Information Technology

Does it Matters or Doesn’t Matter?

A Dialogue to Article by Nicolas Carr “IT Doesn’t Matter”
Harvard Business Review, Vol. 81, No. 5, May 2003

If there is one article worth reading at the moment it must be Nicholas Carr's "IT doesn't matter"
which was published by the Harvard Business Review in May 2003. The article became a centre
of a firestorm and at a time when the IT industry seems to be in a bottomless freefall, the
suggestion that companies should spend even less on IT investments is unwelcome to many ears.
"IT Doesn't Matter" certainly isn't the first paper to point out that the IT industry has been
maturing. Previous analysts' reports have compared IT to such rustbelt industries as automotive
manufacture, power generation and railroads.

Carr’s Arguments

According to Carr, ubiquitous expansion had made the value of IT trivial in the business world.
Companies had come to view IT as a resource ever more critical to their success. During the last
few decades IT had began to spread in many organizations and they are heavily investing in the
development of IT. Core functions of IT are becoming available and affordable by anyone. The
pervasiveness or ubiquitous of IT had actually made it to be less in strategic value. As Carr says
basis for sustained competitive advantage is not ubiquity but scarcity.

Further Carr argues that IT had become an infrastructural technology in modern world and it
doesn’t give a distinction for the company concerned. Proprietary technologies may generate a
competitive advantage to their owners provided adequate protection of their investors' rights.
Conversely, Carr says that Infrastructural technologies are more productive when they are
shared, although owning them may prove more cost-effective at the beginning of their existence.
According to Carr’s view, IT had become just an infrastructural technology with its rapid
expansion. Also one of the major pitfalls that managers fall into is the belief that competitive
advantages brought by infrastructural innovations will last forever. In the digital economy main
competitors of a business are also doing their businesses in the same environment. They are also
supported with the similar infrastructure. Finding a differentiation strategy will be ever more

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competitive for a company to be different from others. (Turban, McLean and Wetherbe,
2004:117)

Carr points out that IT has in fact become the latest item in a list of commodities that helped
shape business and industries as we know them and this commoditization of IT confers upon its
business users no competitive advantage. IT as a transport vehicle for information had greatly
become standardized. This had made IT to be greatly homogenous in its functionality and just
like a commodity it had become highly replicable not just in terms of software but also in terms
of business processes. Also IT prices are subject to sharp deflation. With more and more network
infrastructure becoming available and being connected to Internet, each day will bring down the
prices of IT. From a strategic standpoint, commodity inputs become invisible; they no longer
mattered. Being a commodity input, Carr points out that IT should be managed accordingly
because opportunities for strategic differentiation with IT had become scarce. Generic off-the-
shelf software like MS Office can be bought anywhere in the world and it is used by many
companies for the same function. These commoditizations of the applications no longer provide
any competitive advantage by using it as it is.

Carr argues that companies should manage IT defensively closely monitoring costs and
managing risks. In the rapid pace of technology’s advance, delaying IT investments can be a
powerful way to deduct costs and reduce the risk of company owning a soon-to-be obsolete
technology. In his view smartest users of IT, stay back without investing in IT till others build an
error-free products. Also greater expenditure in IT will not provide a greater return but
incremental investments in IT will derive better results.

Does it or Doesn’t it matter?

In the articles “IT doesn’t Matter” using the heading as that is a fallacy. Carr is not claiming
that IT doesn’t matter rather he trying to point out that IT is diminishing as a source of strategic
differentiation. In there, he is also describing how, sometimes, IT can create competitive
advantage. In fact, he details the dramatic competitive advantages achieved by United Airlines,
Federal Express, eBay and Wal-Mart to illustrate that companies can truly be differentiate. The
focus here is if Carr admits that these companies had truly taken the IT advantage, then what

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happened to others? It proves that IT does mattes but mostly how efficiently IT is used in a
company matters more.

