Does IT matter, NG Carr

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Content: Concentrated KnowledgeTM for the Busy Executive ·
Vol. 26, No. 10 (2 parts) Part 1, October 2004 · Order # 26-24
By Nicholas G. Carr CONTENTS A New Business Infrastructure Pages 2, 3 The Nature and Evolution Of Infrastructural Technologies Page 3 The Fate of Hardware And Software Pages 3, 4, 5 Vanishing Advantage Pages 5, 6 The Corrosion of Traditional Advantages Pages 6, 7 Managing the Money Pit Pages 7, 8 The Future of Technological Change Page 8
information technology And the Corrosion of competitive advantage DOES IT MATTER? THE SUMMARY IN BRIEF In a May 2003 article in the Harvard Business Review entitled "IT Doesn't Matter," Nicholas G. Carr introduced the idea that information technology (IT) does not provide a competitive advantage to companies in a strategic manner. In Does IT Matter?, Carr argues that IT has become a commodity, and because the very nature of strategy requires differentiation, IT cannot possibly qualify. Although IT has made spectacular gains in the last half century, it is no different than other disruptive technologies that have transformed the world since the beginning of the Industrial Revolution. It may have provided a differentiated advantage to some companies early on, but over time IT has grown cheaper and more standardized so that it is easily accessible to everyone. IT can be used to supplement and improve strategy implementation, but it is not the foundation of a competitive advantage. To handle this new approach to IT, executives will have to prevent the commoditization of IT architecture and applications from destroying their companies' barriers to competitive advantages. Although that role is not yet entirely clear, executives need to prepare for the prospect that IT doesn't matter to strategy. What You'll Learn In This Summary How information technology (IT) transformed from a potential strategic advantage to a commoditized cost of doing business. How the infrastructural technology of IT is like previous infrastructural innovations such as telephone lines and telegraph wires. Why the only way for IT to fulfill its potential is to become a shared, standardized utility. How mitigating risk and controlling cost are becoming more important than innovation and investment in IT. How companies coming together to share new technology can corrode individual advantage while increasing the benefit for the economy at large. How IT has affected productivity. Published by Soundview Executive book Summaries, P.O. Box 1053, Concordville, Pennsylvania 19331 USA ©2004 Soundview Executive Book Summaries · All rights reserved. Reproduction in whole or part is prohibited.
A New Business Infrastructure One of the greatest discoveries of the 20th century was the microprocessor. It dramatically improved the efficiency of the earlier supercomputers and changed the way the world did business. It moved us from mainframes to Local Area Networks to personal computers. It created the proliferation of information technology (IT) and its infrastructure, which were the major forces shaping business over the last 40 years. Corporate spending habits reflect the great importance of IT to business. In 1965, corporate spending on IT was about 5 percent of capital expenditures. It grew to 15 percent in the 1980s, 30 percent in the early 1990s, and over 50 percent by the turn of the century. Even with the recent slowdown in IT spending due to the bursting of the Internet bubble, the average company still invests as much in IT as in all other capital expenditures combined. Attitudes and practices changed as well. Twenty years ago, computers were considered suitable only for lowlevel employees. Now, any senior executive without one is a dinosaur. Once networks and then the Internet emerged, executives finally took notice and focused on A New State of Mind The epitome of this attitude shift of executives is Jack Welch at General Electric, who didn't bother with the Internet until a vacation in Mexico in 1999. His wife showed him how to use e-mail and a Web browser, and from then on he told the whole company to think digitally. Welch spearheaded an initiative called "" to overhaul GE's traditional business models. He demanded that the company's 500 top executives find young "Internet mentors," and he asked Sun Microsystems CEO Scott McNealy to join GE's board as a tech guru. Unfortunately, the collapse of the Internet bubble made it clear that much of the heavy investment in technology had gone to waste, especially in strategic areas. Though executives have grown wary of high spending on IT, they still believe in its strategic importance. It's taken for granted that there is a connection between IT and business strategy.
