Author, lecturer and consultant, Nicolas Carr likes to taunt his audience. A landmark article for the Harvard Business Review in 2003 and subsequent book, Does IT matter?, questioned the business value credited by IT, sparking a firestorm of counter-arguments and refutations.
Now, although he had modified areas of his argument, Carr is far from ready to relinquish his status as the IT industry’s bête noir.
Kicking off the Effective IT Summit 2006 with a presentation from Carr was always likely to ensure the delegates were suitably provoked, and Carr did not disappoint. His message for the audience was simple: “I don’t think IT itself is anything special – and you guys better get used to that idea.” To a conference examining the effective utilisation of IT and an auditorium packed with the crème de la crème of IT management, Carr proposed that any effectiveness was most readily achieved by disowning IT infrastructure – treating it as a utility and letting others deliver that as a service.
Equal and opposite reactions
With an audience of the UK’s top information technology management, it was hardly surprising that Nicholas Carr’s analysis of the future of IT at the Effective IT Summit provoked some angry responses.
Doug Richard, founder of the private equity investor company Library House and one of the judges of the BBC’s Dragon’s Den, captured the prevailing mood: “I always enjoy a deeply flawed argument,” he told Carr.
Richard outlined how he had built a career – and a considerable fortune – on his ability to spot and leverage business innovation. Carr’s model – where IT innovation is only appropriate for a few leading, niche businesses, and too expensive a goal for most – fails to account for the unique characteristics of information technology, said Richard. “IT is a not a single entity in the way that electricity is. What is transported, what you do with what is transported, is what matters.”
Several other delegates were also quick to challenge Carr’s prediction that the IT function would end up as a utility service. Many of the audience firmly rejected the notion that IT was not a critical component of establishing competitive advantage. “It is short term innovation and effective implementation of IT that has driven competitive advantage in our industry,” said Hugo Smith, IT director of online betting site Sporting Index.
And it is not just online businesses that are reliant on technology for innovation: “The IT department is increasingly becoming the focal point for business change initiatives,” argued Clive Holtham, professor of Information Management at Cass Business School.
In that sense, it becomes impossible to view the IT function as one that can be transitioned into a utility service, because business transformation is being underpinned by IT. Holtham suggested that Carr was partially right in saying there will be changes to enterprise computing; virtualisation and grid computing will reshape the topology of the corporate infrastructure, and software-as-a-service will radically alter how some applications are delivered. But IT is strategically too valuable to handover control entirely to utility service providers.
Some in the audience were extremely sceptical of Carr’s assertion that IT would follow the electricity generation model, not simply because there are substantial differences between the two but because the development of models was far more complex that Carr painted. “If you look at the electricity market, one of the biggest problems it faces is meeting demand,” said Nick Lansley, new technologies manager at online retailer Tesco.com.
To say that utility computing represents the final stage in the model, or to suggest that it is the only model of delivery in the future is wrong, he added. “It may be a useful model for some businesses, but not all.”
For some, this was heresy – an argument that blindly dismisses the contribution of IT towards streamlining business operations and creating competitive edge. But Carr’s argument goes much deeper than the ‘IT is a waste of money’ line that is often used to dismiss it.
“The ability to use IT as a source of competitive advantage is diminishing ever quicker,” he told delegates. Even if IT is used to innovate, he said, the opportunity that that presents is constantly shrinking since the rate of commoditisation of technology is such that competitors can easily and quickly replicate the innovator and catch up. That means that the cost of innovation is rarely repaid, he argued.
Carr is far from the pantomime villain his critics paint him as: his arguments over the future development of information technology are based not on a wilful mistrust of IT, but on the analysis of the economics of modern computing and comparison with other industries. “Most of IT – 70% to 80% – is infrastructure, commoditised, non-strategic,” said Carr. “It is hard to understand, inflexible, buried in technical jargon.”
On top of that, vast swathes of the IT infrastructure lies idle and under-utilised for the majority of the time Carr added.
For servers, utilisation rates hover between 10% and 30%; storage servers represent a minor improvement at 25% to 50% utilisation; but desktop PCs are the worst, where utilisation is around the 5% mark. In effect, business is paying for huge quantities of computing power that does not get used.
Such utilisation rates would kill investment stone dead in any other area of the business, said Carr: it is simply too inefficient to be sustainable. “You simply have to ask: Is the current model the most efficient way to operate? If it’s not, a new model will replace it.”
For those in the audience uncomfortable with the picture Carr painted, there was no let up. Not only does the IT function stand accused of being grossly wasteful, the substantial investments already made in IT are not helping the business, said Carr. For most businesses, IT dominates capital expenditure and yet on the most part, adds very little value to the business, he said. “The vast majority of the CIO’s budget is being spent on basic, undifferentiated infrastructure: 70%, 80%, 90% is about keeping the lights on.”
The IT function is only really adding value around the margins, explained Carr, with most of the money being spent on routine tasks, such as maintenance; little of the budget goes on innovation, and even then, innovation can be rapidly copied by competitors.
But Carr also explained that he was not there to bury the IT function, but to emphasise the need for change. Technologies such as virtualisation were helping drive up utilisation rates; web services promise to make the sharing of infrastructure between applications easier than ever; and advances in systems management are making it possible to consider the automation of IT.
The convergence of these technical advances will make the move to utility computing an irresistible trend, said Carr: “For too long, organisations have had to be in the IT business as well as operate in their core business.”
Inevitably, a utility model of computing will allow businesses to remove the overhead of having to operate IT infrastructure, much in the same way that factories once replaced their own generators with electricity drawn from a grid. In much the same way, he explained, business leaders need to move beyond the attachment to owning IT infrastructure and look for the most economical way to obtain processing capability.
This move will not happen overnight, conceded Carr: models for metering the use of computing resources and pricing systems still need to be figured out. For many large businesses, the first stage will be to set up internal utility services, he added.
“The transitional phase will last for some time: data centres are not going to be moth-balled overnight. But as the technology advances, it represents an opportunity to drive down IT costs in business.”
However, it is those business executives that manage the transition smoothly, and who plan in advance how they can use utility computing to strip out operating costs for their business, that will gain the real competitive advantage, Carr concluded.