Carr argues that ubiquitous expansion had made the strategic value of IT to become eroded.
When we look at the way IT adds value to a business, it is mainly improve the management of
information intelligence and collaboration among individuals, groups and organizations. IT
spending can be designed to meet immediate needs and allow for an array of future benefits only
if IT and business goals are clearly defined. Some management teams offer only a vague vision
—for example, “providing information to anyone, anytime, anywhere” (Ross and Weill, 2002). It
is not about spending millions of dollars to improve the IT systems organizational wide but
prioritizing needs and strategically implementing the decisions. Strassmann (2003) points out
that marginal costs of informational goods does not rise with increased scale and therefore the
firms can steadily reduce marginal costs by deploying IT which will make investments
enormously profitable which will lead to strategic value.

IT does matters because of the intelligent and innovative application of information, solves
business problems and creates customer value at high speed, low cost and right scale (Broadbent,
McDonald, Hunter, 2003). The strategic thinking in the organization will bring in the value for
the company. For example having the technology to support value chain is not enough. All the
other participants in the value chain should use the same technology for them to share and add
value. Pervasive expansion of IT had paved the way for that. A company can link their partners,
suppliers, and clients thorough this value chain using the pervasive IT, to bring in the maximum
benefit. Information systems have enormous strategic value so when they are not working even
for a short time, an organization in this digital era cannot function and the managing of all the
infrastructure and portfolio of application must be done with great skill to enhance its value.
(Turban, McLean and Wetherbe, 2004)

Figure 1 illustrates the increase in global spending of ICT by regions. Countries and
inhabitants around the world will continue to invest and spend on IT because there are much
potential it brings out to the people living on Earth. Every Region including American, Asian-
Pacific, and EMEA (Europe, Middle East, Africa) are increasing their investments in IT to obtain
the maximum benefits out of it.

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Figure 1: Global ICT Spending by Region

14000.00

12000.00

10000.00

8000.00

6000.00

4000.00

2000.00

0.00
2001 2002 2003 2004 2005 2006 2007 2008

Source: www.wista.org, 2006

Carr says that IT had become an infrastructural technology in modern world and it
doesn’t give a distinction for the company concerned. IT fundamentally offers three
capabilities to businesses: infrastructure, integration and interactivity. Carr had overlooked the
integration and the interactivity areas in IT. In a way infrastructure is getting commoditized
which is fair as one cannot think beyond throughput with regards to IT infrastructure. But to
limit IT to mere connectivity, data transport or data processing is limiting the true potential of IT.

There was a time that simple possession of infrastructure technology added value and
advantages to a company. Now it’s not about having a computer but rather how we use it in our
business. That provides the distinction. The infrastructural need is a must for the development of
industries. For example utility computing is one of the new computing environments which will
gain a major share in IT industry in future. The vision behind this is to have computing resources
flow like electricity on demand from virtual utilities around the globe (Turban, McLean and
Wetherbe, 2004:74). Without this infrastructural development there won’t be any development
as mentioned and further people should know how to gain the maximum advantage from that.

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What the management should really think about is what IT enables. IT by itself does nothing.
What matters is what IT enables the business to do differently or better. (MacDonald, 2003)

In most companies, senior management has not defined IT’s role so clearly, in effect
abdicating that responsibility to IT people (Ross and Weill, 2002). According to them companies
should develop a strategic platform with a long-term vision to harvest the benefits of IT. Also
availability of IT had increased its value when it comes to usage and sharing. It must be easily
acquired and made available to everyone so that the global community can increase the standard
of living through easier communication and lower cost business transactions (Strassmann 2003).
This availability will create and offer new business opportunities. Competitive advantage and
differentiation are not a result of personal computers. Rather it is a result of effective
management by skilled and highly motivated people (Strassmann 2003).