the strategic implications of IT on a wide scale and how it could be used to create competitive advantages. Scarcity Makes a Business Resource Strategic There is an assumption in the business world that the strategic advantage of IT has increased with its ubiquity. This is incorrect. Scarcity, not ubiquity, makes a business resource strategic. By now, the core functions of IT -- data storage, data processing, and data transport -- are available and affordable to all businesses. It is the cost of doing business for all, but it provides distinction to none. Without distinctiveness, the only basis for competition is pricing, which eventually slashes prices close to cost, and squeezes out profit. Investments in resources that provide differentiation can deliver higher profits, while commodity inputs cannot. Only when a company can distinguish commodity resources from those that have a potential competitive advantage will it avoid wasted cash and strategic dead ends. Changing Role of IT The transformation of IT from a source of advantage to the cost of doing business raises many challenges. Executives need to re-examine spending and management of IT and rethink relationships with vendors. Different companies will reach different conclusions, but most will find that as IT merges into general business infrastructure, mitigating risk and controlling cost will become more important than pursuing innovation and new investments. IT is probably best understood as the latest in a series (continued on page 3) The author: An acclaimed business writer and thinker, Nicholas G. Carr is a former executive editor of the Harvard Business Review. Copyright © 2004 by Harvard Business School Publishing Corp. Summarized by permission of the publisher, Harvard Business School Publishing, 60 Harvard Way, Boston, MA 02163. 193 pages. $26.95. ISBN 159139-444-9. Summary Copyright © 2004 by Soundview Executive Book Summaries., 800-521-1227, 610-558-9495. For Additional Information on the author, go to:
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Does IT Matter? -- SUMMARY
A New Business Infrastructure (continued from page 2) of broadly adopted technologies that have reshaped industry, such as the steam engine, the railroad, and electricity. All briefly gave competitive advantages to forward-looking companies, but then became commodities. Over time, they mattered less to the competitive fortunes of individual companies. Information technology is headed in the same direction. As IT's advantage dissipates, its great transformational power fades in a necessary and natural process. Only by becoming a shared and standardized infrastructure will IT deliver its greatest economic and social benefits and fulfill its potential. The Advantages of the Baltimore and Ohio Railroad
The Nature and Evolution of Infrastructural Technologies In the mid-1800s, the newest technology was railroads. By connecting longer tracks and faster locomotives with ongoing developments in ocean and coastal shipping, the spread of railroads created global markets and competition as well as new business organizations and methods. After the railroads came the intercontinental telegraph wires, the electric grid, the telephone system, the highway system, radio and television broadcasting, and most recently, computer networking. All connected far-flung companies so that they could work together. Though these examples are often compared -- especially the railroad and the Internet -- analysis has typically focused on boom-or-bust cycles or technology's effect on specific industries. But how do individual companies adapt to these new technologies? Advantages of Access
During much of the 19th century, railroad lines were unevenly distributed, and critical variables such as track gauges, coupling designs, and time zones had yet to be standardized. Manufacturers near long rail lines with many branches had an efficient way to bring in raw materials and ship finished goods. The opening of the Baltimore and Ohio Railroad in 1830 was a boon for businesses located near Baltimore. They had superior connections to the coal mines of the mid-Atlantic and to new Western markets. The access afforded by physical proximity gave an early proprietary advantage to what would become an infrastructural technology. Companies such as Hershey and Macy's became so successful using the advantages of the railroads and telegraphs that they drew attention to the transformational potential of the infrastructural technologies. Other companies began to get involved until the opportunity to gain individual advantage diminished. The physical barriers were removed and the technology became widely accessible. As technology standardizes, the advantages of foresight also diminish. Eventually, infrastructural technologies fade into the background. They are crucial, but no longer important to senior decision makers. A hundred years ago, it was common for companies to create a management post of "vice president of electricity," because of that technology's transformative role in business. How will the position of CIO appear to business leaders in another 100 years? Over time, infrastructural technologies lose their advantage within individual companies, but they do influence competition on a macroeconomic level. Countries that lag in installing technology will find their companies suffering heavily.
