If there is one magazine that can really change the way people think about business, it is the Harvard Business Review (HBR). It is the world’s most influential management magazine. It can be dry, but it is also deep, thoughtful and thought-provoking.
However, the May 2003 issue of HBR provoked more than mere thoughts. It sparked a furore among IT business executives, incensed by a nine-page article entitled ‘IT Doesn’t Matter’, by Nicholas Carr, an HBR editor at large. As the title suggests, it says some pretty unpalatable things about the role of IT in business – unpalatable at least to those who make a living from supplying or managing it.
The article says IT doesn’t matter any more. It doesn’t say companies should stop spending on IT, nor that it is unimportant, but that it is not worth spending more than the minimum on, and it is not a boardroom issue any more.
That isn’t the kind of thing IT leaders can let pass. Bill Gates, chairman of Microsoft, said he “strenuously objected” to the article; Craig Barrett, CEO of Intel, joined the fray saying Carr is typical of those who “don’t want to keep up”. Fortune magazine’s David Kirkpatrick, the magazine’s Internet and technology correspondent, attacked the article with his own piece, headlined ‘Stupid-journal alert’. And these are just some of the sparks flying from a bonfire of indignation hot enough to burn up half the copies of HBR in America.
Carr’s thesis is hard hitting, but not as tough as the title suggests. His point is that the use of IT in business has reached a point where it can confer no real competitive advantage to those deploying it.
To support his argument, Carr draws on a study that suggests companies that invest a smaller proportion of their revenue on IT tend to outperform their rivals. This appears to reverse the current thinking on the strategic importance of IT.
He also draws on history, arguing that the roll out of technology in business conforms to the pattern of previous technology roll outs, such as electric power or the railways. At some point, he says, new technologies become ubiquitous, and when they do, they offer no real strategic advantage. He points out that no company today claims that its use of the railways confers on it a unique competitive advantage. And, he might have added, no one today is called ‘chief electricity officer’.
Carr suggests businesses should now adopt a guarded, defensive approach to IT, controlling spending tightly, buying only mature products, and treating promises of competitive advantage as illusory. There is no point in trying to be a leader, or an early adopter; it is best to be a laggard.
Importantly, Carr says IT has become like an essential utility, therefore companies must concentrate on ensuring supplies are never disrupted. This makes matters of security, reliability, and business continuity key concerns. CIOs, he suggests, should be cost-conscious operational managers. “IT management should, frankly, become boring,” he says.
Carr gives several examples of big IT investments that conferred big competitive advantages which eventually proved temporary. These include Fedex and its package tracking system; American Airlines and its Sabre reservation system; and Reuters with its financial information network.
It is easy to see why so many IT suppliers found Carr’s message unpalatable. Which marketing pack does not speak of strategic advantages or competitive edge? And few CIOs are enthused by the injunction to be “boring”. Many believe their strategies and choices have given their companies a genuine competitive edge.
But is Carr right? In economics, there is probably no such thing as right or wrong – there are only persuasive and less persuasive arguments. This reader, at least, is far from persuaded.
First, no one should confuse the problems of the supply side of the IT industry with the problems, challenges or strategies of its customers. Carr himself does not do so directly, but as he points out, his views are consistent with those of the many writers, economists and investors who have argued that the technology industry has passed its high-growth period and has now reached a stage of low-growth and maturity.
It is easy to make the connection. Larry Ellison, CEO of Oracle, and the influential Gartner Group, among others, have forecast a massive shake-out in the number of IT suppliers as a slowdown sets in. IDC suggests that over ten years, IT industry growth will gradually fall into line with GDP (which rarely exceeds 4%). In the UK, Richard Holway of analyst group Ovum Holway has argued that growth is already below GDP and will probably never go much above it again.
But all these analyses and forecasts could prove partially or wholly right without an equivalent strategic realignment or even a reining in of spending on the customer side. That is for several reasons.
Most obviously, IT spending is unevenly spread across products, services and industries. And a good deal of it is spent on internal staff. So a company could halve its IT spending by laying off 200 programmers while increasing its product spend – or it could do exactly the opposite.
At the same time, falling labour and product prices, and the increasing use of products dependent on embedded IT, are distorting the picture. So, it is possible – even likely – that an organisation’s use of and dependence on IT could sharply increase, while its spending decreases. Equally, the purchasing of IT could migrate into many different budgets.
