Of Course IT Matters

“IT Doesn’t Matter,” an article in May’s Harvard Business Review by Nicholas Carr, has stirred up a remarkable amount of controversy. It argues that as information technology has become a
business priority, it also has turned into a commodity and lost much of its strategic potential for companies.

Carr suggests that IT is following the path of past technological innovations such as the internal combustion engine or electricity, whose adoption made them less of a competitive advantage.
According to Carr, “For a brief period, as they were being built into the infrastructure of commerce, all these technologies opened opportunities for forward-looking companies to gain real
advantages. But as their availability increased and their cost decreased — as they became ubiquitous — they became commodity inputs.”

Carr recommends that companies de-emphasize investments in IT: “When a resource becomes essential to competition but inconsequential to strategy, the risks it creates become more important than
the advantages it provides. Think of electricity. Today, no company builds its business strategy around its electricity usage, but even a brief lapse in supply can be devastating… Today an IT
disruption can paralyze a company’s ability to make its products, deliver its services, and connect with its customers, not to mention foul its reputation. Yet few companies have done a thorough
job of identifying and tempering their vulnerabilities.”

August’s massive blackout and the repeated attacks from Internet-based viruses and worms on PCs with Microsoft operating systems dramatically underscores these vulnerabilities.

Carr further argues that once-proprietary business applications such as American Airlines’ Sabre reservation system no longer are a long-term competitive advantage because similar technologies are
readily available to other competitors.

In an interview with Business Week published in August, Carr elaborated: “It is very revealing that, almost without exception, when people take issue with my argument, they say: ‘Look at Dell and
Wal-Mart.’ But they built their advantage a number of years ago, when the ability of IT to provide advantage was greater. Where are all the other companies that have more recently gained
advantage?”

Carr’s recommendations are for companies to take a conservative path: “Spend less; follow, don’t lead; focus on vulnerabilities, not opportunities.”


Mixed Response

The reactions to “IT Doesn’t Matter” have varied. Technology vendors are offended; there will continue to be revolutionary new technologies, they insist. Corporate IT managers point out that IT
departments are way too complex to be considered commodities.

But business leaders and financial professionals are attracted to Carr’s argument, which validates the more rigorous return-on-investment calculations currently being applied to IT departments.

But is Carr right? He makes several powerful points: that IT is relatively more of a commodity than it was in the past, that technology by itself no longer is a competitive advantage, and that
consistency and risk management in technology initiatives have never been more critical.

Carr’s description of a commoditized IT landscape is clearly relevant to the troubled world of technology vendors. His argument particularly resonates against the notions that “the Internet will
change everything” and that dot-coms had the potential to put “bricks-and-mortar” market leaders out of business.

Investors attempted to fund these new winners, and market leaders created dot-com subsidiaries to protect their flanks. Carr’s article explains why most of these were failures.

But information technology never was a competitive advantage in and of itself. As Carr himself points out in Business Week, Dell succeeded with its direct-sales model for years using an 800 number.
The Internet simply added value to an already-successful business model, which was that of a supply-chain innovator.


Historical Contradictions

The history of other revolutionary technologies suggests that Carr may be shortsighted in claiming that mature technologies cannot be leveraged for strategic advantage. Many companies in the past
and present reinvented their industry, leveraging a “commoditized” technology in an unforeseen manner:

  • The same edition of Business Week describes how Progressive Insurance is intertwining the Internet and wireless technologies to allow mobile adjusters to process claims at the site of
    accidents. What began as mundane reengineering of workflow eventually transformed the customer experience and become a strategic advantage.
  • In auto manufacturing, the U.S. manufacturing industry was solidified by 1930. But Honda and Toyota, the top two global auto firms of today, started after World War II. Their championing of
    lean manufacturing allowed them to grow into the dominant global brands they are today; indeed, it became the essence of their brand.
  • McDonald’s and UPS grew into Fortune 500 companies decades later, their business models dependent on the internal combustion engine.

In the coming years, numerous great businesses will be created on the platform of the IT revolution of the past decade. And as always, well-managed, aggressive businesses will be tough to dislodge.

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About Isaac Cheifetz

Isaac Cheifetz is an executive recruiter who writes a monthly column for the Minneapolis Star Tribune on trends and best practices in the global economy. Past columns can be read at www.opentechnologies.com.

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