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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)

iProceed.com's chart clearly shows that venture capital investment in IT continues to decline.

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.

iProceed.com's analysis demonstrates that IT capital spending continues to be dismal.

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

IT companies continue to under-perform at the stock market.

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

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