Strategy

The Tract of the Matter

You read (about) the article, now read the book: Nick Carr expands his controversial thesis regarding IT's strategic importance.
Scott LeibsSeptember 1, 2004

Just over a year ago, Nicholas G. Carr offered a modest proposal that still has the information technology industry reeling. The veteran Harvard Business Review editor wrote an article headlined “IT Doesn’t Matter,” in which he argued that companies should stop looking to IT for competitive advantage and instead regard it as a utility — or, more accurately, a commodity factor of production. Clever (and expensive) deployments of IT, Carr argued, are no longer worth pursuing because successes are quickly (and cheaply) copied by competitors. Instead, companies should focus on efficiency, reliability, and security. That may not sound radical, but many in the IT industry reacted to Carr as though he were the intellectual equivalent of a repo man, come to take back the very idea on which untold fortunes have been built.

Carr has extended his article into a book-length treatise (Does IT Matter? Harvard Business School Press), and while he has changed the title from assertion to question, in no way has he modified his views. Now an independent writer and consultant, Carr recently sat down with CFO IT to discuss what really matters about IT.

When your article appeared last year, many people seemed willing to grant that hardware of all kinds has become a commodity, but quite a few took issue with the idea that the same can be said of software. In expanding that aspect of your argument in your book, did you change your mind at all?

Drive Business Strategy and Growth

Drive Business Strategy and Growth

Learn how NetSuite Financial Management allows you to quickly and easily model what-if scenarios and generate reports.

For the most part, I became more convinced that I’m right. Some forms of software development can still provide a competitive advantage — think of how a financial-services firm might rely on a special algorithm to manage investment portfolios, for example — but those kinds of opportunities are coming to pertain to a shrinking subset of companies.

A quick look at the notes section of your book reveals an almost laughably long list of “He’s crazy!” editorial responses to your article. Were you surprised by the response?

There’s a strong ideology in the industry that IT will never mature. Its leaders are very entrepreneurial, so they’re wired to think that way. Some of the hype about IT verged on the utopian, but we are seeing the growth slow and a new infrastructure take hold.

One in which IT doesn’t matter?

Well, if you botch it, IT certainly matters. Using it well may not gain you a lot, but using it poorly will put you at a competitive disadvantage. Even a commodity has to be managed well.

IT simply strikes many people as far too complicated to be considered a commodity.

It is complicated, and it will remain so for some time. But a first step in managing it well is to shift your viewpoint, to see it as a commodity and therefore look for ways to simplify it.

You see a strong move toward services as part of that?

Yes. Some might tend to want to handle it themselves, because certainly the component costs of IT are going down, but those are small relative to the large costs of integrating and managing everything. A service model offers a packaged deal, but progress will be slow: vendors still have a lot to prove in this regard.

That may be good news for CFOs, although one wonders where it leaves the CIO.

The CIO’s role will vary by industry, and even by company, more than any other C-level executive. In some cases, it will be very strategic; in others, something akin to a purchasing manager. IT staffs will shrink, but the people who remain will become more important. Any hand-wringing about the fate of the CIO is misplaced — it’s not the position that matters, but the person who holds it. It’s the individual talent that counts.

Your book appears at a time when more experts are seeing a link between investment in IT and productivity gains. Some executives may feel that to reorient their attitude toward IT and see it as a commodity will cause them to miss out on opportunities to leverage it most fully.

The ability of IT to displace workers is unquestioned, but you don’t get the [productivity] gains until people leave. That may be why there’s been a sudden increase [given recent high levels of layoffs]. But it’s still a leap to say IT drives productivity. The large discrepancies between companies that have gotten a boost and those that haven’t strongly suggest that gains come when IT is combined with other factors.

IT spending now accounts for a substantial percentage of most companies’ capital budgets. Assuming you’re right and IT is on the fast track toward commoditization, do you see that percentage declining?

Not as a percentage, because the other capital expenses that have gone down are unlikely to come back up. But in dollar terms, it may decline, although the shift from labor costs to services may mean that IT budgets stay flat or decline while the revenue of IT vendors goes up.

Certainly CFOs would love to see a massive expense become more manageable. And it does seem to be happening purely through competitive pressures and the advancing of technology. Should CFOs wait for better deals, or should they force the issue?

CFOs and corporate customers in general can play an activist role; they have more leverage and should use it. Recent surveys show that many companies are furious about maintenance and upgrade costs: that may be one place to look first. It’s the rare C-level executive who can ignore IT. It’s everywhere, it’s expensive, and it would be foolish to think that you don’t have to worry about it.

“Cold-Eyed and Clear-Headed”

[Managers] are likely to face difficult and complex strategic questions in the months and years ahead. Is our company properly positioned in our industry or do we need to change the role or roles we play? Will competitors find it easier to replicate the capabilities that once distinguished us? Should the size or scope of our organization change? Should we forge new or different relationships with other companies? When the business infrastructure changes, the chances and the costs of strategic missteps grow.

As managers grapple with these operational, organizational, and strategic challenges, they should take particular care to rid themselves of the illusions that new technologies often inspire — and that have been a particular hallmark of what has come to be called the digital age. Although it’s increasingly unlikely that IT will give individual businesses an advantage, those executives with the steadiest, least distorted view of IT’s changing role will be able to make smarter, sounder choices than their less cold-eyed and clear-headed rivals. And that in itself can be the basis for a strong and durable competitive advantage.

Reprinted by permission of Harvard Business School Press. Excerpted from Does IT Matter? by Nicholas G. Carr. Copyright 2004 Harvard Business School Publishing Corp. All rights reserved.