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May 12, 2003 (Computerworld) -- Information technology has become a commodity. All that's left to do is mitigate risks and control costs. So states Nicholas G. Carr in this month's Harvard Business Review. Carr argues that IT, like railroads, electricity and other infrastructural revolutions that came before, has become so pervasive that companies can't live without it but that it now offers them little strategic advantage. Carr, HBR's editor at large, told Kathleen Melymuka why he thinks "IT management should, frankly, become boring."
Why is the strategic value of IT diminishing? For any resource to have strategic value, it has to allow companies to use it in a distinctive way. As information technology becomes more powerful and ubiquitous, it is increasingly a shared resource that everyone has access to. As a result, it's getting harder and harder to use IT to gain any kind of edge over competitors.
Does this apply to all kinds of IT, or just to infrastructure? I'm defining IT as the processing, storage and transmission of data, so I'm talking quite broadly. All of that is actually becoming part of the general business infrastructure, just as the rail system became part of the infrastructure in the 1800s and the electric power grid became part of the infrastructure in the early 1900s.
Nicholas G. Carr, HBR's editor at large
What are the characteristics of IT that guarantee this rapid commoditization you write about? First, IT is essentially a transport mechanism. It carries digital information in the same way power grids carry electricity. That's much more valuable when it's shared than when it's used in isolation, so everyone quickly moves to shared systems. Second, the almost infinite scalability of many IT functions, combined with the rush to technical standardization, means there's no economic benefit to having proprietary applications.
No one writes their own e-mail or word-processing applications, and that approach is quickly moving to supply chain management and CRM. Generic systems are efficient but don't offer advantages over competitors because we're all moving to the same systems. With the arrival of the Internet, we've got the perfect delivery channel for generic applications. As we move to Web services, where we can purchase key applications just like we buy electricity, that will push us further toward the homogenization of IT capability.
Isn't it possible that there will be another "big thing" in IT that's still unforeseen? That's possible, but we're already starting to see that the capabilities of the IT infrastructure are greater than the needs that businesses have. It's always possible something out of the blue will change everything, but it's hard to imagine that happening the way you could five or 10 years ago. Also, even if something like that happens, it will probably come out of the vendor community, not the user community. All companies will be able to buy the capability, so no company will get an advantage.
What do the previous infrastructure build-outs -- like railroads and electricity -- tell us about the ratio of risks to advantages in the current state of IT? In the early stages of the build-out, companies can get proprietary advantages because access remains limited due to physical limitations or patents or high cost. So companies begin to see them as ways to build advantage. But the build-out happens so fast that the window to gain advantage is open only for a short time. Then the technology becomes a cost of doing business that all pay, and nobody gets advantage.
When things begin to tip that way, the risk involved in using that technology starts to outweigh the advantage. For example, nobody gets strategic advantage from electricity, but if you lose access, that can devastate your business. We're seeing the same thing with IT. The risks are beginning to weigh much more heavily than possible benefits, so companies need a more defensive and less offensive posture toward IT investments.
Are you saying companies should be more concerned with IT risk mitigation than with IT strategy? Exactly. I think IT security should be a much greater concern than it has been. I think the real competitive struggle in the use and management of IT is over cost. It's hard to use IT to gain a strategic advantage, but if you use it poorly, you can quickly put yourself at a cost disadvantage.
You talk about overspending as the biggest risk of all, but every IT leader I talk to bleeds ROI. If an IT project pays for itself and more, isn't that enough? I think the focus on ROI is exactly right. But it's important to make sure when you look at ROI that you're not assuming some competitive advantage that heightens payback. You have to really look at payoff in cost savings and operational efficiency. I think there's still a danger of managers getting excited about the potential for advantage and moving too quickly into new technology.
If it's getting harder to realize the benefits of IT, why is the cutting edge not the place to be? IT costs plummet extremely quickly. Companies should ask not only whether this investment is justified based on ROI calculations today, but whether payoff will be even greater if they wait six months or a year. An imperative for IT management is to go slowly—to follow rather than lead.
Should IT managers be looking for new careers? It depends on what kind of IT managers they are. Companies have increasingly bought into the assumption that IT is a strategic resource. As a result, they have brought in CIOs who are conceptual, strategic thinkers about IT. I think there's less of a need for those types of individuals.
But because expenditures will remain so high, there's enormous need for technically astute, hard-nosed business people who can really help companies to get the most out of IT spending. I think IT management will get less sexy but remain just as essential in another way.
Melymuka is a Computerworld contributing writer. Contact her at kmelymuka@yahoo.com.
Changing Outlook
About IT investments:“The risks are beginning to weigh much more heavily than possible benefits, so companies need a more defensive and less offensive posture toward IT investments.”
About IT costs: “An imperative for IT management is to go slowly—to follow rather than lead.”
About the Internet: “We’re already past the peak and on the downside.”
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