MEMORANDUM TO: Dr. Duane Truex FROM: Tamaz Andguladze, RCB MBA/IT Student DATE: December 24, 2007 SUBJECT: IT Doesn’t Matter – Argument Summary Introduction Nicholas Carr’s article, “IT Doesn’t Matter” (May 23 2003, Harvard Business Review), spurred a continuing controversy within both the academic and business communities. From the publication date forward, various opinions have been offered questioning the relevance or efficacy of huge IT investments and a myriad of other ideas that fuel the debate over the role of IT as a source of sustainable competitive advantage. This memo summarizes the major arguments made in favor of or opposing Carr’s position, as expressed in final exam essays Dr. Truex’s Fall 2007 MBA 8125 Final Exam. Argument 1 – A Narrow Definition of IT Favoring Carr’s Definition. The accuracy of Carr’s assertions are dependent upon the way he defines information technology. Proponents of IT commoditization are swift in pinpointing a narrowly defined role of IT where technology is portrayed as nothing more than a “transport mechanism”. In Carr’s analysis, IT is nothing more than an infrastructural technology that offers far more value when it is widely shared then when privately husbanded. As a consequence, IT becomes ubiquitous and highly replicable, thus undermining a strategic value based on IT’s relative scarcity. Counter Argument. The opponents see technology’s strategic value in light of a company’s implicit global strategy. For them, paradoxically, the definition of IT will vary with and is dependent on how they define their corporate strategy. According to Porter, there are two main business strategies: low cost and differentiated value. While hardware capabilities are no longer differentiable, the manner and success in which technology is deployed is differentiable. For Carr’s opponents, it is the information itself, the specific application of IT supported processes and applications that attractively distinguishes and positions corporations. Argument 2 – Ubiquity of Information Technology Favoring Carr’s notion of ubiquity. For proponents core competencies should be rare, valuable, difficult to imitate and not substitutable. Although the value of IT is difficult to dispute, IT’s increasing affordability and availability have made it far from rare. As ‘best practices’ are built into standard and readily available software packages, formerly scarce technologies, processes and systems configurations become widely accessible, thus eroding advantage. In other words, a sustainable competitive advantage cannot be obtained from IT alone. Counter Argument The advantage of using IT lies in how technology is utilized to reengineer business processes in order to obtain cost saving and efficiency. It is the application of IT that has the ultimate ability to influence a company’s competitive standing. IT is a resource whose importance is determined by how the technology is managed to deliver value. Argument 3 –Ubiquity leads to IT’s Diminished differentiating power Favoring Carr’s argument. Proponents of Carr philosophy argue that the technology’s potential for differentiating power and its strategic potential inexorably declines as technology becomes widely accessible and affordable. Further, IT more than any other technology, has a mix of characteristics that guarantees particularly rapid commoditization. IT, for example, is a transport mechanism that carries digital information just as railroads carry goods, and like any transport mechanism IT is far more valuable when shared. Even more, it is not just the software that is easily replicable. Since most business activities and processes are embedded in software, they (activities and processes) become promptly replicable as well. Counter Argument(s) The argument above and its major assumptions are flawed in 3 respects when critically examined. Firstly, Ngwenyama points to the fact that less than a third of world’s population has access to technology, and thus majority of global citizens will not have a technology driven future, but rather a future of marginalization and exploitation. This renders Carr’s suggestion of “ubiquitous” technology inaccurate and thus – useless. Carr’s proponents can counter the “no ubiquity” logic however, by suggesting that only “high-tech citizenry matter, since only the wealthy and “tech” enabled people drive, finance and in fact represent the market segment for IT merchandise. Secondly, Carr fails to uncover extent of difference among historical analogs. Electricity on the one hand, is an extreme form of commodity, absolutely undifferentiated on any dimension except for continued supply and price. Information Technology on the other hand, can (and often should) be industry, company, department and function specific. So, unlike electricity which is simply the flow of undifferentiated charged electrons, IT deals with the flow of highly differentiated information that has significant meaning and real impact on human lives. Thirdly, Christensen (Meeting the Challenge of Disruptive Change – HBR, April 2000) states that companies whose capabilities have migrated and became deeply enrooted in processes or culture, will continue to seek and develop custom-fit processes with enabling/supporting Information Systems. Such companies naturally, do not want and will not pioneer generic applications and processes. Therefore, IT “utilitization”, even if happens, will be noting like a “momentous change” (as Carr suggest), but a difficult, protracted process. According to Porter (“Strategy and the Internet” HBR, March 2001) processes modified around software tend to diminish a company’s differentiating power and undermine an organization’s competitive standing. The processes become standardized and by definition non-differentiated. So, despite the obvious cost benefits of