Proprietary technologies can be owned by a single company and can be the basis for long-term strategic advantages as long as they remain protected from competitors. Infrastructural technologies offer more value when shared than when used in isolation, and it is inevitable that they will become part of the general business architecture. In early development phases, the line between proprietary and infrastructural technologies blurs if access is restricted through physical barriers, high costs, government regulations, or lack of standards. The companies that have the means to access the technology will be able to use it to their advantage. Companies can also gain advantages if they have foresight about the best use of the technology. The characteristics of the ultimate end-state are always unclear in the beginning, but the companies that can anticipate how the technology will change business will establish an edge over their competitors. The Fate of Hardware And Software Is IT an infrastructural technology destined to become a commodity input? The question is hard to answer because IT is made up of both physical hardware and abstract software. Past infrastructural systems were inflexible and served only one or a few functions. IT systems can be instructed through software code to serve infinite uses. However, the information system remains similar to older technologies like railroads and telephone networks because it still needs standardization to reach its full potential.
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(continued on page 4) 3
Does IT Matter? -- SUMMARY
The Fate of Hardware and Software (continued from page 3)
Wi-Fi -- The Next Big Commodity
Commoditization of Hardware Originally, computers were proprietary machines taking up large rooms, and only a few people knew how to use them. Over time, the hardware became standardized because PCs had to be easy to use, they had to talk to one another, they had to run a shared operating system, and they had to be fairly cheap. By turning business PCs into indistinguishable "boxes," Michael Dell turned the old proprietary technology on its head and made hardware a commodity. After PCs became standardized, servers and workstations followed, and then storage systems and networking gear. Instead of working with machines that run on proprietary chips, companies are finding that the infrastructure of IT is becoming more and more standardized and commoditized. To overcome this commoditization, technology companies try to push the state-of-the-art to satisfy their most demanding companies. They end up "overshooting" the needs and capabilities of most customers, who are willing to buy the bare bones version, shifting competition from specifications to prices. Eventually, individual hardware components will disappear, and companies will just connect directly to the IT infrastructure as they do now for electricity. This sets the stage for grid computing, where computers don't just exchange files; they blend together into essentially one machine. All processors and memory systems are shared while the computing and storage requirements of individual users are distributed with greatest efficiency. Grid computing would require a new kind of software to coordinate all the pieces, but the final step in the commoditization of hardware would be complete -- and largely invisible.
Though Wi-Fi is new and innovative, it is far from being a potential source of advantage for an individual company. It is already a commodity -- a cheap, increasingly universal element of the infrastructure. Wi-Fi technology was developed in the mid-1990s by Intersil, the leading producer of the semiconductors necessary to process Wi-Fi signals. When it became clear Wi-Fi had commercial appeal, Intel began selling its own Centrino chips at cut-rate prices. Intel was selling a chip that cost $50 for only $20, losing from $9 to $27 per sale. Intel was willing to lose this money to remove the profit from the market and prevent upstart rivals. It also resulted in people buying more laptops, which is where Intel makes more money for chipsets than for PCs. It was in Intel's strategic interest for Wi-Fi to become a commodity and for everyone to have access to the architecture. A founding myth of the IT business is that it will never become a mature industry. But at some point, the existing hardware and software will be sufficient. Once technology's greatest innovations lie behind it, it will finally be a success. IT will have reached its ultimate potential of being a new business infrastructure used by all companies to deliver benefits to all people. There will be useful and amazing elaborations on the infrastructure, but they won't change the essential commodity nature of information technology or change the new reality of IT's role in business. there was actually not much customization. The advent of PCs also transformed software into a packaged good because: Businesses could afford more computers.
