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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If you have been reading this blog for a while, you know that I believe that computing will become more utility oriented. That there will be less reliance on what we currently look at as internal technology infrastructure.

My belief in this came about in the mid 80’s when I read that every automobile manufactured in North America had more computing power built into it than the NASA moon shots.

If you have read Nicholas Carr’s IT Doesn’t Matter you will notice one key difference, I never saw it as the world of software that we currently have, the way I saw it back then was along the lines of intelligent hardware devices. Similar to the “smart” thermostats in most new homes.

This type of Utility IT has often been compared to electricity – just plug it in, and pay by the sip. I have used that analogy myself.

But there is an excellent warning by Andrew McAfee, formerly at Harvard, now MIT. He argues that we should not try to simplify this concept down to the simplicity of an analogy like electricity.

His argument is that even in a more utility environment, IT is not as simple as 110 or 220 volts (North America) coming out of a socket. There is no decision to made there, no decisions or management is required around an electrical socket.

So using terms like electricity may overly simplify, or “dumb down” our thinking of IT.

And that is dangerous.

When was the last time you talked about electricity at a management meeting?

Exactly!

And even if get your IT through a wall jack (eg Salesforce.com)  There are still management decisions that must be made. We use technology to create or consume information. To do that there are work flows, business processes and certain business metrics and capabilities.

All of these will still demand management attention, demand decisions, and need to be top of mind for all businesses.

So, you can consider me a convert!

Will more and more of our IT resources continue to come from outside our walls? Yes,

But will you be able to plug in a cable and by magic have exactly the information, processes and work flows just appear? No!

It will still need management attention – lots of it.

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Andrew McAfee,  Associate Professor, Harvard Business School has an excellent January 08, 2009 article titled; It’s Like This… regarding IT as an enabler of competitive differentiation.

In an interview by Charlie Rose with himself and SAP co-CEO Leo Apotheker, Mr. Rose asked the question of how you can generate competitive advantage from software (such as SAP) if everybody can buy it.

Mr. McAfee answered with the analogy that;

So even if you and I buy the same basic factory from [Leo], we`re going to do very different things with it.

I think it is a fine analogy

This goes right back to Nicholas Carr’s IT Doesn’t Matter. That a commodity, (like a factory) in and of itself cannot generate competitive advantage.

It is how you manage it that can generate advantage. The people and processes, generate competitive advantage, not that factory.

In keeping with MR. McAfees analogy, I would even extend it further;

Mr. McAfee stated that even if you buy the same factory, you will do different things with it, I would argue that even if you were doing the same thing with that factory. (ie direct competitors making the same widget) The management and processes are the variables, not the factory.

For Example;

His sales reps outsell yours 5 to 1

His aged inventory is 1/3 of yours

His defect rate is almost zero while yours is 12%

His first time accurate and on time delivery is 97%, yours is 40

The factory is the commodity in this analogy – but how you manage that commodity is where competitive advantage lies

And ditto for technology.

The SMB Take away

You can invest whatever you like in a technology solution.

You can buy the exact same technology solution that your closest competitor uses.

But until you look at your internal processes, look at where the inefficiencies lie, it won’t do you any good.

Because like lipstick on a pig…..

Well, you know how that goes …..

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Vinnie Mirchandani at the New Florence. New Renaissance. blog pointed me to this Economist special report titled; ‘A special report on corporate IT’ .

It is a great non – technical look at the trends shaping the IT world, from ‘Cloud’ Computing, through the mobile future.

And like Nicholas Carr’s IT Doesnt’ Matter, it describes how we have migrated from the individual craftsman (Administrators) to the standardized, commoditized building blocks that enable this next wave.

Courtesy of the Ottawa Network and Gowling Lafleur Henderson LLP I had the opportunity to attend a casual panel on the concept of virtualization.

The technology aspects of the discussion ranged from abstracting hardware right up through the application layer and the current buzzword of cloud computing.

But for the my audience in the SMB / SME space.  Outside of the panelists, there were two questions that I found say it all,

He Says; IT Doesn’t Matter

Just Plug It In

Just Plug It In

One gentleman, (A small business owner) whose name I was not able to get, asked when he would just plug in a display type of device into a wall and have his computing environment.

(If I was able to, I would have given him copies of Nicholas Carr‘s IT Doesn’t Matter and the Big Switch )

She Says; She Can’t Give it Away

The second interesting point was from Fay Khazai, President of a SMB that supplies a software suite for some SMB verticals.

These business are reluctant to use her hosted offering – for one reason. They cannot rely on their internet connections.

These SMB’s rely on lower end offerings connectivity from their providers such as DSL and cable for their internet connections. No connection – no business.

There you have the SMB dichotomy. Can I give you an answer for this?

No, sorry I cannot.

