Carr on IT

NYTimes has an article by Hal Varian on a new book by Nicholas Carr, “IT Doesn’t Matter.”

His basic point is straightforward. At one time, information technology was so expensive and so difficult to manage that companies could make large amounts of money simply by being able to make systems work. (Think I.B.M.)

Companies that lacked the skills to manage information technology effectively suffered compared with competitors that had mastered those skills. But over the years, as information technology has become cheaper and more manageable, this source of competitive advantage has been reduced and perhaps eliminated. Hiring knowledgeable employees is much easier than it used to be, and the tools to manage this technology are far more powerful than they were a few short years ago. Nowadays anybody can set up a Web server, or an accounting system, or an inventory management system.

The ability to manage technology effectively is no longer the barrier to entry it once was. Hence, it no longer serves as a source of competitive advantage.

But as he would readily agree, it is not the whole story. A potential competitor could go out and buy the same technology that Intel uses and still fail miserably in trying to compete with it.

Even Intel doesn’t know quite why some chip manufacturing processes work better than others. In the late 1990’s it instituted a program called “Copy EXACTLY!,” which required that new plants use equipment and procedures replicated from existing plants, right down to the color of paint on the wall.

When a technology is so complex that the only way to make things work is to copy what you already have in place, you have a competitive advantage. After all, only the incumbents have something to copy, which makes it difficult for new companies to enter the industry.

But most businesses aren’t as complex as chip manufacturing. If someone makes money selling fruit-flavored iced tea, you can be sure that other competitors will soon spring up. And if one of them gains some temporary competitive advantage by building an inventory management system, the others will soon follow.

So Mr. Carr’s main thesis is right. It is not information technology itself that matters, but how you use it.

In my view, companies cannot afford to ignore information technology, or relegate it to the back burner. Commoditizing it does not necessarily mean innovation slows. If anything, it could accelerate as more and more innovators experiment and tinker with those cheap, ubiquitous information technology commodities.

I had written a Tech Talk on Carr’s article sometime ago.

Published by

Rajesh Jain

An Entrepreneur based in Mumbai, India.