Commoditization of Software Software has no tangible form or limits on innovation, so it appears safe from commoditization. In reality, software is a real product that needs to achieve real results; therefore, it is susceptible to the same rules of economics, markets and competition as other physical goods. The history of software development is an ongoing attempt to realize economies of scale and amortize the high development costs over as many users as possible. Eventually, software wants to be free, or more accurately, shared. That would make it a commodity input. Early on, the cost of writing proprietary software was so prohibitive that companies were willing to pool resources, sacrifice distinctiveness, and save costs. Software Houses centralized expertise, turning a proprietary resource into a purchased good. Though they served different clients with "custom applications,"
Nontechnical employees interacted directly with computers. Networking became important. By the end of the 1980s, companies could buy generic programs for databases, accounting, and HR management, and that culminated in enterprise resource planning (ERP) systems that brought all management systems together as modules in a single integrated system. The loss of distinctiveness was worth the savings. Unlike a physical product, software never decays, so there is no logical repurchase cycle. Software makers resort to constant upgrades, which create overshooting and thus opportunities for cheap, commodity versions of applications as well as open source software. Some professionals insist that the malleability of software ensures unending innovation. But that is not the point. (continued on page 5)
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Does IT Matter? -- SUMMARY
The Fate of Hardware and Software (continued from page 4)
American Airlines Out Front
Software innovations will continue, but individual companies will not be able to hold them as proprietary resources. Innovation in the Architecture Another difference between IT and earlier infrastructural technologies is that the architecture of IT changes. Technical advances in IT architecture can start out as defensible advantages to individual companies but they typically work better when they are promoted broadly and everyone has access. A critical element of the IT architecture is the way people and devices connect with networks. The last few years have seen a rapid shift from wired connections, usually using Ethernet cables, to wireless connections, usually using wireless fidelity (Wi-Fi) antennas. Wi-Fi is one of many advances hailed as the next big thing because it creates greater flexibility for users and it is cheaper to install and maintain than wired networks. For Additional Information on grid computing, go to: Vanishing Advantage
In 1959, American Airlines President C.R. Smith wanted an automated reservation system to help reduce labor costs, reduce empty seats, and make reservations easier and more reliable. He signed a contract to develop software that would run on dual IBM 7090 mainframes. It took 200 engineers five years to complete the project at a cost of $30 million, but the resulting system, Sabre, was an amazing competitive advantage for the company. Sabre took a few minutes to do what used to take dozens of clerks a full day to do. The error rate dropped from 8 percent to less than 1 percent. The system also produced data giving American new flexibility in allocating resources and setting prices, and the company began gaining market share almost immediately. The airline earned an estimated 25 percent return on its investment. Other airlines appreciated the potential value of automating reservations, but only American made the investments to surmount technical and cost barriers. Their investment paid off because it took a significant amount of time for others to catch up. Being a first-mover is expensive, and the advantage only lasts as long as it takes competitors to overcome barriers. All distinctive use of technology is eventually copied and advantages get torn down.
In the 1990s, IT was touted as a way to increase productivity, outweighing the cost of implementation. But the economic benefits ended up in the pockets of consumers not companies. The IT investments allowed companies to maintain competitive parity but not an advantage. The short-lived advantages that did exist occurred because of anomalies. The adoption of IT infrastructure has occurred at different rates in different industries. For instance, the Financial Services industry was an early and heavy investor in IT, while the fragmented health care industry, shielded from competition, was slow to adopt IT. Now, ironically, the health care industry holds more potential for providing competitive advantage than the financial industry, where IT infrastructure has become more standardized. Access barriers, such as the cost of building computers and assembling programming staffs, kept businesses from investing in IT during the early days. There are also advantages of foresight when visionary leaders sense how technology will be used in the future. These can produce a foundation for strong and durable advantages during the build-out of IT infrastructure. Breaking Down the Barriers Other problems arise if you believe that advantage doesn't come from technology at all, but from how it is used. An early mover advantage can backfire when competitors leapfrog. The time it takes for competitors
to catch up is the replication cycle. Over time, the technical replication cycle gets shorter. The rapidly increasing affordability of IT functionality has destroyed the most important barriers to replication. Open networks are also destroying the advantage of proprietary networks. Since IT capabilities are more valuable when shared than when used in isolation, competitors will work together. Along with standardization of technology comes standardization of use. Enterprise technologies standardize an entire process, imposing constraints on the process. The software becomes the process for every company that uses it, so there is little room for a company to distinguish itself. Some may argue that we are only in the beginning of the Digital Age and unfathomable discoveries still lie ahead. But history shows that the transformational power of an infrastructural technology dissipates as its build-out nears completion. There are many signs that this end is near. IT is outstripping most of the business needs it fulfills. Essential IT functionality has become affordable to all. Capacity of the universal distribution network (the Internet) has caught up with demand. Leading vendors -- Microsoft, IBM, HP -- are rushing to position themselves as "on demand" (continued on page 6)
