Information Age (IA): In the two and a half years since your Harvard Business Review article, ‘IT doesn't matter', triggered a fierce debate about the role of IT, has your thinking moved on or been modified by changes in the industry?
Nicholas Carr (NC): For one, the reaction to my ideas has changed, in that in the beginning when I'd go out and say information technology had largely lost its power to provide competitive advantage, the reaction – from both vendors and users – tended to be very negative.
Now when I speak at conferences, the reaction tends to be, ‘Oh well, he's right, but then that's always been obvious.' So the idea that the technology itself is simply a tool and doesn't really have much strategic power any more has become pretty much accepted.
So in some ways, the conversation and the thinking has moved on to a more interesting level which is, if the technology itself doesn't provide much of a barrier to competition then what does that mean for technology's influence on competitive advantage in general and for how we should spend our money and manage it?
In discussing those kinds of questions my thinking has moved on in that it is clear that different companies have much different experiences in rolling out even very similar technologies. And some are obviously much more successful than others. And it seems to hinge not on the technology but on all sorts of complementary capabilities – the way they organise themselves, who they hire and the way they set up their processes. I think all of those things matter a great deal.
The real key is to get the technology you need for as little cost and as little risk as possible and to focus on those other things. Having said that, it's clear that in some cases the technology itself can actually provide some differentiation, but it tends to be in extremely specialised cases.
The general business applications that are adopted throughout different industries to automate basic business processes, even very complex ones – ERP, supply chain management, CRM – are actually pretty inert strategically because they've been standardised so much.
But within individual companies, if there is something that you do that is unique to begin with and you can create specialised software that enables you to do it more efficiently or effectively, that can still be hard for competitors to copy.
IA: Are you not constantly challenged by IT management with examples of where they have created considerable differentiation and value-add?
NC: Those tend to be very narrow, specific applications. And one of the reasons is that the more specialised the application, the less economic incentive there is for vendors to move in and create a packaged or standardised alternative, simply because the customer base can be very small. So they tend to be things like particular investment algorithms that investment companies come up with. At that level you can essentially keep the technology secret and proprietary.
IA: What about an example from the airline industry, such as British Airways enabling passengers to check in online and print their own boarding passes. Do you not think that is technology providing a competitive edge?
NC: It may be a competitive advantage for British Airways today, but those facilities are offered by every airline in the US. And to me, from a US standpoint it actually shows how quickly IT capabilities get copied. And it also shows one of the downsides of everybody seeking to gain advantage from what becomes a common capability very quickly. Every single airline had to invest separately to build its own unique system for doing that.
You can also see it in airports as well with the kiosks for printing your boarding passes. Again that was an example of all the airlines thinking that if they could be the first to get those kiosks up they would get an advantage.
Not only does that technology investment become an overhead but it is an incredibly ineffecient system. Most of those kiosks are dormant most of the time and if all the airlines had got together and created a single system where any kiosk could print any airline's boarding pass, the cost would have cost much less and the productivity gains for the whole airline industry would have been much, much higher.
So that is the danger of thinking that you can get an advantage by doing some unique customised IT, only to find that everybody very, very quickly matches it.
IA: So there is an inevitable shift from technology that is proprietary and might offer competitive edge for a short time to technology as infrastructure?
NC: I think one of the ongoing realities of IT is that what was proprietary and could provide advantage last year, becomes infrastructure this year. So the big question is how long is that process going to take and are you going to be able to hold on to your advantage at least long enough to pay back the up-front costs, which are always higher when you are trying to pioneer a new system rather than just buying commoditised software or hardware?
It becomes harder and harder to justify being an innovator as competitors or vendors are able to replicate those innovations ever more quickly.
IA: Do you think that there has been a change in perception about IT's ability to deliver competitive advantage?
NC: In general there has been a change in perception; there is more scepticism, particularly among the ranks of top management which translates into continuing pressure to reduce IT spending.
There was a big debate whether that has simply been a cyclical phenomenon in the wake of the dot-com bust, but I think at this point it seems that, even though obviously there is a cyclical component, it seems much more to reflect a change in attitude, in the perception of IT's role.
IA: So how is IT's role changing?
NC: We do seem to be moving into a time when systems are going to be more flexible and more modular. And so at that level it will become easier for companies to shift their strategies – whether that is shifting their market focus or the way they carry out their processes – and not having to worry about IT being a drag on the processes by forcing an overhaul of their old legacy systems.
So I think we are moving to a time when IT becomes less of an obstacle to making business changes, but I think the advantage will lie in those broader business changes and the technology will simply become less of a hindrance rather than the source of the advantage itself.
IA: Are you referring to things like service-oriented architectures?
NC: SOAs and the move towards a utility model for data centres, whether it is a utility model that an individual company implements within its own walls or one where it uses an outsourcer. I think though virtualisation and grid computing and web services, we are really moving into a new era of computing where you will be able to have much more consolidation of your assets, much higher asset utilisation and much more flexibility in dedicating different hardware to different applications on the fly, rather than the traditional, very manual, very slow process for getting applications up and running.
IA: But does operational effectiveness, in itself, not lend a competitive advantage by allowing the organisation to say, ‘we are reliable, we are available 24/7, we are better than our competitors'? Does effectiveness matter?
NC: Yes, I think it does – and this is one place where I have modified my views over the last two and a half years , as I have become convinced that we are shifting into a new model of IT supply. It is pretty clear that if your company is smarter in capitalising on that new model and getting to that model quicker than your competitors, then you will be able to get competitive advantage.
So one of my themes was that it no longer makes sense to be an IT innovator; well, that's a theme that I have needed to modify, because in fact, being an innovator in adopting the new more utility or on-demand model can pay off, I think. The way it pays off though is not by making IT more important but actually making it less important, in that it is more of a cheaper, simpler utility.
What is ultimately going to push the IT industry towards the utility model isn't so much the technology as a matter of simple economics. We are moving to a much more centralised, consolidated model of IT that is going to be economically much more efficient than the old one.
° Nicholas Carr will be delivering the keynote address at Information Age's Effective IT 2006 Summit, on 24 and 25 January in Cardiff.