When does IT Matter?


Quite some time ago (2003) there was a lively discussion between business and intellectual heavyweights around the question – “Does IT Matter?” 

Background: 

Let’s get the pop-corn out, switch the time machine on and go back a while: 

  • Operation Iraqi Freedom has just commenced, was is in the air (and we all knew this was not a good one)
  • At the conclusion of the STS-107 mission, the Space Shuttle Columbia disintegrates during reentry over Texas, killing all 7 astronauts onboard
  • The 2003 Cricket World Cup ends as Australia beats India by 125 runs in Johannesburg, South Africa
  • SARS Virus Begins to Take Toll on Global Economy
  • By 2004, more than 80 percent of U.S. executive boardrooms will have discussed offshore sourcing, and more than 40 percent of U.S. enterprises will have completed some type of pilot or will be sourcing IT (information technology) services, – Gartner Inc.
  • The movies of the day were – The Lord of the Rings: The Return of the King, 2 Fast 2 Furious, Charlie’s Angels: Full Throttle, The Matrix Reloaded, The Matrix Revolutions, Pokémon Heroes, Terminator 3: Rise of the Machines.
  • The music charts had hip hop going – “All I Have” Jennifer Lopez featuring LL Cool J, “In Da Club” 50 Cent , “Get Busy” Sean Paul, “21 Questions” 50 Cent featuring Nate Dogg

Now to business IT – Nicholas G. Carr posted an article in the Harvard Business Review (May 2003) where he contended that due to open accessibility to IT, its role as a source of strategic advantage has faded. This statement (understood correctly or not) generated an enormous amount of controversy – Thomas A. Stewart [Italics Verbatim]. 

A chronological summation of the debate: Very brief and significant a number of salient points omitted for space considerations – My Apologies. (for a full understanding, please read the book as well as the NBR Debate)  

Nicholas G. Carr 

  • The point is, however, that the technology’s potential for differentiating one company from the pack – its strategic potential – inexorably declines as it becomes accessible and affordable to all.

John Seely Brown & John Hagel 

  • Yet, IT is inherently strategic because of its indirect effects – it creates possibilities and options that did not exist before.
  • The strategic impact of IT investment comes from the cumulative effect of sustained initiatives to innovate business practices in the near term.

F. Warren McFarlan & Richard L. Nolan 

  • In our view, the most important thing that the CEO and other senior management should understand about IT is its associated economics.
  • Often, only the senior management team’s imagination limits new IT-Based opportunities.
  • Unless nurtured and evolved, IT-enabled competitive applications, like many competitive advantages, don’t endure.

Jason Hittleman 

  • It will always matter – it will just matter in different ways now. IT must continue to support the business – not just through the logical application of technologies but also through the logical application of common sense.

Paul A. Strassmann 

  • Therefore, any firm that can steadily reduce marginal cost by deploying IT can make information technology investments enormously profitable and can generate a rising strategic value.
  • Competitive advantage is not the result of personal computers. It is the result of effective management by skilled and highly motivated people.
  • The use of a standard software package does not doom an organization to homogeneity that destroys value. I suspect that Carr used the same software to write his essay that I did to write this critique, yet we have arrived at opposite conclusions!
  • Corporations are confronting increased uncertainty about markets, competition, resources, employee attributes, and the impact of legislation. The corporate environment requires more complex coordination than ever before, and there is less time for taking corrective measures.

Marianne Broadbent, Mark McDonald & Richard Hunter 

  • The source of competitive advantage shifted from simply having a computer to knowing how to use it.
  • Sustainable advantage comes from consistently delivering greater value to customers. This comes from the “information” in information technology – that is, it comes from better understanding the customer, applying that understanding to your products, services, and processes, and integrating these to deliver on an improved value proposition.

Bruce Skaistis 

  • Aim your IT efforts and resources at helping the business achieve its strategic objectives.
  • Focus on using IT to respond quickly to changing conditions and requirements.
  • Focus on optimizing the cost effectiveness and performance of IT resources.
  • Focus on minimizing IT Risks.

Nicholas G. Carr (Reply) 

  • As IT’s core functions – data processing, storage, and transmission – have become cheaper, more standardized, and more easily replicable, their ability to serve as the basis for competitive advantage has eroded.
  • As many of the writers point out, the way companies organize processes and use information plays a critical role in their ability to distinguish themselves from competitors.

Wow!! (No wonder it caused such a stir) 

So the technology portion of IT’s ability to elevate organizations will become less and less noticeable while the informational parts would become more and more important. 

Seems simple enough to understand. 

If we had to search for empirical evidence to support the statement – where would we look, where would we be able to see it? A competitive advantage that is separated from IT spend, size of infrastructure or even the age of the implementation would be difficult to crystallize. 

I think enough time has passed to highlight an awareness that a specific juncture in history is at hand. We may be able (collectively) prove that information management and not technology does provide a tangible, significant and measurable advantage to those that employ it well. 

"Economic Fluctuation"

Economic Fluctuation

 

In the illustration above I have depicted a very simplistic sine curve showing a single, but complete, economic cycle. I hope that most would agree that we could move the today (dotted black vertical line) slightly forwards or rearwards to capture our current domestic economic sentiment or perceived positioning of our organization. 

