On Why IT Doesn’t Matter

September 2, 2009

One of the more common search terms that find this blog is people looking for rebuttals to Nicholas Carr’s seminal HBR essay; IT Doesn’t Matter (for summary and link, click here)
Mr. Carr’s thesis in that article was that since we all have access to the same technology, that by itself, that technology will not supply your business with a competitive advantage. He also states that how you manage your technology can. (and that is the key point!)

Well, sorry – you won’t find a rebuttal here, I agree with Mr. Carr’s thesis. And I intend to demonstrate why IT does not matter, and why the management of that IT spend is critical. (and yes – I am an IT manager)

Are you ready?

So, as an SME executive or manager – lets play a little thought exercise.

Lets imagine that you have sold your business, sat out your non-compete, and are looking to buy into another business.

Now, say you find two businesses that interest you, for arguments sake, lets assume that they both manufacture similar widgets, and both have similar gross revenues.

In fact, lets also assume that they compete with each other.

In your initial research you understand that that they both have invested in state of the art resource planning software systems, customer relationship, and financial systems. (again, for arguments sake – lets even assume they both use the same products from the same vendors – so we start from a complete level playing field)

So – since you are investing your money – which of these businesses should you consider purchasing?

Next; Further Due Diligence

First – lets summarize;

a) Both businesses are the same size by gross revenue, and manufacture competing widgets

b) Both businesses have invested in state of the art IT systems to support their organizations

So where do we go from here?

For the next step in your due diligence, lets assume you have taken a deep dive into both of those businesses books and financials. And now you begin to see some interesting differences.

  • Business # 1 has 70% aged receivables well in excess of 120 days, while business # 2 has only 10%, and that is only over 90 days.
  • Business # 1 has on time and correct product delivery first time only 35% of the time, while business # 2 is hitting close to 90% on the same metric
  • Business # 1 is driving revenue of about a half a million per sales rep, while business # 2 is just over 1 million per rep.
  • Business # 1 is carrying inventory costs almost three time business # 2

Need I go on?

That Is Why IT Doesn’t Matter

These businesses are truly different – sure on the surface, they may look similar, but one is a lean, mean revenue machine, the other has a bloated, inefficient SG&A. (in fact, I would say they are barely hanging on!)

So, What is different?

We know it is not technology – we already determined that they are using the same business technology systems from the very same vendors.

What the difference is can be classified as ‘management’ – good management of people, of culture, of technology – not the presence of technology by itself.

Next: The Arguments!

Argument 1) “But Dell / Cisco / Walmart are industry leaders because of technology” – Bull – You or I could have been perfect with Dell’s ‘just in time’ manufacturing, Cisco’s virtual manufacturing or Walmarts world class business intelligence. The technology is there – they just use it very, very, very well.

Argument 2) “But Amazon, E-Bay, Facebook, Twitter, are driving new…” Again Bull – they have designed applications on top of existing technologies that provide drop dead simplicity and ease of use for a particular type of customer. You could have done the same, I could have done the same.

Any more arguments?

The SMB Takeaway

You could invest a million plus tomorrow on technology tools, platforms and services. But unless you have a strong business value proposition, and a strong goal on what you are going to do with investment – and know how you are going to manage it!

In fact, many studies identify;

In fact, in a regression analysis predicting firm performance, the internal technology driver is one of only four items that positively affect performance.

So if you are not managing that investment, well, maybe buy lottery tickets.

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