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Does IT Matter? -- SUMMARY
Vanishing Advantage (continued from page 5) infrastructural services -- essentially as utilities. An enormous investment bubble has expanded and burst, which historically suggests that the infrastructural technology is reaching the end of its buildout. For Additional Information on shared capabilities, go to: The Corrosion Of Traditional Advantages Though infrastructural technologies eventually lose the power to create competitive advantage, they retain the power to erode competitive advantage. The railroads destroyed the advantages of companies situated near ports. The telegram destroyed the advantages of longcultivated international business relationships built on written correspondence and confidential couriers. That neutralizing effect will be very strong with IT because it is so flexible and deeply entwined with business process. It can corrode advantages across many aspects of a company's business. There is also a corrosion of performance and advantage as different companies adopt the same or similar Information Systems. The IT infrastructure will become more homogenized as companies continue to look to outside vendors to operate key systems or processes. The Internet has magnified the effect by undermining the advantages of proprietary, closed networks, but it has IT Neutralizes Advantages A Harvard Business School doctoral student, Mark Cotteleer, studied the neutralizing effect of IT on a large manufacturer's adoption of an international enterprise resource planning (ERP) system to replace disparate regional systems. Cotteleer measured performance by speed of order fulfillment before and after the installation. Before the installation, it typically took North America 51 days to fill an order, while Europe took 35 days and Asia just 36 days. The installation of the ERP system immediately erased these differences, bringing the regions into parity. One month after installation, North America, Europe and Asia reduced to 29, 27 and 28 days, respectively, and a year later, 35, 33 and 37 days. Although local managerial differences increased the time, they still stayed in close alignment, and after another year, North America was the leader. The advantage originally held by Europe and Asia had been obliterated by the introduction of IT.
shifted power from companies to customers. The Internet enables customers to compare prices, features and quality. IT has become a type of solvent for business strategy, pushing companies toward competitive parity. All of this does not mean your company should give up strategy. Strategy is now more important than ever. Only the strategically astute companies will rise above the competitive free-for-all. For instance Dell established its strategy before building its much-praised IT system. By cutting out wholesalers and retailers, Dell changed the economics of the industry. Building to order reduced the need for inventory and working capital and was more efficient. Dell was already the lowcost provider when it launched its Web store. Dell's IT investments are actually quite conservative and have always been aimed at reinforcing the efficiency of its operations. IT has buttressed Dell's advantage, but it is not the source of that advantage. Building on the Past Strategy requires a broader definition of competitive advantage that encompasses traditional sustainable advantage and a more transient leveragable advantage. A leveragable advantage is a privileged market position that provides a steppingstone to another privileged position -- a way station, not a destination. It is a deliberate move that builds on the past and prepares for the future. IT infrastructure also dissolves existing advantages by blurring traditional boundaries. Networks and the Internet make it easier to collaborate so industry productivity can increase, but an individual company's distinctiveness and profitability can dissipate as well. How do managers defend their competitive advantage while allowing information to flow freely? Some believe that there should be no stand-alone companies. Nobel Laureate Ronald Coase stated in 1937 that using the market entails transaction costs above the price of the good. A company will do anything itself if that decreases transaction costs. Anything else, it will outsource. High transaction costs create larger companies while low transaction costs create smaller companies. The Internet has reduced transaction costs so much, some believe there is little a company has left to do. Companies will break up and groups of people will come together to create a product and then disband. But these people misread Coase. He also indicated that lower transaction costs within a company increase management efficiency, allowing the company to do more, which increases its size. In addition there may be strategic reasons to keep activities in-house even if they could be more cheaply outsourced. The post-company pundits would eventually strip companies down to plugand-play business networks. But there is more to com-
(continued on page 7)
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Does IT Matter? -- SUMMARY
The Corrosion of Traditional Advantages (continued from page 6)
Cendant Loses the Internet
panies than information processing -- the physical and human characteristics. Without these extra characteristics or a strategic intent, you have a commodity. Successful strategy comes from looking both inside and outside the company to achieve both a privileged industry position and to exploit internal capabilities. The maturation of IT infrastructure and its corrosive effects on competitive advantage demand that managers see a competitive goal as a goal and a passageway. A means and an end. They must balance agility with stability, and openness with guardedness. Managing the Money Pit
The hotel-franchising unit of Cendant realized that thousands of reservations agents were wasting time surfing the Web and downloading games and other personal files from the Internet. Since there was no business benefit to Web access, the unit's IT director, David Chugg, wanted to remove the browser application from the agents' PCs. Because Microsoft has integrated its Explorer browser with its Windows operating system, that turned out to be impossible. Instead, Chugg replaced the existing Windows machines with desktops running a version of the Linux operating system. Not only has the company increased its agents' productivity and cleaned up its network, it has cut software licensing costs as well.
