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TECH TALK: IT’s Future: Carrs HBR article (Part 2)

August 12th, 2003 · No Comments

In the HBR article, Nicholas Carr contrasts infrastructural technologies with proprietary technologies. The latter can be owned, actually or effectively by a single company. As long as they remain protected, proprietary technologies can be the foundations for long-term strategic advantages, enabling companies to reap higher profits than their rivals. In contrast, infrastructural technologies offer more value when shared than used in isolationThe only meaningful advantage most companies can hope to gain from an infrastructural technology after its buildout is a cost advantage and even that tends to be very hard to sustain.

IT, says Carr, has all the hallmarks of an infrastructural technology. It is a transport mechanism, carrying digital information just as railroads carry goods and power grids carry electricity. IT is also replicable and this is not limited just to the software, but also to the business activities and processes that have come to be embedded in software. Through web services over a grid, companies are likely to replace customised applications with generic ones. Carr also points out that IT is subject to rapid price deflation thus making IT capabilities quickly available to all.

History, says Carr, shows that the power of an infrastructural technology to transfom industries always diminishes as its buildout nears completion. There are many indications that the IT buildout is closer to its end that its beginning ITs power is far greater than what busineses need, its price drops have made it affordable to all, Internet capacity has caught up with demand, IT vendors are repositioning themselves as utility providers and the investment bubble has burst. In essence, says, Carr, IT must now be considered as an infrastructural technology and thus a commodity available to all.

So, what should companies do? Carr offers some advice in a section entitled New Rules for IT Management:

With the opportunities for gaining strategic advantage from IT rapidly disappearing, many companies willwant to take a hard look at how they invest in IT and manage their systems. As a starting point, here are three guidelines for the future:

Spend less. Studies show that the companies with the biggest IT investments rarely post the best financial results. As the commoditization of IT continues, the penalties of wasteful spending will only grow larger. It is getting much harder to achieve a competitive advantage through an IT investment, but it is much easier to put your business at a cost disadvantage.

Follow, dont lead. Moores Law guarantees that the longer you wait to make an IT purchase, the more youll get for your money. And waiting will decrease your risk of buying something technologically flawed or doomed for rapid obsolescence. In some cases, being on the cutting edge makes sense. But those cases are becoming rarer and rarer as IT capabilities become more homogenized.

Focus on vulnerabilities, not opportunities. Its unusual for a company to gain a competitive advantage through the distinctive use of a mature infrastructural technology, but even a brief disruption in the availability of the technology can be devastating. As corporations tend to cede their control over their IT applications and networks to vendors and other third parties, their threats they face will proliferate. They need to prepare themselves for technical glitches, outages, and security breaches, shifting their attention from opportunities to vulnerabilities.

So, to summarise, in Carrs own words: IT infrastructure is indeed essential to competitiveness, particularly at the regional and industry level. My point, however, is that it is no longer a source of advantage at the firm level – it doesn’t enable individual companies to distinguish themselves in a meaningful way from their competitors. Essential to competitiveness but inconsequential to strategic advantage: that’s why IT is best viewed (and managed) as a commodity[When a resource becomes thus], the risks it creates become more important than the advantages it provides.

Tomorrow: Hagel-Brown and GM CIO


TECH TALK IT’s Future+T

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