Effective information management should then be able to provide at least one of the following (observable) results. 

  1. Comparative excellence in the upswing (red indicators) – This should allow us to pick a random comparative economic measure and show that an organization was capable of gaining a larger market share, or coin a larger profit in the same favorable market conditions than that experienced by its competitors through the strategic use of information management.
  2. Reduced negative impact in downswing (orange indicators) – The contention here is that an organization was able to either react to the changing negative environment faster that competitors in the market, or could “foresee” the negative impacts and could react predictive (proactively) to reduce the negative impact when compared to its rivals.
  3. Reduced negative exposure in downswing (purple indicators) – Due to the sudden and dramatic impact of the current downswing an organization could not prevent incurring the same negative impacts as experienced by its competitors, but was able to react in such a way that the organization has positioned itself correctly to recover faster than competitors.

The data that these investigations would reveal could: 

  • Form that basis of a new wave of innovative thought.
  • Show software vendors where to focus their efforts.
  • Show organizations what to repair.
  • Allow those in leading positions to consolidate and strengthen their lead.
  • Support the viewpoints of the proponents to this debate.

So in an ideal world, everybody would win.

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3 thoughts on “When does IT Matter?

  1. I have kept track of the SG&A/Value-Added variable for more than two decades. SG&A measures the amount of “information” a firm consumes to produce a unit of direct cost that delivers to customers a product.

    SG&A includes the costs of payroll (people) and the costs of I.T. (automation). Remember, customers purchase products, not SG&A.

    IT matters in those cases where a firm can materially reduce the SG&A/Value-Added variable, as compared with competitors. This will not be the sole determinant of competitive advantage. However, a low ratio can be a significant contributor to success when evaluating competing firms.

    Paul

  2. I am struck by the continued wave of genuinely new technologies and new ways of operating today. Three examples. The first is the really new field of neuromarketing which by capturing real emotional reactions of panels of consumers allows ads to be sorted for their effectiveness in advance of showing and be redesigned if necessary. The second is new twist of marketing up scale designers products to young consumers for whom cash is a constraint by exe cuting a rental model. Rent the Runway.com has had extraordinary success . The third is the new outsourcing partnership between Li and Fung and Walmart to drive more effective purchasing economies. These are examples from my recent work showing innovation is alive and well in this area and advantage comes to those who mpove wisely early as Dick Nolan and I discussed in our rebuttal some years ago.

  3. Hi to all,

    Privately I have received this critique and would like to add the comments:

    1) I don’t see why you included the ‘Background’ section. I was all ready to read about ‘Does IT Matter?’ and then I was in trivia from the period. I almost stopped reading. If it is serious keep it serious.
    Granted, I wanted to get the readers to understand that there was a lot of things (important) going on while this discussion took place.

    2) Your lead in of the issue was under the heading of the ‘Background’. If I skipped the background section (which I did), then when I started reading at ‘A chronological summation of the debate’ I missed your lead in. This left me uninformed and confused.
    Accepted – My personal inexperience to blame.

    3) I think you should add a sentence or two at the very beginning about what you are going to tell me. In other words, what is the value to me of reading the post? The debate about ‘Does IT Matter?’ is common and you need to tell me quickly what the value of your posting is to that debate.
    This piece was intended to get information and business centric professional thinking – What has changed and how do we get to use that knowledge?

    4) You discuss an ‘economic cycle’. But, you don’t tell me what that economic cycle is and how it applies to any company in general. In other words, why do I care as a business man about this economic cycle? Can I apply it to my company, the company of my competitors or the company of my customers?
    The economic cycle as depicted here is an over simplification of the world, country, industry or company experiencing positive and negative growth, profit, perception or throughput. Sometimes just relating a company’s relative cycle to that of its surroundings can already provide strategic insight. What I hoped to achieve was to simply show where companies can be measured as taking advantage of an environment, when compared to competitors.

    5) I understand the need for the sine wave, but most business cycles are not that smooth. I think you should expand on why the sine wave is a representation and how the curve can be impacted.
    The sine wave is an idealistic representation and exaggerated statistical average of an imaginary segment or holistic view of the entire market. Business can manage their sine wave (relative to some external measure) to shorten the time interval between the ups and the downs (theoretically – there are still external factors that will have an influence) and a business can manage the depth of the low and the height of the high (always relative to some other measure). When Jim Collins refers to great businesses, he refers to businesses that have managed to change the gradient of the curve (the comparative measure axis slants upwards – not level as depicted) in a sustainable way. This is actually the basis of all economic competitiveness, where an organization strives to exceed or excel by posting a higher high, shallower low, faster transition (in negative) or try and sustain the positive cycle.

    6) You mention a ‘juncture in history’. Is this a juncture in my company’s history, the history of IT, the history of information management, etc?
    The world economy is just emerging from what can be seen as a very clearly visible bottom in its sine curve. What makes it significant is that each economy, country, business and probably individual are all struggling “up the hill” to recovery. At no time in our recent past was competitive advantage a more important criteria or measurable entity.

    I hope this would add value.

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