DOES “INFORMATION TECHNOLOGY" MATTER?
The well known article “IT Doesn’t Matter” by Professor Nicholas Carr in the HBR, 2004, apart from being one of the most misquoted articles in recent times, has been a crutch for some business leaders to turn their backs on Information Technology. While some of the arguments are absolutely valid, I believe the conclusions people take away from the article are erroneous and dangerous and Professor Carr has probably been a bit naughty in leaving some of this clarification out of the piece.
There are broadly 3 key reasons why the Carr line of logic needs to be reviewed carefully.
First, he takes a particularly homogeneous view of IT. IT is not a tool, it’s a function of business. Calling IT non-strategic is like calling the finance or marketing functions non-strategic. Of course there are many bits of the financial side of a business which are prosaic and commodity oriented, such as everyday accounting. But equally, there are aspects such as investment or long term financing options which a business would not dream of calling commoditized, or non-strategic. The same is true of IT as a function.
Second, whenever he talks about IT, he refers to the “Technology” and not the “Information” part of IT. And while he is right that many parts of Technology, especially hardware are getting “commoditized”, this is definitely not true of all of Information technology.
Third, despite starting with the assumption that much of IT is commoditized and beyond the realm of Strategy, he goes on to provide plenty of scenarios where businesses are getting it wrong. If it’s that commoditized, shouldn’t it be quite easy to use?
A lot of people have used this article to justify arguments on cutting back IT spends or questioning the value of Information Technology and this is why the impact of this piece is more dangerous than it could be.
One of the assertions Prof. Carr makes early in the paper, is that for something to be a source of sustainable competitive advantage, it needs to be a scarce resource and not an abundant one. Hence, he argues given the abundance and proliferation of databases, desktop tools et al, IT now falls into the category of “ubiquitous” and hence it cannot be a source of competitive advantage. However, while he’s right that tools like word processors, spread sheets and corporate networks have become “costs of doing business” this clearly does not represent all of IT. Telecom businesses all over the world are working to build better billing systems & provisioning systems. Retail businesses are looking for improved recommendation engines, data analytics and more responsive supply chain systems. Moreover, you only have to look at any report or a case study on major IT projects to know that successful implementation and risk management are certainly not as ubiquitous as we’d like them to be, and certainly, consistent and strong implementation of major IT systems by itself can offer competitive advantage to businesses. On the question of long term sustainability of such advantage, one may question whether anything offers a “long term, sustainable competitive advantage” or by definition, will competition erode such advantage in the long term.
Prof. Carr also uses the example of the telegraph, railroad and other additions to the “infrastructure of commerce”, as examples which no longer provide competitive advantage. However, in the case of IT, the pace of change is still high, and with new technologies & systems coming to the market, or even innovations which allow improved business performance, there is high return on investment for companies that invest wisely into IT and track innovations and new technologies in the space. What would be the future for a Retail organization that turned it’s back on RFID? Or for a small business that didn’t explore Voice over IP? Can a Bank or a financial institution today ignore the risk management, fraud detection or identity management technologies today? Yes, the race for bigger servers, or fatter network pipes is now a commoditized one. But we’re a long, long way away from commoditized information and decision systems.
In talking about the commoditization effect too, Prof. Carr takes a simplistic view of the race for standards. He asserts that most standards have now been built into the off-the-shelf technologies, that the standards have been built into the (commonly accessible) infrastructure. The reality is that there are many aspects of IT where we are a long way away from real standardization, and to assume that the standards are there, that they have been universally adopted, and in fact built into the product is a huge leap of faith or oversimplification.
He also suggests in the article that the same software, is being used in the same way with similarly reengineered business processes making all business replicable and devoid of differences. This again is an oversimplified view of an SAP world. In reality, such commonality only shifts the benchmark to other parts of the business – such as decision making, knowledge, and forecasting systems which are yet to be replicable across businesses. It’s a fait accompli to suggest that because businesses are buying the same software, IT is no longer of capable of delivering advantage. It is probably accurate to say that companies who implement SAP or large off-the-shelf ERP looking to simply adopt industry practices, are either playing catch up or only achieving parity – not advantage. This is not a liability of IT as a discipline. It’s a failure of specific businesses to understand how to derive competitive advantage through better use of business information.
