Commodity or strategic IT? A consideration of Carr’s wondering

Posted on 29 Μαΐου , 2006

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https://www.openbc.com/hp/Apostolos_Tsorakis/ 

Author: Apostolos Tsorakis

Introduction

Traditional economic factors of production seem that they no longer drive value creation, while at the same time the endless flaw of information that surrounds all kind of industries, and create knowledge networking exchanges, appear to be the new basis of wealth and value creation. IT LANs, wireless networks, Internet, telecommunications and the mobility they introduce to businesses and the working force challenge the power structure of the administration in organisations. The IT role in this environment is to carry, to record and deliver the intangible assets while sometimes it is responsible for the value creation as a mean of execution.

These issues determine an invisible shift of responsibilities and authorities from the organisational structure accountable to the service provision controllers. There is a fallacy though behind all this new daemons; the shift of core production activities toward the IT service provision function creates a misunderstanding that an auto pilot function administrate the flow of this information via a centralized authority scheme bearing at the same time the responsibilities of the quality and integrity of it. IT, as a result, is supposed to be there to serve and deliver as a sightless utility. Even though the reality does not substantiate necessarily this it has to be stated that such kind commodity characteristics exist in the IT industry.

Considering this, it may be the time to discriminate the Information from the Technology and start valuing some of the activities carried out by the IT from a managerial perspective closer to Managing Information Systems. IT may not become a commodity but may need an evolution to catch up the effects of its own development in the value chain of the organisation. 

In the May 2003 edition of Harvard Business Review, Nicholas Carr published an article titled “IT Doesn’t Matter.” This article discussed the idea that IT has become a commodity—similar to electricity—and no longer creates value for companies. The article generated lots of controversy. The author makes some strong statements as to the vanishing strategic advantage of IT in the business place. The story behind this argument, according to Carr, is that IT is now fundamentally an infrastructure technology – which provides no strategic advantage – rather than a proprietary technology which can provide advantage. He then goes on to argue that it is time to scale back on IT investments, that there is such a thing as too much of a good thing, and that it is time to re-evaluate and scale back IT.

IT needs to be divided along the lines Carr proposes: Commodity IT and Strategic IT. Commodities are crucial to a company’s business. Electricity is a commodity, yet no company survives without it. Commodities, as Carr points out, should be boring. One should not have to think about whether or not you hear a dial tone when you pick up the phone. It should be reasonable to expect that when you flip on the light switch the lights turn on. In today’s world it should be expected that your email systems work, your billing systems work, and your databases are up.

“IT Doesn’t Matter” was also featured in a major article on the IT industry by Steve Lohr in the May 4, 2003 Sunday New York Times. The article was reprinted on May 5, 2003 in the International Herald Tribune. In this article Lohr state that the industry, according to Irving Wladawsky-Berger, a strategy executive at International Business Machines Corp., has entered “the post-technology era. It is not that technology itself no longer matters”, he said; “but steady advances in chips, disk storage and software mean that the focus is no longer on the technology itself – with its arcane language of processing speeds and gigabytes – but on what people and companies can do with it.”

General Motors CIO Ralph Szygenda on the other hand offers some thoughtful comments on this article in the May 19, 2003 Information Week. He says, «Nicholas Carr may ultimately be correct when he says IT doesn’t matter . . . [but] business-process improvement, competitive advantage, optimization, and business success do matter and they aren’t commodities. To facilitate these business changes, IT can be considered a differentiator or a necessary evil. But today, it’s a must in a real-time corporation”

Craig Barrett, Intel’s CEO, «fired back» at Carrs article arguing that the IT infrastructure is critical to competitiveness and said about Carr’s suggestion that “IT is a commodity infrastructure like roads, the internal combustion engine and electricity” that he absolutely misses the point. Barrett suggest thus that “All of those common infrastructures are infrastructural elements that allow you to make or move material; they don’t allow you to put intellectual content or value into what you are doing.” IT, Barrettt rejoined, “is the vehicle to put value in what you are doing. Therefore, if you want to have a high standard of living, if you want to have a progressive economy and if you want to be competitive around the world, you either have that infrastructure or you don’t. If you don’t have it the jobs will go somewhere else, which is why I have said you have the possibility of a jobless recovery if you don’t have that IT infrastructure upgrade.”

John Hagel and John Seely Brown suggested regarding that this is an important article because “it very effectively captures the backlash sweeping through executive suites against IT spending.” But they declared that Carr’s article is also dangerous “because it endorses the growing view that IT offers only limited potential for strategic differentiation.”

Computerworld takes another whack at the article: “You can get real business advantage with technology. You just don’t get it from products, services and information. You get it from processes, skills and execution – the same things that let any business differentiate itself in ways that don’t involve IT. That means any competitive advantage you get just from buying IT will last only until your competitors buy the same products, services and information you just bought.”

