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January 17, 2006
Does IT Matter?
From Peter Coy:
Nearly three years ago, in May 2003, business writer Nicholas G. Carr wrote a provocative article in the Harvard Business Review called “IT Doesn’t Matter.” His argument was that information technology has become a commodity. Every company must have it, but none can get a competitive advantage from it.
Carr occasionally writes freelance articles for BusinessWeek Online, which makes him a journalistic cousin, but I still think he’s wrong. And two new articles help seal the case. One is the cover story in the current edition of BusinessWeek, “Why Math Will Rock Your World,” by Steve Baker. The other is in the January issue of Harvard Business Review (where Carr used to be executive editor). It’s “Competing on Analytics” by Thomas H. Davenport, a professor of information technology and management at Babson College in Massachusetts.
To me, the key point that comes through in both articles is that the world is awash in data, and the companies that thrive are the ones that can harness its power. A prerequisite for that is state-of-the-art information technology.
Along those lines, here’s a tidbit from a conference this morning in New York, also called “Competing on Analytics,” sponsored by Harvard Business School Publishing.
One of the speakers was Glenn Wegryn, associate director of global analytics at Procter & Gamble. Wegryn said that 10 years ago, about 80% of the work in data analysis was obtaining, cleaning, and validating the raw numbers. It took so long that there was hardly any time to do actual analysis. Now, he said, the vast majority of the time is spent on actual analysis. “The power, capability, and cleanliness of the data is the biggest change.”
Irving Tyler, vice-president and chief financial officer of Quaker Chemical, had a similar story about data quality. He said that in the past, people would bring loads of disparate data into meetings of senior executives to make the case for their projects. Now, he says, all the data is collected on a consistent basis and worked up into an understandable package before it’s put before the senior execs.
Now, who says IT doesn’t matter?
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I think, perhaps, you're missing the point of the statement that "IT doesn't matter." I read the article in question when it was originally published. The argument is that IT does not matter on a *relative* basis. Clearly, it matters on an absolute basis. However, since virtually every company has access to the same technology it is no longer a competitive advantage; it provides no relative advantage. A good part of the reason every company has access is because most IT has been commoditized and is affordable to even some of the smallest businesses. Even cutting edge technology comes down in price quickly enough that it does not provide competitive advantage long enough to make a noise about.
In fact, I'm in the process of launching a business that will commoditize (and vastly reduce the cost of) another "cutting edge" IT service. Almost any small business will be able to afford technology that only the largest corporations could afford 18 months ago (and many are still struggling to get their complex installations actually working; ours works "out of the box"). And that's why even cutting edge IT doesn't matter.
So yes, IT provides an advantage in absolute terms, but not in relative terms. IT is merely a vehicle, not a destination (which is more evidence that IT is now a commodity). An advantage does come from the talent in the application of the IT. To use a musical analogy, you can have the nicest piano in the world but if I'm playing it, it will sound horrible. However, even a beat-up old upright piano can sound pretty amazing with a virtuoso at the keyboard. Yet again, the advantages of IT are relative. Technology for the sake of technology means very little.
Posted by: Brandon at January 18, 2006 09:04 AM
The IT conundrum is that the success of IT projects is directly linked to the validity and design of the business processes. Having all the data in the world is worthless in an envrionment where only 2 metrics are considered for decision making purposes.
The companies that "get" this are those who model their processes around available data (assuming the data is accurate). Think Wal-Mart. P & G, as noted above, ran into the largest problem with IT business intelligence solutions. If you put garbage in, you will get garbage out.
Posted by: Wes at January 18, 2006 09:38 AM
IT has everything to do with :
a) High productivity growth rates we are enjoying
b) Low inflation, as IT has introduced a benign form of deflation into the economy.
c) Hastening of globalization, to the benefit of all participants (individuals and corporations)
d) Providing poor people with the means to upgrade their living standards with low-cost technology (cell phones in China, India, etc.)
Posted by: Kartik at January 18, 2006 01:05 PM
I expect the majority of their IT work has been outsourced. It is really the data design and application that matters and this is more business than IT.
Posted by: Lord at January 19, 2006 02:47 PM
The problem is business people and journalists tend to refer to IT as single monolithic department... like Accounting. Just as people in the markets refer to the tech as a sector as if they were in the same business, when in reality the businesses that make up the tech sector are extremely disparate. Sure, some parts of IT are definitely commodity. They are like plumbing, but other parts are cutting edge and those who deploy them early and well will realize huge advantages over competitors. There are a number of broad categories of IT which will enable some amazing increases in business productivity and efficiency in the next few years. Two things off the top of my head are RFID and various Web 2.0 type services now being developed.
Posted by: Marc at January 20, 2006 01:54 AM
Marc, I somewhat disagree that cutting edge technology provides any real competitive advantage. As I sat here thinking about this just now, I think the reason is that the leading edge portion of the tech cycle has shortened to the point of irrelevancy. 15 years ago a company would spend enormous money on technology that was at the leading edge and, even though it took 2 years to work out all the bugs, it still gave them 3 years of competitive advantage before the technology moved into the mainstream and then commodity portions of the tech cycle. However, I believe that the investment in leading edge technology is now a waste. Sure, someone will do it. They will pay the enormous initial costs, but by the time they get it functionally working the technology has already dropped in price; sometimes as far down as the commodity level in a matter of months. That company has just paid 2 to 3 times as much for tech that anyone can now afford and all they've done is pay the price to be the guinea pigs that work out the bugs.
RFID will be mainstream and cheap within a year. Any advanced Web technologies will provide about 6 months of competitive advantage - assuming the bugs are worked out before those 6 months are up.
IT now only holds value in how it connects people: customers to product designers to marketing, operations in India to finance in China and marketing in Italy, etc. Anything else is just another bell and whistle.
Posted by: Brandon at January 20, 2006 08:50 AM
By analogy, one could say equally well that "manufacturing production technology has become a commodity. Every (manufacturing) company must have it, but none can get a competitive advantage from it."
This would be true, in the sense that everyone can buy the same machine tools, conveyors, robotics, machine vision equipment, etc...but in a larger sense, it would be false, because it is entirely possible for companies to get competitive advantage from the way in which the production technology is *organized* (as witness Toyota)
A major problem with IT is that there has indeed been too much focus on getting the latest and greatest, whether that be mainframe computers in the 1950s or web services today, and too little on how that technology can be used to fit the needs of the specific business.
Check out the "computers" section of your local book store and see how little there is on applications with a small "a"...that is, the employment of IT for a specific business purpose, as opposed to a canned product, an architectural approach, or whatever.
Posted by: David Foster at January 20, 2006 01:10 PM
The day of the geek has finished, IT people seem to forget that their customers are those very "users" that keep them in business. IT doesn't matter, its a platform for an application and without the application IT is all one big gimmick.
Posted by: Marty at January 22, 2006 06:44 AM