IT Doesnt Matter

by 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. it has more value when shared than when used in isolation.
Standardization each stage in the evolution of IT has increased the standardization and homogenization. Highly replicable the most pure commodity bytes of data. Perfect Delivery Channel third party purchases similar to electric power by purchasing fee based services the grid.

Subject to rapid price deflation Moores Law.

Sprint to Commoditization
Information Technology
160
14000

Electric Power Growth

Railway Growth
350

Number of Host Computers on the Internet (in millions)

140

12000

120
US generating capacity, in megawatts
railroad tracks in 1000s of kilometers

300

10000

100

250

8000 200

80

6000

150

60

100

4000
50

40

2000

20
0

0 1841 1846 1851 1856 Year 1861 1866 1871 1876

0 1990

1889

1899

1902

1907 Year

1912

1917

1920

1992

1994

1996 Year

1998

2000

2002

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
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. Meanwhile Vast majority of business PCs rely on a few simple applications. Applications are technologically mature. Applications require only a fraction of computing power. Corporate networks are storing invaluable information.

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

Manufacturer of Helicopter Engines Problem with Controlling Inventory
Solution: Purchased Expensive Automated Equipment Result: Created More Problems than it Solved

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 Shafer
From Operations Management for MBAs (2nd Edition)

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, DONT LEAD

The longer you wait to make an IT purchase, the more youll 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, DONT 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 Protection of trade secrets. Uncertain that competition will make this investment. Gaps in Maps goal of supplying consistency. Consolidation of suppliers. Optimize global internal information (flavorists knowledge).

Summary
IT is an Infrastructural Technology (no longer proprietary) Vanishing Advantage for Corporate Sustainability IT Has Become A Commodity Standardization/Highly Replicable Delivery Channel Rapid Price Deflation Focus IT Investments on Risk more than Strategic Advantages. Greatest IT Risk is Overspending. To Avoid Overinvesting in IT: Spend Less Follow, Dont Lead Focus on Risks, Not Opportunities