Nick Carr, a former editor of Harvard Business Review (HBR), wrote IT Doesn't Matter in the HBR May edition 2003. A seminal provocation reviewed in all the major media in the States - from The New York Times and USA Today to the most specialized like Computerworld and Information Week. Nick wrote a provocative thesis: Every new generation of IT has turned more IT functions into commodities. And commodities can be essential to business without being essential to strategy. In general, IT should be managed like a commodity, not a potential source of strategic advantage. The High Tech community reacted. In the Letters to the Editor of HBR, the renowned Californian author John Hagel III (of Out of The Box, Net Gain and Net Worth) gives an extensive rebuttal to Carr's article. In his website (www.johnhagel.com) he posted a weblog article titled IT Does Matter. Both pieces of management literature are co-authored by the legend John Seely Brown, former Chief Scientist of Xerox at Palo Alto. In brief, Hagel says: We are still in the early stages of the Digital Revolution and, consequently, it's a "crime" to ignore the continuing strategic value of IT. Who makes the mistake will be vulnerable to more aggressive competitors who focus on harnessing the strategic potential of IT. But other Californian guru, Hal Varian, dean of the School of Information Management and Systems, at the University of California in Berkeley, says Carr is right: IT has become commodified and no longer confers a competitive advantage (if it ever did, he added in the letter to HBR).
The discussion is just very hot now. Gurusonline.tv interviewed the three. Nick Carr is working in a book on the matter that will be out next spring.

NICHOLAS CARR
«The available computing power, frankly, already overshoots the needs of most companies. From now on, we'll see rapidly decreasing returns from most business technology»

The new digital techs "born" with the web platform and the Internet boom in mid 90's are entering a phase of maturing and transforming in commodities? Or, as Don Tapscott and John Hagel III recently claimed, the digital revolution is just in the beginning, and it's not becoming a commodity?

There's no evidence, other than wishful thinking, to assume the so-called digital revolution is just beginning. There's considerable evidence, however, that the development of the IT business infrastructure is approaching its completion. The available computing power, frankly, already overshoots the needs of most companies. From now on, we'll see rapidly decreasing returns from most business technology - not just hardware and infra-structural software but also applications software and even services.

Can we say that we assisted in the 90's to an over-investment in the new technologies?

U.S. companies massively over-invested in IT during the nineties. It's estimated that today 50 percent of the average company's IT capacity is unused. That's an incredible drain of productivity and profit. Companies need to shift their focus from new investment to simply getting the value out of their old investments. In general, IT should be managed like a commodity, not a potential source of strategic advantage.

A new system may be a competitive necessity - you may have no choice but to match the capabilities of other companies - without being a source of differentiation and strategic advantage.

Commodities can be essential to business (like oil, utility services, etc.) without being essential to strategy, to competitive advantage, as you mention in your response at HBR. Can you detail better this argument and also explain the difference in a practical way.

Companies only gain a competitive advantage when they have something or can do something that other companies don't have or can't do. If many companies in an industry share a particular resource - such as a particular type of software application - than any productivity gains they achieve from the resource will be rapidly competed away. The benefits will end up with customers, in the form of lower prices, and not on the company's bottom line. Productivity gains from installing a new technology do not necessarily translate into increased profits, in other words. A new system may be a competitive necessity - you may have no choice but to match the capabilities of other companies - without being a source of differentiation and strategic advantage.

Why you decided to write the article at HBR? What kind of "voices" from the market field you have collected about this problem?

I've been developing these ideas for a number of years. They grow out of a concern that much of the thinking about IT has been focused on "what it can do" and not on "can it enable individual companies to gain a lasting advantage"? As I studied past examples of infra-structural technologies, like the railroad and the telegraph, I discovered that their development closely matched IT's pattern of development. As an infra-structural technology develops, it rapidly becomes a shared resource for business. It very quickly stops being a producer of strategic advantage. I'll be discussing my ideas in much greater detail in a book I'm working on, which will be published next spring.

In general, the followers will spend less and get more.

Do you think a new wave of technologies could emerge in the next 5 years that will open a window of opportunity for first movers or second movers before those future killer apps will be commodities?

There will be some opportunities for first movers to gain value that offsets the higher price they'll have to pay to install a new technology. In general, though, the followers will spend less and get more.

What is the "secret" weapon for firms' competitive advantage?

There are no secret weapons. It's a matter of building a complex and unique business system that other companies can't easily replicate. You can't go out and buy an advantage from, for example, an IT vendor. You have to create it yourself, and it's not easy.

