearly worried. Complexity is death, says
Chuck Thacker, one of 16 technical fellows at Microsoft Corp. We are hanging on with our
fingertips right now.15
Business executives, however, simply want to
continue to believe that technology will lower
costs, improve processes and reduce the size of the
workforce. They dont want to understand IT issues. In part, this is because technology requires
special skills and intellectual talents that are quite
distinct from those needed to understand and
manage business organizations, markets and
strategy. But it is also because executives do not
like to hear about the downside of technology.
Observes Jim Shepherd, senior vice president of
Boston-based AMR Research Inc., Senior managers often dont particularly want to be told that
theres a high risk and that theres a great deal of
expenditure involved in minimizing it.16 Yet the
only sure thing about new technologies and the
changes they introduce is their uncertainty. In
summarizing decades of research into technological change, MIT Sloan School of Managements
Wanda Orlikowski and the National Science
Foundations Suzanne Iacono conclude that
changes involving technology are both profoundly complex and uncertain.17
For their part, CIOs and their managers rate
aligning IT with business strategy as their No. 1 priority. They struggle year after year to prove the value
of IT to the business side of the organization. Yet the
cost overruns, delays and outright failures of enterprise systems have if anything widened the digital
divide between IT and the executive suite.

The Next New Thing


The proposed fix for these problems the next
new thing is service-oriented architecture. BaSLOANREVIEW.MIT.EDU

sically, SOA proposes to overcome the problems


involved with updating and changing legacy systems by building modular cross-system business
processes. These processes would connect the relevant pieces of functionality from various IT

From the ZDNet.com Blog


http://blogs.zdnet.com

Theres really nothing new in [Ms. Rettigs] analysis. But Rettig goes a
step further and says theres no hope for the future. In fact, while she
doesnt offer any remedies for her gloomy prognosis, she does quash
one service-oriented architecture (SOA).
Rettig doesnt offer any encouraging words about SOA as an ERP
workaround. SOA may take years to come to full fruition, not in enough
time to help beleaguered companies, she says. And SOA may simply be
too slow to keep up the dynamic business environments of today. Not to
mention technical challenges. Rettig says that SOA increases complexity, as it becomes additional layers of code superimposed on the
existing layers, and she doesnt buy the Lego-block concept that underpins much of the thinking about SOA.
Lets put it this way: aside from SOA, what is the alternative? No one
is willing, or can afford to, to stay with the rigid, stovepiped systems in
their current form. One solution is just throw the entire mess out, and
buy a huge, well-integrated, modular application. But no one has the
time or budgets. The only workable approach, then, is gradual integration between systems, and gradual, greater agility if not through SOA,
then how? SOA, pure and simple, is the first step to software industrialization creating massive, adaptable systems in an automated and
modular fashion through greater economies of scale. ERP was a step in
this direction, since it modularized, and brought many vital pieces of
the business together into a single standardized system. SOA takes it to
the next level, beyond the domain offered by a single vendor. Thats the
Joe McKendrick
core value proposition of SOA.

systems, thereby making it easier to change processes to adapt to new business goals. But technical
realists point out that many difficult technical
problems must be solved before SOA can become
the backbone for a new strategic architecture, including robust protocols for accessing the
applications, high-quality integrated data stores
and a sound methodology for managing the overall process. Researchers Ross, Weill and Robertson
admit that most companies are in the early stages
of a four-part transformation to SOA that may
take many years even decades to realize.18
The estimates of how long this will take reflect a
growing acknowledgment of just how deep and
radical are the organizational changes these technological innovations mandate. It is a process of
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adoption and adaptation that by definition cannot


occur overnight. Nor, conclude the researchers,
can companies skip a step. Given that only 6% of
companies have made it into the later stages, this
model would suggest that companies are in for a

From the Deal Architect Blog


www.dealarchitect.typepad.com

The good news is [Ms. Rettigs] article will get executive attention. Not
that they do not know. I recently met an executive at a client about to
start an ERP implementation. He sounded like a man headed to the gallows. Nervous, not excited about the project. (That afternoon, I felt
really embarrassed for our industry that after 100K+ ERP projects, we still
cannot make it a no-brainer.)
But it is way past talking about messes. Companies are in various stages
of ERP hangover management, not always looking at software as a service
(SaaS), as those vendors would have you believe its not that easy to rip
and replace a backbone ERP solution but software as a customized service (SaCS). [Those companies are in] aggressive re-negotiation of ERP
maintenance contracts or moving to third party maintenance.
The only ones who do not seem to realize the party is over are the
vendors, who are using service-oriented architecture (SOA), compliance
and more low payback justifiers to extend the run.
Vinnie Mirchandani

