The end of corporate computing?

The end of corporate computing?

Summary: Nick Carr has followed up his "IT Doesn’t Matter" article (Harvard Business Review, 2003) and subsequent book, Does IT Matter? (Harvard Business School Press, 2004), this time with another clarion call for extinction of enterprise computing as we know it.

TOPICS: Hardware

nickcarr.jpgNick Carr has followed up his "IT Doesn’t Matter" article (Harvard Business Review, 2003) and subsequent book, Does IT Matter? (Harvard Business School Press, 2004), this time with another clarion call for extinction of enterprise computing as we know it.  As in his previous article, "The End of Corporate Computing"  (MIT Sloan Management Review, Spring 2005, $6.50 PDF) has a loaded title, but unlike "IT Doesn’t Matter," it won’t spawn a huge industry debate

Carr argues that the shift from IT as a fragmented capital asset to a centralized utility service will create far more upheaval than the introduction of the PC and the Internet did in past decades. I think that's a bit of an overstatement, unless he is talking about the impact over time on companies that deliver IT solutions today. Broadband connectivity anytime, anyplace is a good example of a rudimentary utilty model in action, and, as Carr writes, it will be driven by continued innovations in virtualization, grid, Web services and other technologies:

Most of the broadly used components, from computers to operating systems to complex 'enterprise applications' that automate common business processes, will likely be purchased as cheap, generic commodities.

Carr suggests that IT utilities will pose a problem for companies such as Dell, Microsoft, SAP and Oracle, which thrive on selling direct to multitudes of corporate customers. The winners will come from the full-service vendors like IBM, HP and Sun; established hosting providers like VeriCenter in Houston; the Web utilities like Google, Yahoo and Amazon that have expertise in building large-scale infrastructure; and as yet unknown start-ups.

Carr uses the the same historical precedent as Sun’s president/science historian Jonathan Schwartz, citing the evolution of the electrical utilities as evidence of how IT will evolve into a services business. Carr asks:

Won't the private data center seem just as transitory a phenomenon – just as much a stop-gap measure – as the private dynamo? Won’t the rise of IT utilities seem both natural and necessary? And won’t the way corporate computing is practiced today appear fundamentally illogical -- and inherently doomed?


It does seem natural and necessary, but it will take decades to kill the way corporate computing is practiced today. I asked Carr whether the cost to build out IT utilities would be difficult to justify financially, especially given what happened to the ASPs (Application Service Providers) during the dotcom bust. Someone gets stuck with excess capacities, and as yet we don’t have efficient marketplaces, like commodity futures, for selling IT services. Nor is the standardized metering and billing infrastructure in place to enable IT utility marketplaces.

In an e-mail, Carr responded:

It seems to me that the expense of building out largely redundant and subscale infrastructures is exactly why we'll see a shift to more centralized, large-scale ones. But it will certainly take time to reach a mature utility model. As the utilities grow, they'll achieve ever greater economies and will slowly be able to take over ever larger chunks of existing corporate computing operations. If you're a big company like Wal-Mart, say, it's going to take a long time before an outside utility is able to match, much less exceed, the internal economies of your own vast computing operations (big manufacturers maintained their own electricity generators well into the 1930's and 1940's--50 years after utilities first emerged), but if you're a smaller company, the tipping point will come much sooner.

As Carr notes, "the biggest impediment to utility computing will not be technological but attitudinal." The first wave will come from the symbiosis between the early utility hardware providers and the early utility software-as-a-service providers. Carr pointed to Achieve, a provider of software for the healthcare industry, which uses a VeriCenter data center as its infrastructure for its solution.

Sun's Schwartz has said that five years from now most businesses will be buying computing, not computers. Like Carr, he also sees the migration barriers to the utility model as cultural rather than technical. Five years is optimistic, Sun's dream come true. The only convincing argument to drive a cultural or attitudinal shift is money.  When purchasing computing from a utility costs a half or a third of what enterprises spend today to power their applications and data centers, the era of the IT utility will have arrived.  

Topic: Hardware

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  • The End is Near...NOT

    The only important question is: Can a business realize a competitive advantage through innovative IT?

    The problem is, when the CEO asks the CIO: How are you going to improve my bottom line this year? The CIO has two choices:
    1. I'm going to reduce IT costs.
    2. I'm going to increase the competitveness of the following business units by...

    #1 is a lot easier to answer and measure. #2 involves answering tough questions, thinking creatively, and truely KNOWING THE BUSINESS INSIDE AND OUT.