The consistent use by Prof. Carr of IT only as an Infrastructure resource is probably the article’s biggest shortcoming. Along the way, he makes a few statements which can best be described as ranking with Bill Gates’ apparently mythical assertion that “640k of memory on the desktop should be enough for almost anybody”. Professor Carr says “...And as for IT-spurred industry transformations, most of the ones that are going to happen have likely already happened or are in the process of happening.” And also asserts "...we already have considerably more fiber-optic capacity than we need."
One of Professor Carr’s conclusions is that companies should separate essential investments from “discretionary, unnecessary or even counterproductive” ones. Taken out of context, this is dangerous. While it’s true that large, mature companies which stay off the cutting edge of technology to ensure maturity of products and usage, are doing the right thing, this is markedly different from calling all of Information Technology non-strategic. Despite not being the classic “innovators” or “early adopters” of new technology, Wal Mart, Dell or any other business in a similar space need to continue to treat the “Information” and the systems that deliver such information as strategic and better and more accurate, meaningful information will always be seen as strategic too. The key to this discussion is that IT isn’t about hardware, memory size or off-the-shelf systems any more. IT is about better and better ways to manage information. In this regard, we are a long way away from achieving any kind of commoditization. Innovation and invention are both progressing apace and we are nowhere near the end game. It would be disastrous for companies to not recognize the strategic importance of the “Information” in Information Technology. The race for simply building better “technology” may well be over, in many (though not all) industries.
Professor Carr’s article is a good warning for companies to stop spending blindly on “better technology” but it is a dangerous and potentially destructive mistake to extend this to the task of managing information better for business results.
There are broadly 3 key reasons why the Carr line of logic needs to be reviewed carefully.
First, he takes a particularly homogeneous view of IT. IT is not a tool, it’s a function of business. Calling IT non-strategic is like calling the finance or marketing functions non-strategic. Of course there are many bits of the financial side of a business which are prosaic and commodity oriented, such as everyday accounting. But equally, there are aspects such as investment or long term financing options which a business would not dream of calling commoditized, or non-strategic. The same is true of IT as a function.
Second, whenever he talks about IT, he refers to the “Technology” and not the “Information” part of IT. And while he is right that many parts of Technology, especially hardware are getting “commoditized”, this is definitely not true of all of Information technology.
Third, despite starting with the assumption that much of IT is commoditized and beyond the realm of Strategy, he goes on to provide plenty of scenarios where businesses are getting it wrong. If it’s that commoditized, shouldn’t it be quite easy to use?
A lot of people have used this article to justify arguments on cutting back IT spends or questioning the value of Information Technology and this is why the impact of this piece is more dangerous than it could be.
One of the assertions Prof. Carr makes early in the paper, is that for something to be a source of sustainable competitive advantage, it needs to be a scarce resource and not an abundant one. Hence, he argues given the abundance and proliferation of databases, desktop tools et al, IT now falls into the category of “ubiquitous” and hence it cannot be a source of competitive advantage. However, while he’s right that tools like word processors, spread sheets and corporate networks have become “costs of doing business” this clearly does not represent all of IT. Telecom businesses all over the world are working to build better billing systems & provisioning systems. Retail businesses are looking for improved recommendation engines, data analytics and more responsive supply chain systems. Moreover, you only have to look at any report or a case study on major IT projects to know that successful implementation and risk management are certainly not as ubiquitous as we’d like them to be, and certainly, consistent and strong implementation of major IT systems by itself can offer competitive advantage to businesses. On the question of long term sustainability of such advantage, one may question whether anything offers a “long term, sustainable competitive advantage” or by definition, will competition erode such advantage in the long term.
