By Jeff Gould, CEO & Director of Research, Peerstone Research

The New York Times and the Sacramento Bee are reporting an amusing story out of California about how Governor Arnold Schwarzenegger’s attempt to knock some sense into the state’s free spending legislators is being stymied by an antiquated mainframe computer system.

You see, California is having its annual summer shouting match between angry pols who can’t agree on next year’s budget. Democrats want to raise taxes and spend more, while Republicans – guess what? – want to put the kibosh on new taxes and cut spending instead. Schwarzenegger – known in these parts as the “Governator” – is standing between the two warring camps, with the rock steady firmness of a Cyberdyne Systems Model 101 Terminator. After seeing his compromise proposals rejected by both sides, and alarmed at the state’s dwindling cash reserves, he has decided to take matters into his own hands by ordering the pay of all state workers slashed to the Federal minimum wage until the budget crisis is resolved.

Ah, but that was counting without the bureaucrats and their computers. The chief bureaucrat is state Controller John Chiang, another ambitious pol who has seized on this once-in-a-lifetime opportunity to pump up his hitherto geeky image to superhero status by boldly refusing to carry out big Arnold’s command. Chiang, a Democrat, happens to be in charge of the department that issues the state’s payroll checks, and has made it clear he has no intention of complying with the wishes of his nominal boss.

In the movies this would be about the moment when the Terminator would threaten to tear the obstreperous bureaucrat’s arms off. But in real life Arnold has merely announced that he intends to sue. Pale though this measure may seem compared to the threat of dismemberment, it has provoked a reaction from Chiang that I suspect most readers of this blog will find hilarious. He is now claiming that, even if he wanted to obey the order to cut state workers’ wages, his department’s 1970s era payroll application would take months to modify. So there, Mr. Governator.

To hear the Times tell it, the problem is due entirely to Cobol, a “programming throwback.” The Times’ reporter cites a distinguished computer scientist who wittily observes that the last Cobol programmers “retired centuries ago.” That’s a pretty funny thing to say. But it’s not strictly true of course. And anyway, attributing the impasse to an obsolete programming language strikes me as just a little too easy. I would have a hard time swallowing Chiang’s version of why he can’t do what Arnold wants even without the endorsement of so dubious a source as the New York Times. Could it be that there is more to this story than the Times has figured out?

The odd thing about the Times’ telling of this story is the way it completely leaves out the architecture of the incriminated payroll application and blames everything on the specific programming language used. Surely we are talking about not just any Cobol program, but one that runs on an IBM mainframe, uses a transaction monitor like IBM’s CICS, and accesses an IBM mainframe database like DB2 or possibly IMS. Although the Times jokingly compares the state’s payroll app to “a television with vacuum tubes,” it is certainly not the case that the mainframes in question use vacuum tubes. Heck, even the IBM 360, introduced more than 40 years ago, was already using solid state circuits, and I’m willing to wager that California’s Big Iron is a lot more recent than that.

Having failed to noticed that what we are really talking about is not just an obsolete programming language but an entire obsolete architecture, the Times naturally fails to ask why it is that California is still running its mission critical apps on such prehistoric infrastructure. After all, the vast majority of Fortune 500 class organizations in the United States and Europe converted to more modern IT systems years ago. Part of the answer is that state governments have unusual requirements which historically could only be met by custom programming not available in off-the-shelf packages. The plethora of arcane and often incompatible union work rules that have accreted over the years in most states, for example, make the task of calculating paychecks for these workers into an algorithmic nightmare.

But the greater part of the blame rests squarely with the elected officials who rule the roost in places like Sacramento. It’s the pols who set the budgets that dictate what kind of computer systems their IT staffs have to work with. Naturally the pols find it easier to vote for projects that funnel money to their friends than to upgrade the invisible back office infrastructure that runs the show. If the back office suddenly fails to deliver the expected services, well then, hey, it must be the fault of those idiots in IT, or some stupid obsolete programming language, right? Such at any rate is the story that John Chiang fed to a gullible reporter at the New York Times.

If the reporter had dug around a little, he would have discovered that there is more here than meets the eye. As Chiang perfectly well knows, his department is already engaged in a vast and ambitious migration to an entirely new payroll system based on SAP, known as the 21^st Century Project. The new system, which will run on IBM AIX servers and the Unix version of the DB2 database, is being implemented by BearingPoint. It is scheduled to go live late next year, reputedly at a cost of $177 million, or more than double the original budget. Without being privy to the project’s unpublished details it’s hard to say whether this price tag is reasonable or not. Most of the cost overrun probably represents salaries of state workers. But it certainly makes sense that Chiang would prefer not to discuss this subject with a pesky reporter. That would have distracted attention from his (still completely unproven) claim that bad old Cobol is preventing him from carrying out the Governator’s instructions.

Whether Cobol is really at fault here or not, the case of California’s obsolete payroll system and the state’s planned migration to SAP is representative of a very interesting national trend. In state after state antiquated mainframe payroll and finance systems are being replaced by modern ERP and HR payroll packages from SAP or Oracle (i.e. PeopleSoft). Even politicians have to face reality eventually, and all across the country they are pulling the plug on their old mainframes. It may be that the change won’t come soon enough in California to help Arnold Schwarzenegger in his battle against spendthrift legislators, but at least change is coming.