Bill Gates also commented this article in a speech at Microsoft’s CEO Summit on May 21, 2003 saying, “And so when somebody says, to take the extreme quote from the Harvard Business Review article, they say IT doesn’t matter, they must be saying that with all this information flow, we’ve either achieved a limit where it’s just perfect, everybody sees exactly what they want, or we’ve gotten to a point where it simply can’t be improved – and that’s where we’d object very strenuously.”

Carr states that, in today’s environment, information technology is ubiquitous and available to any company, therefore differentiation just doesn’t exist. The author compares IT to previous technologies, such as the railway, electricity or the telephone, to show that the impact of technology is minimized as it becomes global and its price falls. The fact is that most of Carr’s arguments are right. The growing interest of users in standardized packages of common tools and the progressive decrease in prices of products and support have generalized the use of certain IT services. In this way, companies enjoy the same opportunities to control the quality and cost of their basic processes.

The typical firm today invests heavily in information technology. As much as twenty percent of the operating budget, in fact, may be spent on systems to automate operations and enable new capabilities throughout the business. But for many firms, it’s still not a habit to think about those investments strategically. Instead, IT initiatives are approached tactically; each new project is proposed as a one-off to be justified or killed based solely on its own ROI. As a result, the investments made produce pockets of benefit but often yield little in the way of synergy. Its no surprise when, periodically, management looks at IT expenditure overall and complains about lack of impact to scale.

The concept of IT though, should be thought of as a living system that is used to route information throughout the organization. It is somewhat like the Army view of intelligence. The Army delivers information anywhere needed without knowing ahead of time who will need what information. The same philosophy can be applied to IT procedures. Systems and processes should be designed with expansion and vision in mind and technology needs to remain an essential enabler. Under this perspective Carr’s discrimination of Commodity IT and Strategic IT may be substantiated and the competitive advantage that IT function used to provide returns as a characteristic.

The ultimate impact of many of the changes introduced in the organizations by the use of IT has been the creation of the post-industrial, post-bureaucratic organization shaped and controlled by information technology. While this may not be primarily designed as a means of surveillance it enables the gathering, processing, interpretation and presentation of data relating to organizational operations and allows senior management to scrutinize the activities and performance of subordinates. Knowing what is going on is what enhances power and the knowledge that such a capability exists clearly enhances subjugation. This seems to be the pivot of the relationship between technology and the labor process in an organization and explains the change from the industrial bureaucracies of the pre-computer era to the modern information based organization.  

Knowledge according to Johnson and Scholes (2002), is awareness, consciousness or familiarity gained by experience or learning. The information that is unleashed by the digital technologies leads to a knowledge-based competition, where the ability of an organization to develop, nurture, and mobilize its intangible assets is critical for success. (Kaplan and Norton, 1996) Interestingly though, some technology experts and academic scholars have observed that there is no direct correlation between IT investments and business performance or knowledge management. For instance, Erik Brynjolfsson, a professor at

MIT
Sloan
School, notes that: “The same dollar spent on the same system may give a competitive advantage to one company but only expensive paperweights to another.” Hence a key factor for the higher return on the IT dollar is the effective utilization of technology. (Malhotra, 1998)

It is again the information and not the technology which is responsible for this. What mainly happens after years of IT projects is that the technology may not matter since it has to be there as a deterministic continuity of development from a science perspective but the information that is supposed to be the intangible asset to be processed does matter in different ways than in the past. To get competitive advantage out of Information Technology, the companies whose main business is not technology must assume that the most important share of this concept is information. The reason stems from the fact that anyone can enjoy technology, but information is the exclusive property of each company. Therefore, while technology may become a commodity information allows companies to differentiate from each other and, as a result, can provide superiority over rivals. Technology is essential to update information, test it and manage it quickly and efficiently and so take decisions that are more and more correct.

Information technology is crucial for companies as a commodity as well as something that creates competitive advantage. Companies know how to identify the goal they are pursuing by applying different IT, within a global and integrated business strategy design. The objective of IT as a commodity is the search for a more efficient operating system and an alignment of the costs associated with each process. The development and implementation of IT in within a differentiating role provides more added values for customers than that of the competitors. The real competitive advantage is attained only when IT is an integral part of the business strategy. Otherwise, it becomes an added disadvantage.

Bibliography

Johnson, G. and Scholes K. (2002), Exploring Corporate Strategy: Text and Cases, 6th ed., Pearson Education Limited, England

Kaplan, R and Norton, D, 1996, Balanced Scorecard: Translating Strategy into Action, Harvard Business School Press

Malhotra, Yogesh. «Deciphering the Knowledge Management Hype,» The Journal for Quality & Participation, July/August 1998 (Special issue on Knowledge Management), published by the Association for Quality & Participation

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