commentary IT continues to enable operational efficiency, but does it enable organisations to distinguish themselves from the competition?
According to Nicholas Carr, "IT doesn't matter". In his article published a year ago in the Harvard Business Review, he argues that IT follows a pattern similar to that of earlier technologies like railroads and electric power. Initially these "infrastructural technologies" open opportunities for forward-looking companies to gain strong competitive advantages. As their availability increases and the cost decreases, they become commodity inputs. They become invisible: they no longer matter.
Right or wrong, the article generated a spirited response from journalists, IT vendors, and technology users, both supporting and arguing this position. A presentation at the recent IDC "Directions 2004" conference put forward a rebuttal of this argument, and suggested that we are at a point where two industry models are emerging: one where IT is a key element of operational efficiency and the other where IT forms an integral part of business strategy.
It's a timely point at which to look at both sides of the argument. The world is emerging from the only period of negative growth in IT spending since information technology was recognised as an industry, back in the 1960s. While NASDAQ is still at 60 percent below historic highs, IT is a US$1 trillion industry, and grew to this size over a relatively short period of about 40 years. No other industry has ever grown as fast as IT.
So on one side of the fence, the proponents argue not so much that IT is of no value, but that's it no longer a competitive differentiator for organisations. IT matters in the same way as electricity, or other commoditised business inputs. It's the plumbing that every business needs to operate, available in different flavours from multiple vendors... but effectively delivering the same results. The bursting of the IT bubble/dot-com crash of 2000 at its most basic level was a realisation that IT alone did not a competitive advantage make. A small number of dot-com companies prospered as a result of their superior vision and execution. The vast majority disappeared, their existence based purely on a new wave of technology failing to deliver a competitive advantage (or profit).
This view of IT is also reflected in a recent IDC survey ("Forecast for Management" 1996-2004) -- over 70 percent of CIOs think executives view IT as contributing to operational efficiency (trending upwards), while less than 20 percent think that IT is a source of competitive advantage (down from about 30 percent in 1994).
Conversely, the opposing view is that IT is a key part of business strategy. A different IDC survey shows that 38.5 percent of executives claim IT as being "critically important" to business success and 41 percent say it's an "important factor". An increasing number of CIOs are reporting to the CEO, who recognise the ability of IT to improve customer services or increase productivity. The significant IT investments made by banks -- while sometimes resulting in disastrous failures -- also indicates a desire to use technology to deliver a competitive advantage.
IT has one key difference to the other industries Carr compares it to -- the rate of change (the last train I caught looked like it could have been built about the same time as IBM's first mainframe computer). In contrast to commoditisation of many sectors of the IT industry, other areas offering "first mover advantage" emerge with regularity -- new forms of wireless communication that will change how we interact and do business, accelerated take-up of broadband, embedded RFID chips, IP telephony.
As a provider of network service and infrastructure management, we'll accept both arguments. As organisations increasingly move to selective outsourcing agreements for network support, we help them reduce costs and get more from their existing (commoditised) infrastructure. Conversely, we also work with vendors to implement new technologies, such as IP telephony and associated voice applications or wireless deployments, that deliver a competitive advantage. There's no doubt that IT has become increasingly commoditised, but every year brings a new set of technologies that promise differentiation to the early adopters -- which is more than I've seen from my power company or CityRail!
Oliver Descoeudres is marketing manager at network IP/Internet network infrastructure builder and solutions provider NetStar Australia. He can be contacted at firstname.lastname@example.org or on 02 9805 9759.
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