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Does IT matter?
The death of information technology and
its implications on business
When I read the
article "IT doesn't matter" by Nicholas G. Carr in 2003
(now available as a book Does IT Matter- Information Technology and the Corrosion of Competitive Advantage), I was
helping one of the largest corporations in the world identify
acquisition candidates. While the company is a major player
in mostly traditional sectors, they wanted to include a company
that will enable them to leverage information technology (IT) to
deliver more high-value offerings. The article generated a
lot of controversy among IT professionals, and also in my
discussions with the client. I was convinced at the time
that if our client could leverage IT, it will be able to provide a
superior offering, and thus, establish a stronger competitive
position. I did not agree with Carr completely at that time,
but
since then a lot has happened. So when my clients now ask me
how much investments should they make in IT, I tell them not to
bother. I believe that a company has to employ IT to the
extent it needs to make its operations efficient and deliver a
better customer experience, but IT can no longer provide a competitive
advantage.
I was
rather amused and surprised that most of the protestations to Carr's
arguments have come from the IT types. IT periodicals are
full of arguments why he is wrong. Robert M. Metcalfe, a
venture capitalist at Polaris Venture Partners, has been arguing
with Carr since the article was published and appears to be
somewhat frustrated that "Carr's article just won't stay
debunked". Similarly, many other IT experts who think
that Carr is wrong have a hard time accepting the reality that the
best times for IT are probably over. I see this in a very different
light because I am not an IT person. Actually, I have spent
a great deal of my professional life with something not so
exciting anymore: plastics. Remember
the days when plastics were supposed to change the world?
Well, they did, and still do. In fact, while many of you may
not realize, but some of the most cutting-edge research is still
being done in the world of plastics (particularly with the
emergence of nanotechnology) but the bottom line is: plastics don't
matter either.
So what happens when
something matters? In
my analysis, I have always relied on numbers to answer simple
questions like this. So to find the answer to the question
if IT maters, I decided to
look at some of the quantitative indicators to see if we in the United States
see IT as something that matters. My analysis clearly shows
that except for those who are married to IT for whatever reason
(they make a living with IT, have invested in IT companies, just
think IT is cool, etc.), no one else thinks that IT matters. The
venture capitalists are no longer investing in IT related
ventures I
agree that there was over-investment during the early and
mid-nineties and we may not be investing at that pace again, but it appears that except for a few breakthrough
technologies, venture capitalists are no longer excited by
IT. Their focus is clearly shifting to other areas like life
sciences, nano-technology, etc. As the chart below shows, it
is highly unlikely that we will reach the levels of even 2000
anytime soon. (Related article: Government
IT spending to grow in FY 2006)
IT
capital spending continues to be dismal In
this time of tremendous change, IT capital spending is roughly at
the same level as it was five years ago. Most forecasts call
for approximately 1.0-1.5X GDP growth rates for IT spending, something
that is basically enough to upgrade to new technology. This
level of IT spending shows that IT might not matter to
corporations and I support the decisions that CIO's and CFO's are
taking.
IT
is a utility, finally! When
Carr said so in his article, it was an explosive argument.
How could anyone compare electricity to IT? Metcalfe argued,
"Carr wrongly equates today's information technologies with
electricity, and then he wrongly characterizes electricity as
static." I am not so sure that I agree with
Metcalfe. In fact, utility computing (also known by other
new terms like pay-as-you-go or PAYG and on-demand computing) is one
of the fastest growing trends today. Saugatuck Technology
and CFO Research Services have found that nearly 20% of the
companies in their survey have already implemented some of form of
PAYG programs, or in other words, they believe that IT service is
a utility. The study forecasts that by 2006, utility
computing will become mainstream. Companies like Oracle and
IBM are committing billions of dollars to provide on-demand IT to
corporations. The message: IT is a utility. Finally, IT doesn't
matter on Wall Street 
I
strongly believe that stock market
performance is a good indicator of what the future might look
like. I plotted several indices over last five years and it
is obvious from the chart on the left that investors don't give a
hoot about IT. In fact, most indices (that have a strong IT
component) fail to even beat S&P500.
Conclusions I
am fascinated by IT and can not imagine
how life would be without it (neither can I imagine life without
electricity!). There are some excellent companies that
continue to come out with cool technologies all the time.
But whether IT is any better than electricity is no longer a point
to argue. So as a business leader, hold your purse strings
tight insofar as IT is concerned. Spend your money
wisely. Just because electricity is easy to understand and
IT seems to be complex (your IT vendor will always make it sound
complex and mission-critical), it does not mean that you should pay attention to
them. Now that utility computing is here, embrace it fast,
because then all you would need
to do is to pay your monthly bill along with the utility
bills. There is absolutely no need to be try to be better
than your peers. As long as you are as good as them (which
you can be if you opt for utility computing), you should focus on
deriving your competitive advantage from something else.
Recommended
link: Innovation
is key to creating competitive advantage Comments,
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