A further factor causing confusion is that the imbalance of supply and demand in IT was not caused primarily by the sudden slowdown in buying – although that played a part – but by the huge bubble of speculative capital available to suppliers from 1993-2002.
So, no one is getting very upset by the forecasts of continuing gloom and consolidation among suppliers. Nor is anyone against the more efficient use of IT, stricter budgetary control and lower unit prices.
The real reason Carr has so upset the IT industry’s leaders is that he is advising US business leaders that much of the vision, and the sales story, of the IT industry is outdated. By implication, he is also saying that many of the strategies of the CIOs – the big spenders – are wrong too.
But Carr is not just saying, “be careful, watch your spending”. He is saying that the use of IT in business has reached a critical inflexion point. In his view, the technology is in such wide use that it confers no great advantages. “There are many signs that IT build-out is much closer to its end than its beginning. IT’s power is outstripping most of the business needs it fulfils.”
Here, however, the argument becomes less than persuasive. To support his argument, Carr presents a chart showing how the number of computers on the Internet has risen exponentially – a chart that seems to map closely on the build-out of the railways and of electricity. The implication is that IT is about to level off.
But there is a strong argument to suggest that we are at the beginning of the information age, not the end. Take, for example, the fact that the world produced more data in the past three years – from 1999 to 2002 (about 12 exabytes) than in the previous 10,000 years. That suggests we are at the beginning of the growth chart, not near the end of it.
Also consider that, at present, human-to-human communication dominates Internet traffic, but is forecast to fall to a tiny percentage as machine-to-machine traffic explodes (source: MIT) and all the devices under the control of man begin to take part in the digital revolution. Or take the fact that new kinds of sensors, cameras, ID tags and all kinds of other devices have scarcely begun to produce their computer-readable and analysable data.
Even in that most computerised area – enterprise applications – structured data is mostly used by only a few specialised systems and a few isolated business processes. Today, if a call centre is seamlessly linked to a financial system, it is viewed as a triumph. IT has a long way to go.
The fact that technology to date has been proprietary, expensive and often of poor quality, is one reason so many opportunities still remain. It is surely no coincidence that Microsoft, IBM, Oracle and PeopleSoft – to name just a few software suppliers – have recognised that a huge strategic opportunity will be opened up by increasing their products’ reliability and/or ease of use.
One of Carr’s critics pointed out that he had mistakenly concentrated on the T in IT, and not on the all-important I for information. This is an astute criticism: the supply side of the IT industry might face issues of pricing and margins, capital and competition, but businesses themselves are being presented with the opportunity to connect, track and analyse, in real time, almost everything that happens in their ecosystem. And they have barely begun.
In a recent article in the Financial Times, Sinclair Stockman, CIO of BT, argued that, far from thinking of IT as a support function [as Carr advocates], “almost whatever your business, IT will be at the core.” He cites how RyanAir may rely on a low price, low cost model, but it would not be possible without computers that calculate yields and pricing. He urged CIOs to rise and aspire to the strategic challenge.
Reuters, American Airlines, and FedEx may have lost the advantages that their innovative use of IT gave them. But the fact that others have caught up does not mean the race is over – merely that they or someone else needs to innovate again to take the lead.
Almost every sphere has many examples of where technology could dramatically improve efficiency and open new opportunities. Amazon, eBay and LastMinute.com, for example, would not exist but for their IT led strategies; in banking, Capital One, First Direct and Egg owe their strong positions largely to IT. In the US, retailer Wal-Mart and engineering giant GE are admired for their management – and for their innovative, market leading use of IT.
Glover Ferguson, chief scientist at Accenture, believes that far from having reached strategic bankruptcy, the use of IT is moving through a long evolutionary process. When the widespread adoption of technology means that suppliers can no longer compete on features, they compete on services; and when technology means that all information is available to all, then they must compete on ‘insights’ – the ability to see the significance of information.
It will take a long, long time before the same insights are available to all – and when that happens, the world will probably either have solved or become engulfed by its biggest problems. But for the business strategists today, the point is surely clear enough: it would be a risky strategy to go with Carr and abandon the idea that the application of IT can yield very significant strategic advantages. His arguments are premature by at least a decade or two.