IT StrategyRaj Sheelvant’s blog on harnessing Information Technology to create and sustain competitive advantage for the businesses

IT Does Matter

CIO Insight article revisits Nicholas Carr controversial 2003 HBR article “IT Doesn’t Matter“. Well, the gist of the article is: Nicholas Carr sees no strategic value of IT for the business. He compares IT to Electricity. When electricity was discovered, some organizations that were able to understand the business value of electricity used it to create a sustainable competitive advantage. But soon all the competitors started using electricity and electricity was no longer an enabler of competitive advantage. Thus, commoditization of electricity transformed electricity from an enabler of business strategy to cost of doing business. Carr concludes that same future lies ahead for IT. At some point, all the organizations will use IT to enable their value chain.

Since his initial article he has written the book ‘IT Doesn’t Matter’ and continues to write about irrelevance of IT in business strategy. No doubt his analysis is half baked and several reputable people have rebuked his take. What’s surprising is that he still finds an audience that listens to his views. Nicholas Carr’s view on IT is as poignant as U.S. Commissioner of Patents Charles H. Duell’s view in 1899 declaring everything that could be invented has been invented and recommended that the Patent Office be closed down permanently (this is only a urban myth but this story comes closest to Carr’s perspective).

Granted, there is some truth to what Carr says though. Granted there are some aspects of IT that behaves like a commodity. IT infrastructure like storage, network etc are clearly commodity. Other infrastructure/support applications like email, excel etc act as commodity and we could see more organizations using SaaS (software as a service) model. Even some of the IT enabled applications in a supporting department, in organizations like HR etc can use ‘canned’ applications like SAP.

But, have you ever wondered why implementation of ERP applications fails most of the time? It’s because organization try to apply ERP to every value chain in the organization. There are some business processes that create a differentiation competitive advantage for the organization. These business processes create ‘Economic Moat’ that competitors cannot replicate. This is where IT cannot be used as a commodity. For these business processes, IT can be used to ‘widen’ the ‘economic moat’ and extend the competitive advantage vis-à-vis the competition.

My belief is that it’s the job of IT department to understand the business strategy, organizational behavior and competitive strategy for their company. One of the job functions of an IT executive must be to identify the ‘core competency’ of their organization. Customized IT solution must be applied to those business processes and hence build a ‘sustainable’ competitive advantage. For business processes that are not part of company’s core competency, automation can either be outsourced or SaaS can be enabled or ERP applications can be used.

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Wednesday, July 25th, 2007 at 3:31 pm and is filed under Business Strategy, ERP, IT Strategy, IT Management, SaaS, Nicholas Carr. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.