Nicholas Carr has written a book, Does IT Matter?, following his article in Harvard Business Review last year which created a huge debate across the industry. Carr says in Wired and an interview to CIO magazine: The IT industry is looking more and more like a traditional, mature manufacturing business. Plagued by undifferentiated products, global overcapacity, and falling prices, hardware and software companies are consolidating, shifting production offshore, and making money on maintenance and other fee-based services. They’re competing on cost rather than innovation and features As IT has become more standardizedcheaper, more ubiquitousit has become harder and harder to use the technology itself as a competitive barrier because it becomes easier for competitors to replicate your systems IT matters enormously as an essential component of business today. You can’t run a business without it. But does it matter strategically? Is it going to set your company apart from your competitors? The answer increasingly is no, and it’s counterproductive at this point to think of IT in that way and to invest in IT with that kind of hope.
In a rejoinder to Carr, Don Tapscott argues that the best companies have the best business models because they have the best IT strategies:
Superior IT enables superior informationa resource that rivals superior talent in competitive differentiation. High-performing business models are also based on superior informationAt the cusp of each wave of tech innovation, market leaders seize advantage, whether as early adopters or fast followers. They grab positional advantage through a combination of IT and business design, and then others have no choice but to follow in their wake. This happens anytime there are new waves of tech innovation.
IT and business models are not discrete factors in strategy; increasingly, they are inseparable. IT is leading to profound changes in business designnot just to new business processes but to the deep structures of the corporation. Because IT and networks radically reduce internal transaction costs, companies can conduct business in real-time. My research shows that smart companies can speed up their metabolism and build high performance into their business designs.
Most important, IT is slashing transaction and interaction costs between companies. The upshot is that partnering is becoming more cost-effective than performing many business functions internally. The vertically integrated corporation is unbundling, and companies can now focus on what they do best and partner to do the rest in what I’ve called “business webs.” Leading companies grow by focusing on their corethat cluster of activities where they have unique capabilities and where they create true barriers to replication. The evidence is clear: Companies that forge high-performance business webs tend to have better products, lower cost structures and better profitability than their vertically integrated counterparts.
It is true that as the Net becomes a powerful infrastructure, and as new standards enable rapid deployment of applications, some technology innovations can be brought to market and replicated faster. However, it’s not so easy to do all the really hard work that makes a system advantageous to a company such as changing business processes, organizational structures, culture and human behavior. The corporate graveyard is strewn with the bodies of those who naively thought it was easy to change a culture. Launch a business innovation or new business design based on IT, and the biggest challenge for your competitors to replicate will be the changes you made to your business, not the technology that inspired them. Companies that successfully alter their business around IT can achieve a significant window of competitive advantage.
Those in the business of selling IT solutions would like to believe that IT has not and cannot be commoditised. For those leveraging IT, it may not matter as much technology has to become part of the DNA of business and if commoditisation helps in lowering investments, so be it.
Tomorrow: India Action: Invest in Broadband and the Internet