If there is one article worth reading at the moment, it must be Nicholas Carr ‘s “IT doesn’t matter” which was published by the Harvard Business Review in May 2003. Its sharp criticism of today’s IT worship is devastating, and it echoes greatly the sweeping changes that are currently imposing themselves on the IT world, especially in Europe.
Nicholas Carr: IT doesn’t matter or does IT?
Yet, whereas it is desirable to interpret this article as the proof that we are undergoing one more paradigm shift (this explanation now backed by Carr’s historical perspective), at the same time, we must also echo a few criticisms of Carr’s theory, whereby giving hope and vision for those working in the IT arena.
Jean Mounet, President of Syntec (the French IT industry association) reminded us in a recent article that one in three graduates from French engineering schools is recruited by the IT industry. One can, therefore imagine what such an industry represents in the lives of so many people and the future of our modern economies.
Many in the industry have interpreted this piece as a manner of threat on the efforts that are made to convince businesses that they should invest more on IT.
A summary of Nicholas Carr’s “IT Doesn’t matter”
I. Ubiquitous computing reinforces the triviality of IT
IT has deeply transformed today’s business world and all businesses use information technology on a large scale. As a consequence, capital expenditure devoted to IT has increased dramatically over the years and is still tremendous in spite of the current economic situation. Besides IT tools are no longer considered for low-level employees, but are used intensively by top managers who openly value the supposed competitive edge that they can derive from its usage. Behind all that lies the thought that the pervasiveness of IT usage has led to its becoming more strategic.
On the contrary, Nicholas Carr shows us that IT has in fact become the latest item in a list of commodities that helped shape business and industries as we know them. Being a commodity, IT also becomes transparent to its users.
II. Proprietary vs infrastructural technologies
Proprietary technologies may generate a competitive advantage to their owners provided adequate protection of their investors’ rights. Conversely, Nicholas Carr proves that Infrastructural technologies are more productive when they are shared, although owning them may prove more cost-effective at the beginning of their existence. Once standards are in place, that type of infrastructural technologies is more effective when shared.
Nicholas Carr uses striking examples such as electric power production or trains to prove his point, showing that no company would benefit today in purchasing and maintaining its own railway network.
Also, one of the major pitfalls that managers fall into is the belief that competitive advantages brought by infrastructural innovations will last forever. At the end of the buildout phase of new infrastructural technology, new standards will emerge, the Market definition in B2B and B2C - The very notion of "market" is at the heart of any marketing approach. A market can be defined... will rise dramatically and prices will fall. Even the usage of such new technology will become standardised. Therefore, the advantage of infrastructural technologies will shift from the micro to the macro-economical level for when they become pervasive, only countries and regions benefit from their presence, whereas individual companies are all competing on the same level.
Likewise, infrastructural technologies are often subject to overinvestment therefore causing sweeping economic trouble. What we have witnessed with the ‘Internet Bubble’ happened in a similar fashion with the overinvestment in railroads in the 1860s. The analogy shows that there is a risk for deflation to settle on our 21st-century economies as in 1860. N Carr would like the analogy to end here but the risk cannot, in his mind, be overlooked.
III. Information Technology: this new commodity
Despite appearances, IT is truly an infrastructural technology and according to Nicholas Carr, it is particularly prone to commoditisation due to the following characteristics:
- IT is a Transport vehicle for information and is greatly standardised. Software customisation is therefore fast becoming a non-starter for cost-effective IT implementations,
- IT is highly replicable, not just in terms of software (reusable objects) but also in terms of business processes. The Internet has acted as an accelerator upon this standardisation and Web-based services will impact this trend even more, therefore turning application software into a commodity too (See EDS announcement of Desktop Utility Service on Aug 22, 2003),
- IT prices are subject to sharp deflation. As more computing power and more network infrastructure are made available, more servers are being connected to the Internet, and this technology is sold at more and more ridiculous prices (See Dell price-war announcement on Aug 21, 2003).
Throughout the buildout of the IT infrastructure, a myriad of companies have been able to derive significant competitive advantages from IT. Some have been able to establish a durable competitive edge (e.g. Dell Computers, Wal-Mart, …) whereas others have only been able to generate a temporary advantage. But the ability to generate competitive advantages from IT is becoming very rare nowadays, as is always the case with infrastructural technologies according to Mr Carr.
Whereas it is not possible to predict the end of the buildout of an infrastructural technology, there are many signs that the ramp-up of IT infrastructure is nearing its completion:
- IT is now delivering more power than is required for business,
- IT prices are so low that they have almost become affordable to all,
- There is (far) more network capacity available than is required,
- IT vendors are now positioned as utilities (as shown, once again, in this EDS announcement), mainly with their plans for selling web-based services,
- The Internet bubble has burst.
The incentive for customisation will now be marginal and reserved to a few niche vendors which offer some highly specialised software.
IV. What should companies do?
According to Mr Carr, the more a piece of infrastructure becomes pervasive, the more it emphasises risk as opposed to generating competitive advantages. As soon as this piece of infrastructure is shared and open, its non-availability is more crucial than its intrinsic value. As a consequence, all organisations should focus on trying to avoid the risk of the non-availability of this infrastructure, according to Mr Carr. Yet, very few have analysed the threats that could paralyse their whole businesses.
IT managers, according to Mr Carr, should focus on:
- Spending less: This is made necessary by the fact that IT is no longer considered strategic and because overspending is the biggest threat to companies. Apart from the requirement to look for cheaper alternatives, it is also necessary that IT managers cut out waste, mainly with regards to personal computing which is mostly used for standard tasks and do not require much computing power. Should vendors balk at reducing costs, Mr Carr suggests that IT managers resort to Opensource software packages and bare-bone network computers,
- Following vs innovating: It should no longer be necessary to be on the cutting edge of technology, most requirements being fulfilled by existing software and equipment,
- Focus on risks because IT is mostly judged on what does not work as opposed to its vanishing competitive advantage.
Mr Carr goes on with a study of the 25 companies with the highest economic returns and shows that they are spending far less on IT than the average. He, therefore, encourages managers to focus on costs and get back to basics, however boring it may prove.