    By giving #1 without giving #2 (obviously both are best), a CIO is essentially refusing to accept responsibility for the longevity of the business. A CIO answering #1 deserves to be outsourced, because such as CIO is bringing nothing to the table that a vendor could not.
    • An Important Distinction Ignored

      Erik brings up an important point that I think Mr. Carr ignores, namely the need for companies to create and maintain competitive advantages in their respective markets. As David Porter has pointed out in numerous articles, the homogenization of business processes and technology solutions to support those processes eventually leads down a destructive path were the basis of competition becomes price and margins become increasingly smaller. Companies that differentiate themselves through the unique and proprietary manner in which they provide value to the market place will succeed far better than those that compete solely on price. By extension, companies will have to develop customized technology solutions to support the unique manner in which they provide value to the market. Those that don't and rely instead on homogenized utility computing solutions will fall prey to the price competition trap, as competitors will be able to quickly emulate and thus eradicate any competitive advantage cobbled together through utility computing service providers.
      To come full circle then, Erik's observation is absolutely on track. CIOs do have two choices in delivering value to their organizations, and by far the most significant is increasing the competitiveness of their organizations through innovation. To achieve this, however, CIOs will need to clearly understand the unique core competencies that their organizations have assembled to deliver value to the market and innovate along these core competencies. What remains of IT assets can be characterized as being critical and non-strategic, and it is these assets that will become likely candidates for utilitization. Email is a perfect example of just such a function.
      • Buy for competitive parity

        Make for competitive edge.

        Fewer words.
  • A counter example

    When the website was king, and companies FLOURISHED that provided this as a service, prices NEVER CAME DOWN. Take Digex for example. Digex was/is a large website hosting operation. It SHOULD have been the low-cost provider aka "utility". There SHOULD have been competition that would work to bring down costs - but that never really happened. Company "F" decided that it would be CHEAPER to bring its website IN-HOUSE. This FLIES in the face of this so-called expert on IT! Why would it be CHEAPER to bring a MAJOR website in-house and host it on a HUNDRED computers? Obviously utility computing hasn't worked in the past - what makes this guy think that it will work in the future?
    Roger Ramjet
  • This guy Carr is dead on!

    He's right, you know. Look how every enterprise has jumped on the computing as commodity bandwagon. Everyone's email is outsourced, everyone's Office suite is outsourced, right? Because as we all know - one size fits ALL.

    Uhhh, never mind.
  • Change yes, end no

    "five years from now most businesses will be buying computing" I don't think so. My old company, a Fortune 100 corporate, has spent six years trying to implement Active Directory and it still isn't finished. Change comes slow to many corporations.

    Yes, the days of a fat windows client on every desk are coming to a close, but IMO, the first utility computing systems will be inside the corporation's walls.

    Very few business users need a standalone Windows desktop and the much ballyhooed thin clients of the early 90's are starting to show up in increasing numbers. And while most of them deliver MS Windows, via terminal services, the days of needing to run an MS operating system are also numbered.

    Right now, we have a lot of Windows users in our company, but over half of them are running thin client machines - and many don't even realize it.

    The bulk of our data workers never touch a spreadsheet or do any word processing. They need a web browser, email, and access to our customer relations software. For the present our CRM interface runs on Windows, but soon it will be run in a web browser.

    When that day comes, we will no longer need an MS OS to run the bulk of our business. We will continue to do so only as long as it is cost effective. And since Windows is by far the most expensive of the OS's we use to support, Server 2003/WXP may be the last Windows versions we purchase.

    Change is coming, but as long as corporate managers are as paranoid about their data etc., I doubt if they will be turning over their companies future to some outside provider in the near future.

    And horror stories like the recent Citibank thefts by India support personnel won't help speed things along.
    • Value propositions

      If Microsoft stood still, adding nothing of value, it would be possible to figure out a patchwork to replace them. A successful addition will not be technical, because the costs of computing are now low, it must be design, features.
      The emphasis on features also precludes replacement by commodity software.

      So, your statement that "Server 2003/WXP may be the last Windows versions we purchase." depends on whether Microsoft is able to sell executives outside IT on the improvements to business being offered.

      One change is definite: IT is not a profit source, it's a cost center. And cost centers provide what they're told to provide.

      Microsoft has to trust in and expand the number of its partners and sales force and breadth of product lines and new features to sell the non-IT executives. Oddly, that's exactly what they're doing.

      Interesting battle to come.
      Anton Philidor
      • Cost Center vs. Profit Center

        The cost center vs. profit center mindset is very dangerous. For one, in encourages high level of optimization within the of cost centers without regard to the impact on other cost centers.

        For example, a company may have one cost center for IT and one cost center for Engineering. IT provides support to Engineering, as well as to other cost centers and directly to profit centers.

        In order to reduce costs, IT decides to standardize all desktop applications, and make it so end users cannot install software. Engineers use lots of strange applications, often rather unique to a particular task, too many to standardize within cost contraints. The result is engineers are less productive, because they either don't have the same software tools that they used to, or they have to jump through countless hoops to get them. IT reduces its costs, because it has less apps to support. The end result is a less competitive business.

        There are countless examples of cost centers shifting costs to other cost centers, most of which don't even involve IT. The same goes for shifting responsility for items like schedule and quality. It's just a never ending game of hot potato.
        • The decision to allow users to install software...

          ... appears to be less about controlling costs and more about IT controlling people in the rest of the company. How much does it cost IT in incremental dollars to support an additional application?

          There do have to be controls on documentation and other items related to licensing and real security concerns. (Unreal security concerns include, in my experience, a company which strictly monitored wallpaper.) But this has more to do with internal policies than dollar paid.

