IT Doesn’t Matterby Nicholas G. Carr

Presented by Study Team Gold

Lisa Roth, Justin Zeulner, Tom Dickey, Ryan Stormer, and Jay Allen

Overview 1968 – Ted Hoff, Intel Engineer, discovered a way to put circuits for

computer processing on a silicon chip.

Technology has become the backbone to operational excellence, electronically linking data internally and externally.

IT is seen as a critical resource in fact spending capital spending on technology has risen from 5% in 1965 to over 50% in the late 1990s.

Today CEOs often talk about strategic value of IT, and have even created the CIO senior leader position in many organizations.

However, the proliferation of IT has reduced its strategic value. A competitive advantage is only an advantage if it is scarce.

The premise of the article is that IT has become a commodity that is a business essential and management should focus on risk management in lieu of trying to achieve scarce competitive advantages.

Technology as a Competitive Advantage

Proprietary Technology – Defined as a technology that can be owned actually or effectively by one company.

Example: Pharmaceutical Company: Patent on Compound

Infrastructural Technology – Defined as technology that can not be protected and in contrast to proprietary technology is worth more to the economy as a whole when shared.

Example: Railroad or Electricity

IT is considered an infrastructural technology.

Vanishing Advantage - The Phases Of Infrastructural Technology Buildout

Early Phase – advantage takes the form of proprietary technology and enable new more efficient operating methods.

physical limitations to technology, intellectual property rights, high costs, lack of standards, etc.

Market Changes – in addition to improving operations dramatic broad market changes occur due to infrastructural technology.

Example: Railroads in the mid-1800s

The Trap – Executives make a mistake and assume that these advantages are sustainable when they are brief due to the technology becoming broadly adopted.

Commoditization of IT IT has all the characteristics of a infrastructural technology.

it is a transport mechanism – carries digital information.

Standardization – each stage in the evolution of IT has increased the standardization and homogenization.

Highly replicable – the most pure commodity – bytes of data.

it has more value when shared than when used in isolation.

Perfect Delivery Channel – third party purchases similar to electric power by purchasing fee based services “the grid.”

Subject to rapid price deflation – Moore’s Law.

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Are we near the end of the IT buildout phase?

Power is outstripping business needs

Technology is affordable and available

Capacity has caught up with demand

IT vendors are repositioning themselves as commodity suppliers or utilities

Investment bubble has burst

From Offense to Defense

“When a resource becomes essential to competition but inconsequential to strategy, the risks it creates become more important than the advantages it provides”

- Nicholas G. Carr

Greatest IT Risk?

Overspending…

Meanwhile…

Vast majority of business PC’s rely on a few simple applications.

Applications are technologically mature.

Applications require only a fraction of computing power.

Corporate networks are storing invaluable information.

As costs fall, new capabilities rise and business increases reliance

on IT – companies continue to invest resources towards large

investments from big hardware and software suppliers.

Larry Ellison (Oracle Legend) on IT…

“Most companies spend too much on IT and get very little in return”

“Simplify and Systemize Before You Computerize”

“After reflecting on its predicament, company managers commented that they would have been better off had they improved the efficiency of the operations by eliminating inventory in the first place and not simply thrown technology at the problem.”

- Meredith and ShaferFrom Operations Management for

MBA’s (2nd Edition)

Manufacturer of Helicopter Engines – Problem with Controlling Inventory

Solution: Purchased Expensive Automated Equipment

Result: Created More Problems than it Solved

New Rules for IT Management

SPEND LESS

Rigorously evaluate expected returns from IT investments.

Negotiate contracts ensuring long-term usefulness of your investment.

Assess data storage (eliminate waste and non-relevant information).

FOLLOW, DON’T LEAD

The longer you wait to make an IT purchase, the more you’ll get for your money.

Wait for standards and best practices to solidify.

FOCUS ON VULNERABILITIES, NOT OPPORTUNITIES

Focus IT resources on preparing for disruptions and proprietary control.

Bush Boake Allen

SPEND LESS

“Penalties for making this large IT investment needs to be evaluated:

Giving proprietary control to customers.

Placing business at cost-disadvantage.

Internal acceptance and large investment ($500K per client).

FOLLOW, DON’T LEAD

Uncertain that competition will make this investment.

If applicable, allow competition to shoulder costs of experimentation.

Bush Boake Allen

FOCUS ON RISKS, NOT OPPORTUNITIES

Uncertain that competition will make this investment.

Protection of trade secrets.

“Gaps in Maps” goal of supplying consistency.

Consolidation of suppliers.

Optimize “global” internal information (flavorists knowledge).

Summary

IT Has Become A Commodity

Focus IT Investments on Risk more than Strategic Advantages.

To Avoid Overinvesting in IT:

Greatest IT Risk is Overspending.

Spend Less

Focus on Risks, Not Opportunities Follow, Don’t Lead

IT is an Infrastructural Technology (no longer proprietary)

Vanishing Advantage for Corporate Sustainability

Standardization/Highly Replicable Delivery Channel Rapid Price Deflation