INFORMATION TECHNOLOGY Hands Off Hands On – The hard word on hardware and software

Even Nicholas Carr admits that the answer to his question “does IT matter?” is usually “yes, of course”. Only fool would fail to acknowledge the ubiquitous role of IT in business processes today. It’s an essential resource to business, prerequisite to survival every bit as essential as electricity, people or paper. So when Carr – former Harvard Business Review executive editor – challenged the purpose and power of IT in his provocative HBR article IT Doesn’t Matter back in 2003 and followed up last year with his book Does IT Matter? he expected, and received, healthy measure of robust debate from the IT community.
The debate has lost none of its punch. Carr’s recent telecast to NZIM members in Christchurch, Wellington and Auckland, coincided with the official launch of Microsoft’s Auckland business productivity centre. Over here for the launch from the US, Robert McDowell, Microsoft vice president and co-author of In Search of Business Value, was more than keen to provide an opposing view.
According to Carr, one of the most critical management decisions that executives face is to work out which resources, activities and processes are strategic – and thus warrant frequent, aggressive innovation – and which are simply essential costs of doing business that will not distinguish company in the marketplace.
Carr readily acknowledges that most companies simply could not survive without IT. And recent economic results as well as academic studies show that under the right circumstances – and he says there’s still some mystery as to what those circumstances are – IT investment can certainly boost productivity, in some cases quite dramatically.
“But none of that tells us whether or not IT is in itself strategic resource in business,” he says, “or whether investments and innovation in IT can set one company apart from its competitors in way that provides durable or at least meaningful competitive advantage and can bring superior profitability over time. That’s the essential distinction between what is an essential resource and what is strategic one.”
Carr argues that in the future, really successful companies in IT management will be distinguished by their ability to avoid vulnerabilities, costs and risks more successfully than their competitors. “In other words, success in IT management in the future will come down not to IT innovation but to simple, basic, good management.”
The argument gains pertinence as IT costs relative to other expenditure continue to rise. In the US back in the 1960s the average company put five percent of its total capital spending into IT. “Today the best estimates are that that percentage is up to 50 or 60 percent,” says Carr. “So the average company invests as much in IT as in everything else combined.”
At practical level, Carr sees number of very basic shifts in the way companies are approaching their investment in, and management of, IT. While some are in earlier stages than others, all of them represent fundamental changes in approach. First, and perhaps most important, is an emerging bias by companies to spend less on IT once they’ve shelled out for their initial basic requirements. That represents dramatic change from what companies have come to expect over the past 10 or even 20 years, when it was basically assumed that IT spend would go up, particularly as percentage of overall capital investment.
“Today, more and more companies – from the larger companies such as General Motors and GE to very innovative technology companies like Amazon.com, Google and eBay – are looking for ways to reduce the cost of IT,” notes Carr. “They’re able to do this because as the market becomes more commoditised, power is shifting from vendors to the users. Smart companies today are capitalising on that to try and reduce the cost of IT while still getting all the capabilities they need.”
Second, and closely linked to that, Carr predicts retreat from the cutting edge in more and more IT markets. Some of that is related to what Carr calls the ‘overshooting phenomenon’ created by large inbuilt incentives for vendors to compete at the furthest extremes of innovation, batting aside previous limitations at tremendous speed. “The highest margin customers are where the most intense competition takes place but as this happens it moves the speed of processors and the capabilities of storage gear for example and it begins to overshoot the needs of customers.
“Rather than feeling the need to have the latest and greatest hardware and to always upgrade their systems, customers will start to peel back from the cutting edge and look for cheaper, more generic, more commoditised solutions.”
In Carr’s mind there’s also growing recognition by companies that if they can’t gain competitive advantage from being an IT innovator, it makes sense to assume more conservative and sceptical posture. Why not sit back and wait for costs to come down and standards to rise?
That doesn’t mean it never makes sense to be an IT innovator, of course, but Carr urges companies to first look at the factors that argue against them playing that role.
Over in the Microsoft offices in downtown Auckland, Robert McDowell quips that when he interviewed CEOs for his book, “everyone had read Nick’s article, everyone agreed with about 70 percent of it and everyone disagreed with his conclusions”. There is, he admits, much common ground. “Was there overhype in the ’90s? You bet. Was there overselling? Were there examples of projects that were wasteful? Actually, true. Fair criticism. But where we disagree is that he paints that brush across IT generally. He says IT has reached the point where it is commodity. He compares it to railroad.
“IT is much broader discussion than that. To imply that there’s no innovation ahead that’s going to offer people the opportunity to differentiate themselves, reminded one of the CEOs I interviewed of comment by the then head of the patent office in the US in the late 1800s. He looked at submissions for patents for new inventions and said, ‘Wow, people are doing pretty good job. It looks like everything that’s going to be invented has been.’
“That’s not only little nutty but it suggests innovation in our industry has run out of gas and it’s over.”
In McDowell’s mind, managers now have the greatest possible opportunity ever to use IT to make competitive difference in their organisation – public or private sector. But it is going to take much more intimate relationship between business and the IT community.
“Here’s where I really take issue. In his book, Carr takes the argument step further and he says to CEOs – this is where we do disagree adamantly – that IT is not strategic issue. Organisations can’t really gain sustainable competitive advantage from it. It’s bloated cost.
“I would say the opposite. If you are going to get the benefit that I believe is potentially there from IT going forward, it is going to require more CEO engagement, not less. In surveying the people for my book I asked, for example, how many do studies before an IT purchase to determine whether they will get value out of it and how much. Everybody said they did. Then I asked how many of them had gone back and audited it and held someone accountable for actually delivering on the benefit that was approved. Nobody.
“I believe it is illogical to have the CIO make the business case for IT, since I’ve never seen any CIO in any organisation have any control at all over any of the assets that matter in terms of reaping the benefit. The benefit associated with technology investments is related to whether it serves as catalyst or an enabler of change. That implies change in the way you do business processes and unless the owner of business processes is held accountable to standing up to the business case, it is not going to happen.”
McDowell challenges the logic of letting company techies make the business case for IT. “IT should be responsible for letting the business community