When a resource becomes essential to competition but
inconsequential to strategy, it risks becoming more important than its advantages. No current company builds its strategy around rail service or electricity, but a lapse in supply or spike in their cost can be devastating. Fortunately, infrastructural technologies become more stable and resilient as they mature, but young infrastructure presents business risk because businesses are forced to invest in technology they do not fully understand. Oxford Health Plans lost $3 billion in market capitalization when it had billing software problems. Nike lost $400 million when it had difficulty installing supplychain software. Every company has its own horror stories. IT projects are always more expensive and take more time than expected. The goal is to bring the failure rate down by managing the risk of IT in individual firms.
Restrict employees' ability to save files indiscriminately. Put more rigor in systems planning. Higher-level managers must be more creative about finding ways to explore cheaper hardware, software and service alternatives. was able to shift more than 90 percent of its servers from proprietary Unix systems to an open-source Linux system in three months, cutting $17 million from its quarterly IT budget. The commoditization of IT will continue to give companies new opportunities for reducing costs and risks. The ability to find and capitalize on these trends will be a hallmark of effective management in the future. Instead of assuming that annual IT budgets will grow every year, companies should begin to assume that IT budgets should go down every year.
Spend Less
Even small delays in purchases can dramatically
The greatest risk that IT presents is overspending. Although IT is a commodity and its price falls rapidly, it is entwined in so many business functions that it consumes a large portion of corporate funding. Here are several ways the IT money pit can be managed: Cut out waste. Suppliers like Intel and Microsoft continually roll out new upgrades, even though the average business PC user doesn't need much more than word processors, spreadsheets, e-mail, and Web browsing. Commoditization allows buyers to negotiate better deals,
reduce costs because of the ongoing fall in IT prices. Companies that stay off the leading edge reduce their chance of being saddled with buggy or soon-to-be-obsolete technology. It is now clear that many of the smartest users of technology stayed back from the cutting edge. UPS hung back during the 1980s and 1990s, and followed in FedEx's tracks, learning how to make its rival's systems better and cheaper. When UPS rolled out its own logistics-management software, it was more open and easier to use than FedEx's.
insuring long-term viability of PCs, tying payment to
Innovate When Risks Are Low
usage, and allowing them to go to other vendors. Use all capacity. The massive amount of spending in the late 1990s left many companies with more capacity
There are still times when it makes sense to get out ahead of the competition with IT innovation, if you can reduce or avoid the high costs associated with being the
than they needed. Use superfluous server space, hard-
first mover. Companies with substantial market power
ware and software.
can pursue infrastructural innovations that fortify exist-
Put tighter controls on IT usage. Up to 70 percent
ing advantages, as with Wal-Mart's early move to pro-
of what is stored on corporate networks consists of
mote radio frequency identification (RFID) in the con-
employees' saved e-mails, spam, MP3s, and video clips.
