HBS Working Knowledge continues the debate on the Nicholas Carr’s HBR article “IT Doesn’t Matter”. [I had written a series on this recently.] HBS professors F. Warren McFarlan and Richard L. Nolan write:
The most important thing that the CEO and senior management should understand about IT is its associated economics. Driven by Moore’s Law, those evolving economics have enabled every industry’s transaction costs to decrease continually, resulting in new economics for the firm and creating the feasibility of products and services not possible in the past. The economics of financial transactions have continually dropped from dollars to cents. New entrants have joined many industries and have focused on taking strategic advantage of IT’s associated economics. Company boundaries have become permeable, organic, and global in scope through IT networks and the Internet.
As the pace of doing business increases, the CEO and senior management team must be aware of how IT can change rules and assumptions about competition. The economics of conducting business will likewise continue to improveproviding opportunities for businesses to expand the customer value proposition by providing more intangible information-based services. For example, the automobile value proposition continues to expand with technology that continuously senses road conditions and applies the appropriate wheel traction and suspension system pressures.
New technologies will continue to give companies the chance to differentiate themselves by service, product feature, and cost structure for some time to come. The first mover takes a risk and gains a temporary advantage (longer if there are follow-on possibilities). The fast follower is up against less risk but also has to recover lost ground. Charles Schwab versus Merrill Lynch and Walgreens versus CVS are examples of this playing out over the past decade. Our advice to the CEO is to look at IT use through several different lenses. One lens should be focused on improving cost savings and efficiencies. Another should be focused on the incremental improvement of organizational structure, products, and services. Still another should be focused on the creation of strategic advantage through extending competitive scope, partnerships (customers and other parties), the changing of the rules of competition, and the provision of new IT-based services to extend the customer value proposition.