long haul if they are to escape the tangle of technological complexity inherent in large organizations
today, and it will be a journey fraught with cultural
as well as technical problems.
The timeline itself for this kind of transformation may just be too long to be realistically
sustainable and successful. The dynamic business
environments of today, where whole industries and
markets can undergo radical changes in a matter of
a few years and the horizon for corporate strategies
has shrunk from 10 years to three to five, makes it
questionable whether companies actually can
maintain a focused strategy long enough to align
their core business processes with IT.
Technical problems raise additional questions
about the feasibility of such an undertaking. The
hallmark of service-oriented architecture one
reasonably might argue its entire raison dtre is
the fundamental modularity of its software business
processes. A self-contained business process adopts
parts of the functionality from multiple enterprise
applications to automatically complete a set of tasks.
For example, a single business process might begin
with an order from a customer on the Internet in a
26 MIT SLOAN MANAGEMENT REVIEW FALL 2007

web services system and send it to manufacturing in


an ERP system. The same business process would set
up delivery in a logistics system and then send all the
relevant information to billing in an accounting system as well as a customer relationship management
system. Companies would build (or purchase) business modules for their core processes. They would
then be able to change these processes easily, snapping out and in functional pieces of code from
enterprise systems in Lego-like fashion.
The Lego dream has been a persistent favorite
among a generation or more of programmers who
grew up with those construction toys. Unfortunately, however, software does not work as Legos do.
For one thing, a unit of software code is not similar
to other software code in terms of scale or functionality, as Legos are.19 On the contrary, code is widely
various and heterogeneous. It contains different
numbers and types of connections to other code,
more like fractals, as Victoria University of Wellington researchers James Noble and Robert Biddle
describe it, than Legos, with their uniform connections. Software engineering expert Robert Glass sees
another problem with the Legos idea: The notion of
reusable software works on a small scale. Programmers have successfully built and reused subroutines
of standard functions. But as software grows more
complex, reusability becomes a difficult or impossible task. It is simply a problem too hard to be
solved, a problem rooted in softwares diversity.20
Complexity is a deadly software killer, says
Yale University computer scientist David Gelernter, and he argues that managing complexity is
more of an art than a science, and a difficult one at
that, especially given the monumental real-world
systems todays software attempts to automate.21
And to the extent that these service-oriented architectures use subsets of code from within ERP
and other enterprise systems, they do not escape
the mire of complexity built over the past 15 years
or so. Rather, they carry it along with them, incorporating code from existing applications into a
fancy new remix. SOAs become additional layers
of code superimposed on the existing layers. That
means it is possible that a process will fail at some
point due to some fault in the layers below, and in
order to understand and fix that problem, software
engineers will need to deal with the layers of enterprise applications below the modular business
processes.
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Culturally, this long-term plan calls for closer and


closer communication and collaboration between
the IT and business sides of the organization. While
much to be desired, this has proved difficult in the
past, and with increasing complexity in software systems, it is unlikely to improve by itself in the future.
Differing backgrounds and perspectives, goals, even
vocabularies all hamper efforts to improve communication across this internal digital divide. Biases
intrude: A recent study by Forrester Research Inc. of
Cambridge, Massachusetts, found that only 28% of
CEOs thought their CIOs were proactive or creative
in terms of business process improvement.22 Forresters advice to CIOs is to get more deeply involved
in the business issues and educate executives on what
IT is and what it actually does.
Sound advice, no doubt, but it may be time for
business executives themselves to become more
proactive. Executives could educate themselves
more about technology. They could send promising younger executives to executive programs
designed to teach business people how to better
understand, communicate with and capitalize on
their IT. And business schools, too, could do better
at teaching the interdependence of business and IT.
At present, however, corporations see in softwares
seductive invisibility and seemingly open-ended
flexibility a never-ending frontier of promise,
where hope triumphs over reality and the search
for the next new thing trumps addressing difficult
existing problems. And hope, unfortunately, has
never been a very effective strategy.
Cynthia Rettig was director of knowledge management
for B2B consulting company Canopy International of
Newton, Massachusetts. She has consulted to software
companies for over 20 years. Comment on this article or
contact the author through smrfeedback@mit.edu.

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SLOANREVIEW.MIT.EDU

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22. S. Shay, CEOs Rate IT: Steady but Uncreative, CIO
Magazine, April 1, 2007, 20.

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