AUTHOR AND CONSULTANT JOHN HAGEL III AGAINST THE "DANGEROUS" CARR'S ARTICLE TITLE
«Carr's article encourages executives to focus only on the operational need for information technology. As a result, many executives will ignore the continuing strategic value of IT and will be vulnerable to more aggressive competitors who focus on harnessing the strategic potential of IT»

You mention in your Letter to HBR and in your article "It Does Matter" at your website (www.johnhagel.com), that Nicholas Carr's article - and mainly the title - is dangerous for common readers of HBR, for common managers (sure not for specialists). Why?

I consider Carr's article dangerous because it reinforces the current biases of many senior managers. We are in the midst of a significant backlash against information technology among corporate executives. Just as we over-reacted in expecting technology to be a panacea in the 1990's, many executives now dismiss information technology as having any strategic value. Carr's article encourages executives to focus only on the operational need for information technology. As a result, many executives will ignore the continuing strategic value of IT and will be vulnerable to more aggressive competitors who focus on harnessing the strategic potential of IT.

Many elements of information technology are commoditizing, but that does not mean the end of the Digital Revolution. We are still in the early stages of that revolution.

The Digital Revolution is finished, with the main platforms standardized (including the Web ones), or it is far from commoditization? Are we approaching what Michael Porter defines as "strategic convergence" in the markets? Or things like the grid, P2P, the future semantic WWW, the business webs just in the beginning, the delay in webization of lots of business processes and between companies, have potential for strategic differentiation and competitive advantage?

Many elements of information technology are commoditizing, but that does not mean the end of the Digital Revolution. We are still in the early stages of that revolution. Much of the current innovation in information technology focuses on the challenge of more effectively and flexibly connecting various technology components - hence the focus on such things as grid computing, P2P, RFID and Web services. In addition, we are focusing on making "dumb" things - like packages, storage tanks, buildings - smarter by embedding miniaturized processors, sensors, actuators and communication devices. The other major frontier of technology innovation is on making living things more robust by embedding information technology into living organisms, perfecting techniques of genetic engineering and using information technology to diagnose and treat aliments in more targeted fashion. So, there is a lot of continuing innovation in information technology. More importantly, the gap between the potential of information technology and the realization of that potential in business has been widening significantly, so there is a lot of opportunity to achieve strategic differentiation by innovating business practices to more effectively harness the growing potential of the technology.

SOME TIPS BY JOHN
How we can extract value from the over-investment in IT in the 80's and 90's

Two broad recommendations.
- First, focus on the potential of Web services technology to more effectively and flexibly connect existing technology platforms to make them more accessible for business purposes - I describe this potential in some detail in my latest book Out of the Box published last October.
- Second, creatively identify new business practices that exploit the potential of existing technology platforms - we are only using a fraction of the capability of the technology we already have. Before investing in even more technology, we need to refine our ability to extract value from the technology we already have.

PROFESSOR HAL VARIAN FOR CARR'S ARGUMENT
«Talent is the real secret»

The new digital techs "born" with the web platform and the Internet boom are entering a phase of maturity and transforming in commodities, as Nick Carr wrote?

The basic components of the web/Internet have been standardized and commodified. Any idiot can now put up a web page---and lots of them have.

Can we say that we assisted in the 90's to an over-investment in the new technologies?

There were 3 back-to-back booms in IT investment: telecom deregulation, Y2K, and the dot-com phenomenon. (You can add the euro transition for Europe.) The cumulative effect of these was significant but I'm not sure it was really "over-investment."

Commodities can be essential to business (like oil, utility services, etc.) without being essential to strategy, to competitive advantage, as points out Carr to his critics?

Well, is a telephone essential to strategy? For some businesses, I would say "yes". The same is true for IT.

Talent is the real secret behind productivity and competitive advantage? But talent is not becoming a commodity also?

Yes, talent is the real secret. I don't think it is becoming commodified, but I do think that supply is increasing to meet demand. Since the IT labour market is relatively slow, companies that can hire now have their pick of IT workers. This will lead to a huge competitive advantage in the future.

Do you think the new talent pools for R&D outsourcing like India, China, Philippines, or, in Europe, Hungary, Check Republic, also Russia, can change the panorama?

These groups can certainly contribute labour for IT support and development. But I think that it is hard for them to contribute at the strategic level, where it is important to have first hand contact with the market.

© Gurusonline.tv, 2003