(continued on page 8)
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Does IT Matter? -- SUMMARY
Managing the Money Pit (continued from page 7) sumer packaged goods sector. These tiny chips allow more precise control over inventory and improve productivity for the entire industry. By pushing RFID to become a commodity, Wal-Mart neutralized it as a potential strategic weapon for competitors, reaped the most gains as the scale and cost leader in the industry, and pushed most of the costs of adopting the technology onto the shoulders of suppliers. Companies can also reduce risk by pursuing highly specialized innovations that competitors will have trouble adopting. Sometimes a startup company can capitalize on new IT to gain an edge over industry leaders. JetBlue has used today's open IT infrastructure to succeed where older airlines, which are locked into their IT infrastructure of reservations, flight scheduling, and pricing, cannot. JetBlue gives its pilots laptops to track flight plans, while reservation agents work at home using PCs and make calls on the Internet. These tactics are strategically meaningful because JetBlue's competitors' existing business models do not allow them to rapidly adopt such innovation. Focus on Vulnerabilities IT has many operational dangers, including service outages, security breaches, vindictive or careless employees, and even terrorism. IT disruptions can be expensive and prevent a company from making its products. Companies must study and fix their vulnerabilities both on the outside and on the inside. The current decentralization of hardware and software purchases and hiring of IT staff is also a cause for concern. Also, consider the changing nature of IT functions. Instead of viewing IT positions as generic, managers must find people with different skills. As more IT functions are performed remotely by contractors, and IT departments shrink, IT staff will need to be able to negotiate with vendors and manage a far-flung work force. Senior executives such as the CIO need to promote a sense of realism about the strengths and limitations of IT to prevent overoptimistic predictions and high spending. Eventually, a CIO's job should be to render him- or herself obsolete because the IT infrastructure is so stable and robust that it no longer requires high-level management. The Future Of Technological Change The bewitchments of broadly adopted infrastructural technology are hard to resist, and they explain the outsized hopes that some people have placed on computers. The late 1990s were a time of infinite possibilities, all
brought about by the Internet. Proponents promised to bring us into a new Digital Age where we would be freed from the old physical world and the old way of doing business. Since the Internet boom went bust, there are fewer of these claims, but people still want to see IT as a revolutionary force that "changes everything." But 50 years after the computer revolution began, has it truly been transformative? IT is certainly ubiquitous. Computers have simplified many tasks and, coupled with the Internet, changed the way we communicate, gather information, and shop. IT has not fundamentally changed the way we live and work. A time traveler from the 1930s would still be able to make sense of what he would see here today. Compared to the cataclysmic changes in society and business brought about by the technological innovations of the 1800s -- rail, telegraph, telephone, electricity, internal combustion engine, refrigeration, indoor plumbing, photography -- these 20th-century changes seem modest and more of an extension of the past than a break with it. Life is unthinkable without the advances of the 19th century, but you can't say that about IT. Would you rather do without your toilet or your computer? Additionally, it is hard to find the effects of IT on productivity. Not all of the large investments in IT during the 1990s produced high rates of return. Some believe the connection between IT investment and productivity is random, but the strong, continued expansion in U.S. productivity since the turn of the century does have some relationship to the large expenditures in IT, which have allowed companies to do more with fewer employees. Complementary Investments Most gains in productivity are also a function of complementary investments. The gains hinge as much on related process and organizational innovations as on the original technology. The growing consensus is that IT can boost productivity but only when combined with broader changes in business practice, competition, and regulatory control. There are other issues to consider in the future, such as what happens when computers take over jobs done by people. If economic growth is strong -- output rises faster than productivity -- companies and the whole economy benefit. The commercial sector becomes more efficient, displaced workers move into new jobs, and general living standards rise. But if Productivity Growth races ahead of economic growth, the number of jobs can decline, unemployment may increase, the supply of goods can outstrip demand, prices may drop, and the divide between wealthy and poor may widen. The American Economy is resilient, but we cannot dismiss the possibility that strong productivity gains from IT will end up doing harm as well as good. For Additional Information about productivity gains from IT, go to
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NG Carr

File: does-it-matter.pdf
Title: Does IT Matter
Author: NG Carr
Author: Nicholas G. Carr
Subject: Strategic Management
Keywords: October 2004 - 2624
Published: Wed Sep 8 15:12:08 2004
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