According to Carr, the commoditization of IT confers upon its business users no

competitive advantage. Standardization and commoditization of a technology don't always
mean that innovation stops. Once products become commodities, they can serve as components
for further innovation (Varian, 2004). For example Internet is a technology available for all and a
keeping a company website is a must for any company who want to complete in the digital
economy. But if it’s a learning portal for clients or even an interactive and integrative site it will
bring a powerful advantage for a company. For example companies can build their businesses
into electronic retailing or electronic malls to widen the shopping experience for people using the
same technology and then they can move into mass customization which will be the ultimate end
in Marketing.

How generic the application doesn’t matter anymore for a company. If we take SAP/ERP it
will derive completely different results and outcomes for two companies who operate in the same
industry. For example ERP’s major objective is to integrate all the departments and functions
across a company into a single computer system in order to serve all the enterprise needs. ERP
promises benefits ranging from increased efficiency to improved quality, productivity and
profitability (Turban, McLean and Wetherbe, 2004:239). But again this is about how they will
use it within the company. It is true that information technology has become commoditized to the
point where it is cheap and widely available. But that doesn't mean IT does not have the potential

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to give a competitive advantage. Most people know about Google, but many don't know how to
make full use of it. When it comes to commoditization, the diffusion of innovation should also be
considered. In developing countries IT has not being circulated like developed countries. Even
the basic applications are to be shared and learnt in most of these countries. IT is still considered
as a luxury product in countries like Sri Lanka.

Ross et al. (1996) (in Turban, McLean and Wetherbe, 2004:117) suggests the three IT assets –
people, technology and shared risk and responsibility – as a way to develop sustainable
competitiveness. It points out that there is more to IT when it comes to competitive advantage. It
should involve people and shared responsibilities to take IT from commodity to build it in to an
advantage to fight with other companies. Combining IT with structural changes in business likely
to provide sustainable strategic advantage for a company (Turban, McLean and Wetherbe,
2004:117). Sustainable advantage comes from consistently delivering greater value to customers.
This comes form the “information” in information technology. The difference will comes from
better understanding customers, applying these to products, services, processes and integrating
those to deliver on an improved value proposition.

Carr also points out that IT had become more of a defensive technology for the companies.
The world is changing very fast. Global division of labor is bringing in more comparative
advantages to economies and the development of these will enclose billions of new consumers to
global market. These markets to be effectively function, there has to be investments in IT and
organizations have to be ready to face this challenge and use IT as an offensive technology.
Developing a competency in adapting to change will differentiate one business from another.
(MacDonald, 2003). As many others have already stated, strategic imperatives from IT for
competitive advantage is a function of how IT is used rather that what of IT is used. IT is a
defensive technique no doubt about that, but it should be a technique which is reactive to
opportunities arising around the globe. It’s not about decreasing the innovations or waiting till
others build these innovations; it’s about being a unique company with a truly innovative culture.
In a competitive world like today it’s the only way to survive and sustain in the market.

Innovative applications provide distinct strategic advantage to organizations in the face of

competition and information systems itself had been identified as a competitive weapon for a
company. Michael Dell founder of Dell computers had expressed that “Internet is like a weapon
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sitting on the table, ready to be picked up by either you or your competitors” which shows that
how much potential s there by using IT correctly. However to use IT as an offensive technology
organization should build better relationships with clients as well as it should focus on
developing competitive intelligence. Competitive Intelligence can be defined as activities
conducted by companies, frequently with the aid of IT and the Internet, to spy on their
competitors and to collect market information. (Turban, McLean and Wetherbe, 2004:92-97). If
a company can get the information before its competitors, it can act fast, gaining strategic
advantage through first-mover advantage.

Simply IT does matters as long as it is used in synergy with other elements of the company. It
can add value and facilitate every other function of the organization. Specially a third world
country like Sri Lanka, there’s lot more opportunities that can be taken if the companies are
equipped with correct IT applications and Human Resources are competent enough to use them
to add value to company operations. Business-process improvement, competitive advantage,
optimization, and business success do matter and they aren't commodities but factors that are
talked and valued in each corner. To facilitate these business changes, IT can be considered a
differentiator or a necessary evil. But today, it's a must in a real-time corporation.

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References and Bibliography
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