standardized software and processes, most companies with unique processes now providing them competitive differentiation will view process commoditization as threat. Process standardization may be desired hierarchically intra-organizationally for better coordination, communication and interaction, but may prove unwise inter-organizationally, especially among competitors. In my opinion however, this phenomenon also renders the organization inflexible and less to adapt to changing environment. Large companies could easily be among organizations whose main value drivers are processes and culture. Thus, for big companies standardizing and outsourcing corporate resources can have numerous negative consequences. Small companies, on the other hand, try to differentiate themselves with practices like unique atmospherics and customer experience that are the creations of strategy/vision fit processes. Standardized processes can undermine such organizations competitiveness, forcing small companies to compete only with their resources. Not surprisingly, such companies will avoid resource-based competition where big competitors can easily crush the smaller counterparts. A well-conceived and implemented IT infrastructure may have a strong differentiating power under three conditions. The first called causal ambiguity, is where even when a competitor copies the IT it cannot duplicate the set of factors causing the firm to use it better competitively. This is because even standardized IT packages and applications interact with a host of organizational factors such as culture, leadership, organizational structure and specific customized processes such that competitors cannot tell why the technology is working as it is in another firm. The second reason deals with path dependence. The idea behind path dependence is that today’s IT strategy can stem from many decisions made over many years; decisions that competitors cannot accurately trace and copy. The third reason behind IT’s long, useful lifespan can be the phenomenon of social complexity. The idea of social complexity suggests that when company’s IT is aligned properly with corporate culture, processes, strategy and its entire environment, technology can become a unique source of sustainable competitive advantage. Argument 4 – Delaying IT investments is vise Favoring Carr’s argument Carr’s yet another assertion strongly recommends for firms to delay investing in IT to minimize risk and get best value. In his (Carr’s) opinion, companies should focus on managing the vulnerabilities associated with IT rather than focus on opportunities it (IT) provides. Counter Argument While agreeing that all IT associated risk should be managed, opponents argue that firms could miss on potential opportunities by delaying to invest in new technologies. According to Stephen Haeckel (IBM Systems Journal - 2003), companies must be able to sense-and-respond to changes in their business environments to stay ahead of the power curve. Sometimes this requires the company to invest boldly and forecast markets trends accurately. A firm that is slack or delays investments would be lagging behind competition and early adopters of cutting edge technology, while facing the most risk, will gain a temporary advantage. He also states that fast followers face less risk but have lost grounds they must recover. By adopting new technologies, firms can cut costs, improve efficiency and build competencies on new technology before it starts commoditizing. References: 26 Final Exam Papers from the Fall 2007 MBA 8125 Class. Christensen, Clayton M.; Overdorf, Michael. “Meeting the Challenge of Disruptive Change”. Harvard Business Review, Mar/Apr2000, Vol. 78 Issue 2, p66-76, 10p, 1c, 1bw; (AN 2839608) Carr, Nicholas, G.; “The End of Corporate Computing”, MIT Sloan management review, ISSN 1532- 9194, Vol. 46, Nº 3, 2005 , pags. 67-73 Haeckel, S.H.; Leading on demand businesses--Executives as architects, IBM Systems Journal, 2003, Vol. 42 Issue 3, p405-413, 9p, 1c; (AN 10654327) Reich, B., Robert; “The New Rich-Rich Gap”, Newsweek, February 2007 Contrast Table Arguments: Proponents of Nicholas Carr Arguments: Opponents of Nicholas Carr Carr’s assertions can be supported in the way he The opponents underline technology’s defines information technology. Proponents of strategic value as a part of company’s IT commoditization are swift in pinpointing the global strategy. For them the definition of narrowly defined role of IT where technology is IT will vary with corporate strategy. nothing more than a “transport mechanism”. IT is no longer rare, valuable, difficult to imitate It is the application of IT that has the and its benefits are not substitutable. ultimate ability to Influence a company’s competitive standing. IT’s potential for being a differentiating power • Less than a third of world’s population and its strategic potential inexorably declines as has access to technology technology becomes widely accessible and affordable. • Historical analogs are inappropriate. Unlike electricity, which is simply the Only the wealthy and “tech” enabled citizenry flow of undifferentiated charged matter, since it represents IT’s target market. electrons, IT deals with the flow of highly differentiated information • Companies whose capabilities have migrated and became deeply enrooted in processes or culture will oppose IT Commoditization. • Even if IT standing alone can potentially be commoditized, IT as part of organization and its strategy may have a strong differentiating power because of causal ambiguity, path dependence and social complexity phenomena. Firms should delay investing in IT to minimize While it is true that all IT associated risk risk and get best value. should be managed, firms could miss on potential opportunities by delaying investment in new technologies.