Prof. Carr also uses the example of the telegraph, railroad and other additions to the “infrastructure of commerce”, as examples which no longer provide competitive advantage. However, in the case of IT, the pace of change is still high, and with new technologies & systems coming to the market, or even innovations which allow improved business performance, there is high return on investment for companies that invest wisely into IT and track innovations and new technologies in the space. What would be the future for a Retail organization that turned it’s back on RFID? Or for a small business that didn’t explore Voice over IP? Can a Bank or a financial institution today ignore the risk management, fraud detection or identity management technologies today? Yes, the race for bigger servers, or fatter network pipes is now a commoditized one. But we’re a long, long way away from commoditized information and decision systems.
In talking about the commoditization effect too, Prof. Carr takes a simplistic view of the race for standards. He asserts that most standards have now been built into the off-the-shelf technologies, that the standards have been built into the (commonly accessible) infrastructure. The reality is that there are many aspects of IT where we are a long way away from real standardization, and to assume that the standards are there, that they have been universally adopted, and in fact built into the product is a huge leap of faith or oversimplification.
He also suggests in the article that the same software, is being used in the same way with similarly reengineered business processes making all business replicable and devoid of differences. This again is an oversimplified view of an SAP world. In reality, such commonality only shifts the benchmark to other parts of the business – such as decision making, knowledge, and forecasting systems which are yet to be replicable across businesses. It’s a fait accompli to suggest that because businesses are buying the same software, IT is no longer of capable of delivering advantage. It is probably accurate to say that companies who implement SAP or large off-the-shelf ERP looking to simply adopt industry practices, are either playing catch up or only achieving parity – not advantage. This is not a liability of IT as a discipline. It’s a failure of specific businesses to understand how to derive competitive advantage through better use of business information.
The consistent use by Prof. Carr of IT only as an Infrastructure resource is probably the article’s biggest shortcoming. Along the way, he makes a few statements which can best be described as ranking with Bill Gates’ apparently mythical assertion that “640k of memory on the desktop should be enough for almost anybody”. Professor Carr says “...And as for IT-spurred industry transformations, most of the ones that are going to happen have likely already happened or are in the process of happening.” And also asserts "...we already have considerably more fiber-optic capacity than we need."
One of Professor Carr’s conclusions is that companies should separate essential investments from “discretionary, unnecessary or even counterproductive” ones. Taken out of context, this is dangerous. While it’s true that large, mature companies which stay off the cutting edge of technology to ensure maturity of products and usage, are doing the right thing, this is markedly different from calling all of Information Technology non-strategic. Despite not being the classic “innovators” or “early adopters” of new technology, Wal Mart, Dell or any other business in a similar space need to continue to treat the “Information” and the systems that deliver such information as strategic and better and more accurate, meaningful information will always be seen as strategic too. The key to this discussion is that IT isn’t about hardware, memory size or off-the-shelf systems any more. IT is about better and better ways to manage information. In this regard, we are a long way away from achieving any kind of commoditization. Innovation and invention are both progressing apace and we are nowhere near the end game. It would be disastrous for companies to not recognize the strategic importance of the “Information” in Information Technology. The race for simply building better “technology” may well be over, in many (though not all) industries.
Professor Carr’s article is a good warning for companies to stop spending blindly on “better technology” but it is a dangerous and potentially destructive mistake to extend this to the task of managing information better for business results.
posted by Ved Sen at 4:46 PM
2 Comments:
A lot of this used to make sense when IT was considered to be a relatively static support service to the organization. Now this is used as a competitive advantage and innovation can take place at the service, technology or business model levels. There has to be a clear differention between defining how IT can enable business strategy in this dynamic world, to enabling the deployment of the technology/services to actually running it. Some of it has to be done by the organization and some of it outsourced. Often all this is clubbed together and that causes confusion!
Just to add to the previous comment - the shift from buying/creating IT applications for an enterprise to software as a service/web services plug-ins etc. is one of the many infection points that the IT industry is seeing.. On one hand there is IT is becoming a commoditity - then how does one differentiate/innovate to give oneself the competitive edge is the crux of the matter. Business process/workflows/supply chain integration are some of the areas to differentiate.. Bottom line - use off-the-shelf components to orchestrate your organization's differentiation/USPs.. A note from a technology perspective - earlier software used to be tuned for particular instances of hardware, but now infrastructure is being tuned for software/service offering.
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