Dan McLean: Don’t look to IT for strategic edge, theorist asserts

The days of achieving strategic advantage through IT investment are gone.

So says a recent Harvard Business Review article published in May, which contends that while IT has become an essential underpinning fabric of today’s business and commerce, it does not provide strategic advantage.

In a piece entitled IT Doesn’t Matter, author Nicholas G. Carr says that through ubiquitous deployment, IT has reshaped business, and because of that is no longer strategic. It is, in fact, proprietary technologies that are strategic since these provide advantage to the owners of that technology who are the sole users of it.

So, in a world today where businesses invest more than US$2 trillion in IT each year, where information technology has become mass deployed and commoditized, there is no strategic advantage to be gained. It is, says Carr, an infrastructure technology that offers much more value when it is shared.

IT’s evolution parallels other infrastructure technologies such as the telegraph, the electrical power grid and the railway. Each of these technological innovations started as proprietary solutions, which realized their true potentials when they became widely deployed infrastructures. Carr argues that IT today has reached that requisite state of maturity and must now be considered a technology infrastructure.

Carr points to history as evidence. The commercial potential that was recognized in an infrastructure technology such as the telegraph spurred enormous investment and rapid buildout. In 1849 there were 2,000 miles of telegraph wires across Europe and in 20 years the infrastructure had stretched 110,000 miles. The buildout of infrastructure technology, says Carr, forces standardization and renders comparable proprietary technologies obsolete.

IT has all the defining characteristics of an infrastructure technology, including the fact that, like railways, power grids and telegraphs, information technology is essentially a transport underpinning – in this case, a way to move data.

As mentioned, IT is a much more valuable thing when it is a shared. Through increasing scalability and technical standardization, IT is has witnessed the creation of robust applications – from word processors to supply chain management – that are low-cost alternatives to many proprietary alternatives, which Carr says, as a result, are doomed to “economic obsolescence.”

Consider the growth of IT, specifically the Internet, which might be thought of as the IT power grid. Carr notes that from 1989 to 2000 the number of host computers connected to the Internet increased from 80,000 to more than 125 million. The similarity between growth of other infrastructure technologies such as railways and the electrical power grid is striking. In fact, the charted growth curves of all three technologies, illustrated in the Harvard report, look identical.

The counter-argument to Carr’s hypothesis would say that while IT is certainly moving in the direction of an infrastructure utility, that there’s still a long, long way to go. It’s been suggested that IT is still undergoing a period of tremendous evolution. A whole lot of proprietary information technology and complexity still exists and many of today’s IT platforms and environments are anything but seamless. Much more work is needed. So how can IT be considered anywhere near technologically mature?

It’s a matter of function and utilization. Innovation may improve performance and application function, but the core elements – data storage, data process and data transport – have become widely available and affordable to everyone. Carr asserts that the buildout of the IT infrastructure is nearing completion and that means the power of IT as an infrastructure technology that transform industries continues to diminish.

Other factors which serve as evidence to IT’s maturity include the fact that the price of essential IT function has dropped to the point where it is affordable to most. In addition, Carr points to the capacity of IT, suggesting that for most, the capability of IT exceeds business need, while the capacity of the world’s universal distribution network – in this case the Internet – has caught up to the demand of those who would utilize it. All are conditions of a maturing infrastructure technology, he says.

By the end of the buildout phase for infrastructure technology, says Carr, the opportunities for individual advantage are largely gone.

Carr’s advice to business is pragmatic. IT overspending is among the greatest business risks. Rather than seeking to obtain strategic advantage through IT, business should instead focus on operational risks, looking to minimize the chance that IT might fail or not be available. The impact that this might have on a business today could be disastrous. Worrying about what might go wrong may not be sexy, but it is a much more essential thing right now, says Carr.

While it may not provide strategic advantage, IT remains essential to business. Companies today spend more than ever on IT – from less than five per cent of capital dollars in 1965 to more than 50 per cent by the end of the 1990s. Investment in IT is part of the price of doing business today and companies simply cannot compete without it.

But IT is not strategic, Carr insists. Don’t be a pioneer, he adds, but rather invest in IT that is proven and mature in order to get the best bang for your buck and ensure that you’re not purchasing flawed or doomed-to-obsolescence solutions.

McLean is director of outsourcing and IT utility research for IDC Canada Ltd. in Toronto. He can be reached at[email protected].

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