Does IT Matter?

YES, IT can make a difference to a company’s success. But experts debate how and to what extent. by Kelly LeVoyer

Acclaimed author Nicholas Carr drew passionate responses from the information technology (IT) community with his article, "IT Doesn't Matter," in which he positioned IT as a commodity incapable of providing a competitive advantage. Since the May 2003 Harvard Business Review article, Carr has expanded his theory into a book entitled Does IT Matter? But contrary to the less emphatic title, Carr hasn't changed his position – as we see from his discussion with SAS Chief Marketing Officer Jim Davis. Both experts offer compelling – but different – opinions on IT’s ability to provide competitive advantage in today’s marketplace.

Can IT provide a strategic advantage?

Carr: First, it's important to distinguish between two very different types of technology that are used in business: Proprietary technologies that individual companies can own outright or through exclusive licenses can provide a very strong basis for competitive advantage that can last quite a long time. Infrastructural technologies provide the greatest value only when they're broadly shared, standardized and homogenized – when they lose their ability to set one company apart from the pack. I believe IT fits into the latter category.

The best way to explain the premise of my book is by using the s-curve of technology adoption. It shows that when you have any valuable technology, its adoption starts very slowly: It’s expensive, not much is known about it and relatively few companies are experimenting with it.

Then comes an inflection point when it becomes clear that this technology is broadly valuable. At that point you have massive investment in it – from individual companies and from a large vendor pool. The technology becomes cheaper, more standardized and homogenized, better understood and ultimately ubiquitous in the market. You can plot this against a z-curve, an opposite curve that shows the technolog's potential to provide a competitive advantage. As quickly as it becomes ubiquitous, its potential for providing a competitive advantage falls and, ultimately, disappears. You can still do new things, but your competitors can copy you very quickly. Again, infrastructural technologies provide their greatest value only when they reach this point.

For a lot of companies, the danger lies in continuing to think that by being an IT innovator, you're going to get a lasting or meaningful advantage. That view leads to over-investment, too much risk-taking and, ultimately, disappointment in your IT investments.

Davis: I agree that there are different categories of IT, but I would categorize them a bit differently: infrastructure, to support a computing environment; operational, to support transactional systems such as ERP and call center applications; and the emerging intelligence category, where SAS is helping companies optimize their bottom lines and giving them insight into their expanding top lines, which is where the opportunities lie. We're giving them predictive power they haven’t had before. And that’s where there’s a competitive advantage.

In our business, technology isn't about building widgets and cool screens; it's about solving problems that are very specific to particular industries. It's no longer a shrink-wrapped market; companies now need customized solutions and advanced analytics that allow them to predict future aspects of their business. And they need user interfaces that appeal to the masses, so that we’re not appealing to just a few core users within the organization.

I also agree that anything we create today will be copied in a matter of months or weeks, but I believe because of that, innovation is key. And what fuels innovation? Information and intelligence. For the past 20 years, we’ve amassed large amounts of data from this infrastructure. How can we align IT with business to leverage that data for a competitive advantage? This is where business intelligence and business analytics come into play – bringing the power of the data out to the business unit. I would argue this does provide competitive advantage, and that it is strategic.

Has software been commoditized?

Carr: In time, it does become a commodity input for users. There are no natural constraints on software innovation, but when a business goes out to buy or build software, it can define what it wants and measure how well the functionality is being delivered. So software is very much a product, subject to the same forces of commoditization as hardware. In fact, software might be more subject to commoditization because the huge economies of scale make the sharing of standardized code highly valuable.

Davis: In some ways software is becoming commoditized and in some ways it's not and is still providing a competitive advantage. Commoditized software includes call center applications and operating systems. Let's say your company implemented Siebel. You have, arguably, a state-of-the-art CRM system designed for processing customer transactions at very high rates. But you don't understand your customers any differently. There's no competitive advantage there. But as we introduce some analytics into the mix, you see differentiated value. Rather than looking at processing customers, let's look at understanding and predicting the behavior of your customers. That’s the differentiation.

How can companies get the most from their IT investments?

Carr: We're at a turning point where companies can get more for less by capitalizing on the commoditization of hardware and software. I'm also seeing companies making a retreat from the cutting edge, looking for cheaper, "good enough" solutions and resisting upgrade cycles and high maintenance fees. The overarching theme is that companies are shifting their focus away from opportunities for advantage and toward remedying the vulnerabilities of IT: overspending, project failure and poor security.

Davis: I agree that the days of the multidigit increases in IT budgets are gone. I wouldn't call it a retreat from the cutting edge, but I'm seeing companies moving away from the best-of-breed world toward solving the business problem, and with that, we're seeing consolidation in their IT spend. Many large organizations have mandates to cut the number of IT suppliers drastically. Why? Because it’s about relationships, not features and functionality. It's about understanding the business and mitigating risk associated with the integration.

The concept of IT portfolio management has really taken off, too. If you can show the value of an IT investment, it stays in your portfolio. If you can't identify the value or you're losing money, get it out. If you’re achieving an excess in return, extend the position. I think this is an opportunity for CIOs to become more involved with the business and see if their current and future IT expenditures represent where the organization is trying to go. This is definitely a way for companies to get the biggest bang for their buck out of their IT investments.

Carr: What's going to separate smart users of IT from their less successful rivals is their ability to manage this very complex, very costly business resource and reduce their spending and risk. We need to shift our focus from using IT creatively or innovatively to simply using it well. I think people, process and culture all remain extremely important in meeting this challenge. The best research on the benefits of IT comes out of MIT, and it shows that the real gains tend not to come until five or 10 years after you've bought the technology itself. The technology in itself doesn’t get you much – the real value comes from changes in culture, processes, people and organization. The companies that can make those changes faster than their competitors will see the best results.