Does IT Matter?

ICT326

Topic 12

Paula Goulding

IT Doesn’t Matter

• ……..is the title of an article by Nicholas Carr

• Published in Harvard Business Review May 2003

• Suggests IT no longer provides competitive advantage

• Followed by a book “Does IT Matter?” 2004• Caused huge debate in IT and business

communities

Investments in IT (USA)

• In the 1960’s IT was only 5% of total expenditures

• Today it has reached 50%

• Total dollar value of IT spending is 2 trillion annually

Reasons for Spending

• Early adoption of a technology can lead to the achievement of a competitive edge [American Hospital Supply]

• Streamline business processes

• Create new products/services/markets [still applies]

Problems with IT spending

• Only random correlation IT spend and return to shareholders (Strassman)

• Only 7% of software functionality purchased was used (Gartner)

• 85% of IT projects fail to meet objectives

• 32% of IT projects cancelled

Sprint to Commodotization

• Analogy between IT and previous technology eg rail, electricity

• Massive investment, rapid adoption, capacity skyrockets, falling prices……..commoditization

• Railroad boom followed by long & deep recession

Propriety vs. Infrastructural

• IT is available to just about everyone and is now an infrastructural technology (not proprietary)

• IT is now more affordable to everyone as well• T is an integral part of doing business now, it is

a commodity• A commodity does not provide a competitive

advantage because industry must follow standards related to its use

IT as an Infrastructural Technology

• Still influence competition but only on a macroeconomic level because everyone must conform, if they don’t they will not be in business for long. No business can survive without the use of other infrastructural technologies such as phones, electricity, etc…

• More useful when it is shared

IT as an Infrastructural Technology

• Hardware and software technologies are easily replicated by competitors (done by the use of out-of-box software packages)

• Processes and functions that are not unique and do not require customized approaches to solve business problems are now widely available

IT Buildout Concluded

Signs buildout reaching end…..• IT’s power is greater than its business needs.• IT prices have dropped so they are affordable

to all• The capacity of the technology has caught up

and exceeded demand• IT vendors are trying to become suppliers or

utilities for IT products/services.• The investment bubble has burst

Carrs conclusions

• IT has become just like electricity. That is, even a moment’s disruption in its existence can cost millions and millions of dollars. It can stop a company’s ability to make products, deliver services, and connect with its customers. As Carr states, few companies have back-up plans for the vulnerabilities that may cause this to happen but is essential to an organizations long-term objectives

Carrs conclusions

• New Rules for IT Management– Spend less– Follow, don’t lead– Focus on vulnerabilities not opportunities

Responses

• Argument based on Industrial Age analogies and is fundamentally flawed

• Argument based on analogy with little empirical data to support

• What evidence is there IT buildout closer to end than beginning?

Responses -Lessons from the nineties

• Extracting value from IT requires innovation in business practice

• Its economic impact comes from incremental innovation, not “big bang” projects

• Strategic impact of IT comes from cumulative effect of sustained iniatives to innovate business practice

• (Seely Brown & Hagel in Letters, HBR)

Responses

• Analogy to rail etc flawed….different scale. Carrs graphs are deceptive due to creative use of scale….

• Analogy arguments alone are flawed (used in medieval dogma!)

• Carrs article has no references, sources, or real evidence

The overwhelming response

• Competitive advantage is not the result of computers – It is the result of effective management by highly skilled managers

• Advantage comes from consistently using information better

• IT DOES matter……and can be effectively used to– Achieve business objectives– Quickly respond to changing conditions– Optimise cost effectiveness

And more……

• “IT” is not one thing, some components are commodities, others are not

• IT is not just hware and sware….what about architecture, services, processes?

• IT is– Integral to products and services (and innovation in

them)– Integral for speed and agility– Integral to cost reduction for process design &

engineering(Smith)

Responses

• “Carr absolutely misses the point….IT puts value in goods and services, which are intellectual goods….. (Craig Barret CEO Intel)

• “Our fundamental response to the article is: hogwash” (Microsoft)

• “Carr is wrong when he contends that IT innovation is winding down. Innovation through electronically enabled services, processes and products has only just begun” (Gartner)

• (all quotes from Smith)

• What do you think?

Bibliography

• Nicholas Carr “IT Doesn’t Matter” Harvard Business Review May 2003

• Various, Does IT Matter? An HBR Debate, Letters to the Editor, HBR June 2003

• Sean Hettich, unpublished student presentation 2004

• Howard Smith “Does IT Corrode Competitive Advantage?” presentation at “The Effective IT Summit” March 2004

http://www.fairdene.com/hbr/Why%20IT%20Matters.pdf

accessed 21/10/04