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Many in the industry have interpreted this article as a manner
of threat on the efforts that are made to convince businesses
that they should invest more on IT. However, French economist
and IT industry expert Michel Volle has developed some very interesting
counter-arguments to Carr's theory which are available in French
at Volle.com. I wish to draw your attention
too to the other string of articles entitled "Does IT matter"
available from HBR.
A summary of Carr's "IT Doesn't matter"
article By Yann Gourvennec
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 Infrastrutural
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 the striking examples of 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 a new infrastructural technology, new standards will emerge,
competition will rise dramatically and prices will fall. Even
the usage of the 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 infrastrural 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 accelarator 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 a competitive advantage 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 in EDS announcement again), 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 an infrastructure becomes pervasive,
the more it emphasises risk as opposed to generating competitive
advantages. As soon as an 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.
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