          Now, IT is not on its own expected to find ideas which increase sales or otherwise impact the company's main business. That makes IT support, which gives executives different ideas of its priority. Primarily, IT is expected to be responsive, increasing efficiency and effectiveness in desired ways, rather than innovative.
          Anton Philidor
          • No, it's cost

            The purchase cost of the personalized software is relatively trivial. Complexity is the enemy, especially when combined with user expectations. The user has a right to expect the Help Desk to help solve problems, and the tech visiting the workstation to have knowledge of the package, so more people have to be trained - and kept current - in more things. Moreover, as history continues to teach us, the more complex the client, the greater the failure rate, meaning more visits to the edge, and more IT employment (yay!) - cost again.

            Despite your innate distrust of "the suits," in this case they're not looking beyond the money. Now maybe if we can get that factor under control we can look at controlling the people...
          • Sometimes the only one who can train...

            ... the Help Desk ... tech is the user.

            Sometimes users do know more than IT about what they need and what software will supply it.

            That the software will do the intended job for the specialist is not the end of it, of course. Software conflicts are always interesting. But for those issues the specialized software is more like a black box to be installed securely.

            And management often does feel that productivity has greater significance than inconvenience. (Sometimes, what happens in IT gets treated as inconveniences.) The executives often seem more confident in the ability of IT to respond flexibly and effectively to new situations than do some parts, at least, of the IT staff themselves.

            [Can you hear the echoes of past discussions in those words?]
            Anton Philidor
          • IT's Role

            Now, IT is not on its own expected to find ideas which increase sales or otherwise impact the company's main business.

            Why not? I personally consider it my responsibility to identify ways that technology can impact my company's main business, sell the idea to management, and ensure that it delivers the promised impact.
          • Depends on your Industry

            If you have a business that IT can understand, something like a newspaper or a retail chain, IT can help. If you're into cutting edge plastics glazing or nano-anything, you can't always expect IT to know enough about the business to be of much help. Unless that company is willing to pay IT to learn enough to do so, of course. But IT workers can't remain cutting edge in IT and in nano-technology without a degree in the latter and/or support of the firm.
    • Right on Target

      I think you said it best when you said "Change is coming". It took IT people to get us to the level we are at and it will take IT people to get us to the next level.

      I see more and more industries moving to a background server running web aps. Today's requirements for versatility and remote accessability is becoming very important.

      The demand for a Windows PC on the desktop that is loaded with various ap's is shrinking and the requirement to access data from anywhere is expanding. To say that we will not need IT people to make this change is absurd.

      Anton said it well (in another post)that the day of the point and click IT people are limited. But quality IT people will have work for a long time to come.
  • Can anyone give a GOOD example of this...

    IT-as-service, grid computing, "you aint gonna need your desktop anymore", leave it all to some outside "web service"...Are all the LLBeans, LandsEnd, Amazons, etc moving all their apps/stuff to some monster-ass site that I'm not aware of?
    • Nope

      And the keyboard is still the #1 human input device despite years of predictions to the contrary.
  • Actually

    For web-based retail, particularly for retailers that are primarily brick-and-mortar, Amazon is the "monster-ass site," as you put it.

    Go check out Amazon's apparel section...or any number of other sections excluding books.

    Of course, many of the retailers listed on Amazon also have their own websites. Of course their websites may just be frontends for Amazon, or Amazon may be just a frontend for their infrastructure, or even both (retailer develops semi-custom storefront gui, uses Amazon software and hardware infrastructure to drive most of the "online retail" aspects of it, and Amazon in turn processes transactions against the retailer's systems.

    I think that's what web services are all about, or at least one of the key aspects. They enable businesses to focus on the areas where they can differentiate themselves from their competition.

    These areas tend to be in two places: on the front-end, where they interact with the customer; and in the backend, where a business drives it's supply chain and other business process efficiencies.
  • Pipe dreaming

    Anyone with the experience of the vast bureaucracy that has attached itself to Corporate IT would know that the innate conservatism that comes from not knowing what you're doing will keep management from making any serious restructuring of infrastructure. The current trend is to add to the micromanagement of IT through the expansion of 'security' which is only slightly better than opening all the ports on the firewall and letting god sort it out.

    What Corporate IT needs is streamlining, reduction in non-techincal management, and the spawning of COTS vendors that offer choice instead of the same old mess under shrink-wrap.

    The revolt of the core business units against the burdens of IT management is closer on the horizon than any paradigm shift in obtaining software assets. Cost centers are tired of their budgets being eroded by unfunded IT mandates, and that is going to be the driving force. Follow the money.
  • Why not compare IT to the auto industry?

    I think that comparing IT to utilities is wishful thinking on the part of companies like Sun and IBM who want to go back to the mainframe era. I believe that IT is more like the auto or transportation industry. Yes, we have mass transit but people still want their individual autos. It is the same with PCs. I compare Bill Gates to Henry Ford in that he created an industry with jobs to go along with it, whatever his motives originally.
    • Yes!

      You hit the nail on the head. Just think about thin clienting mobile systems like laptops. It's not going to happen. And since laptops are out selling desktops, you're stuck with a majority of non-thin clients.

      Desktops and server might trend towards "utility computing" but it'll never be a major piece of the pie.