Electricity, the telephone, the steam engine, the telegraph, the railroad and… IT? In his HBR article, “IT Doesn’t Matter,” Nicholas Carr has stirred up quite a bit of controversy around IT’s role as strategic business differentiator. He examines the evolution of IT and argues that it follows a pattern very similar to that of earlier technologies like railroads and electricity. At the beginning of their evolution, these technologies provided opportunities for competitive advantage. However, as they become more and more available – as they become ubiquitous – they transform into “commodity inputs,” and lose their strategic differentiation capabilities.
From a strategic viewpoint, they essentially become “invisible.” Carr distinguishes between proprietary technologies and what he calls infrastructural technologies. Proprietary technologies can provide a competitive advantage Carr Strategic Management">strategic advantage as long as they remain restricted through “physical limitations, intellectual property rights, high costs or a lack of standards,” but once those restrictions are lifted, the strategic advantage is lost. In contrast, infrastructural technologies provide far greater value when shared. Although an infrastructural technology might appear proprietary in the early stages of build out, eventually the characteristics and economics of infrastructural technology necessitate that they will be broadly shared and will become a part of the broader business infrastructure.
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To illustrate his point, Carr uses the example of a proprietary railroad. It is possible that a company might gain a competitive advantage by building lines only to their suppliers, but eventually this benefit would be trivial compared to the broader good realized by building a railway network. The same is true for IT – no company today would gain a cost-effective competitive advantage by narrowing its focus and implementing an Internet only between their suppliers to the exclusion of the rest of the world. To further shore up his “IT as commodity” theory, Carr cites the fact that major technology vendors, such as Microsoft and IBM, are positioning themselves as “IT utilities,” companies that control the provision of business applications over “the grid.” Couple this IT-as-utility trend with the rapidly decreasing cost of processing power, data storage and transmission, and even the most “cutting-edge IT capabilities quickly become available to all.” Although IT may seem too diverse to be compared to commodities such as electricity and the railroads, Carr points out three specific characteristics that guarantee rapid: IT is a transport mechanism; IT is highly replicable; and IT is subject to rapid price deflation. First, IT is a “transport mechanism” that carries digital information much the same way that railroads carry goods and power grids transport electricity. And just like these commodities, IT is “far more valuable when shared than when used in isolation.” Secondly, IT is highly replicable.
With the economic efficiency of off-the-shelf software and the generic business processes that are inherently available within them, the costs savings and interoperability benefits make the sacrifices of “distinctiveness” unavoidable. And, finally, IT is “subject to rapid price deflation.” As the cost of processing power, data storage and data transmission has declined, so has one of the most important barriers to – cost. Again, as cost declines, availability increases, which fuels the case for the of IT. Although Carr does agree that a myriad of companies, such as American Airlines and Federal Express, have gained important strategic advantage through IT, he also points out that these sorts of opportunities are dwindling quickly.
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He also postulates that 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.” Although industry and markets will continue to evolve and some will still undergo fundamental changes, Carr suggests that the build out of IT is “much closer to its end than its beginning.” To support his position, Carr states that: IT’s power is outstripping most of the business needs it fulfills; the price of essential IT functionality has dropped to the point that anyone can afford it; the capacity of the delivery mechanism, the Internet, has caught up with demand; IT companies are positioning themselves as commodity suppliers and even utilities; and finally, the investment bubble has burst, which is historically a “clear indication that an infrastructural technology is reaching the end of its build out.” So, if Carr is correct, what can an IT manager do? Carr suggests that companies need to shift their thinking around IT and focus on the “new rules for IT management,” which are: o Spend less. It is becoming harder to leverage IT as a competitive advantage, but is getting easier to put business at a cost disadvantage; therefore, as the of IT continues, the “penalties for wasteful spending will only grow larger.” o Follow, don’t lead: As IT capabilities become more homogenized, follow Moore’s Law which guarantees that the longer you wait to purchase IT, the more you ” ll get for your IT dollar and less risk you ” ll experience; and o Focus on vulnerabilities, not opportunities. Once again comparing IT to electricity, Carr points out that no one builds their business strategy around electricity, but it can be devastating if there is a lapse in service. The same holds true for IT – any disruption can be devastating to a business, paralyzing it in ways that could not have been foreseen 50 years ago.
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Therefore, it’s critical to minimize risk. If Carr is correct, and IT is becoming our newest commodity, then it is critical for business leaders to shift their thinking quickly. It is no longer prudent to view IT as a strategic differentiator, but to view it as just another mission critical, albeit somewhat boring, foundational cost of doing business.