Panelists:

Mike Kemp: CTO Liquid Computing

Jean-Marc Seguin: Chief Architect, Embotics

Miro Adamy: Founder, Thinknostic

Socket Image Credit

Internet Image Credit

ITyrannousauras Rex

September 4, 2008

As I quoted here, Nicholas Carr stated that he would be surprised if ;

“..if …20 years from now there are still IT departments in corporations”

And Vaughan Merlyn pointed me to this “Tech Pros: The Next Dinosaurs?” article by Ben Worthen

IT Evolution is Coming Here

In house IT staff as plugging a PC or server into a wall jack will be gone.

That is not to say that this low level IT work will disappear completely, but it will be a service provider. Somewhere in the phone book between Electrician and Plumber.

IT staff in our businesses will have to be Business IT – part negotiator, relationship manager, and with deep understanding of the interdependencies among data, processes, and the individuals using them.

Susan Scrupski writes that nGenera is already there. 100% Software as a Service. (Saas)

Wanting to or not, we have caught the wave – Now we need to either ride it, or, well, like old T-Rex, be for the archaeologists to look for.

Are you evolving?

Photo Credit: only_point_five

Tyrannosaurus Rex Skeleton

Tyrannosaurus Rex Skeleton

As I just wrote last week, my computer threw a fit and died. Over the weekend I was doing the rebuild routine and going through my archives for the tools and data that I wanted to restore to the machine.

On this blog back in March, in response to a particular published article, I wrote a quick post on Nicholas Carr’s IT Doesn’t Matter.

In going through my old data backups, I came across my original argument in support of Mr. Carr’s thesis. This was done after the Harvard Business Review thesis, but prior to the book being published.

I found that my spelling and grammar was just as poor then – so a few “corrections” were made.

UPDATE, there is now a thought exercise on this topic titled; On Why IT Doesn’t Matter (geared towards SME’s)
——————-

Does IT Matter?

By S. Elliot Ross

November 2003

A lot of ink has been spilled over an article by Nicholas Carr that was published in the Harvard Business Review titled IT Doesn’t Matter. The spilled ink was in rebuttals of the article, and in good old fashioned “Internet Flaming” of the author.

Mr. Carr’s thesis is based on the premise that IT is no longer a competitive differentiation for corporate competitive advantage. The argument is that IT is now a commodity, and that in and of itself a commodity cannot provide the rapid competitive advantages that that early adopters gained through the use of IT. In other words, the cost of IT is simply table stakes to get into the corporate poker game. Since the table stakes are required to get into the game, by themselves the table stakes cannot give or remove an advantage to any player. One definition in the Merriam-Webster dictionary would seem to accommodate this claim:

“com·mod·i·ty – noun: a mass-produced unspecialized product.”

I am sure that a good proportion of the arguments against this article are because of the title. While I also disagree with the title, (although I believe any article that requires you to really question and think about your assumptions to be an excellent article) I find very little to argue about in Mr. Carr’s thesis, however I believe it should be extended a little. I think a point that eludes many critics of the article is that Mr. Carr states that as IT is a commodity, so it therefore must be managed as a commodity. I would also state that there does not necessarily need to a negative connotation to the word “commodity”.

Extending our analogy, when Henry Ford developed the assembly line, he had tremendous competitive advantage. The assembly line allowed Ford Motor Company to mass-produce automobiles with cost benefits that had no direct comparison with other automobile manufacturers of the time. Within a few years, other automobile manufacturers then emulated this assembly line, thereby negating any competitive advantage for Ford. If we fast forward to today, we can definitely say that if you wished to start a mass production and mass market automobile manufacturing organization today, an assembly line is table stakes to the poker game – or as defined by Mr. Carr – a commodity.

If we accept that an assembly line may be a commodity, or to continue the analogy, to be table stakes to the automobile manufacturing poker game, not all manufacturers turn their table stakes into winning hands. Whereas one automobile manufacturing business will manufacture a car that makes a profit, has low defect rates, and low warranty costs, another business will lose money on each vehicle sold, lose money on warranty claims and lose more money on recalls due to defects. At least a portion of all these costs (or benefits) will appear, (or disappear) on the assembly line. Therefore, I would argue; if an assembly line is a table stakes commodity, the assembly line manufacturing process should have no differentiation on the quality or success of the automobile’s production in the market place. Product differentiation in the market place would have to be through other methods, such as marketing, design or other non assembly related methods.

Empirical evidence would support that a commodity assembly line does translate into competitive advantage, as Consumer Reports, and JD Power surveys show. However, the companies that successfully manage their table stakes, or as Mr. Carr states;  manage their IT as a commodity, will still be able to reap benefits and competitive advantage. If we return to the trusty Merriam-Webster dictionary, another definition of commodity can be:

“something useful or valued.”

If we use this definition and manage IT as something useful and valued we will use our table stakes or commodity IT for a competitive advantage by managing it to obtain other corollary benefits from the use of IT.

If you treat your IT as something of value, and play those table stakes to win, you are going to find and produce more value from your two aces of IT than if you view it as an undifferentiated product and just try to avoid losing with a straight flush.

UPDATE: For an SME thought exercise on this subject, there is a new post here.

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