Nicholas Carr touched off a heated debate on the role of information technology in business with the publication in 2003 of his Harvard Business Review article "IT Doesn't Matter" and the 2004 book Does IT Matter? Information Technology and the Corrosion of Competitive Advantage.
Almost three years later, the discussion continues. Businessweek.com's Kate Norton spoke with Carr and Robert L. McDowell, Microsoft's (MSFT) vice-president for information worker business value, following a Microsoft-hosted panel in London on Oct. 4, about how the debate has changed and where it's headed.
How have your views evolved since your 2003 article first came out? Carr: The article made the case that for most companies, even as IT has become more central and more commonplace, it has lost its strategic importance and its ability to differentiate one company from the rest. As I studied it more and talked to more people, it has become clear that there are exceptions to that generalization that are also important.
I've been trying to focus on what can you learn from those exceptions. We're at the point where the most general IT—the stuff that automates the general processes that all companies share—rarely offers an opportunity for an advantage. But if a company can apply IT in a precise way to something that's already different and valuable about what it does, then IT can have a kind of amplification effect in making the advantage stronger.
So, for instance, a financial trading company that has developed proprietary knowledge of pricing derivatives or trading derivatives can amplify that advantage by building it into proprietary software that lets it scale-up…or use it quicker.
If there are places where IT provides an advantage, it's in very narrow applications. But what companies have to keep in mind is that within the entire realm of their IT budgets and their IT operations, that will be a small fragment. They still have to attend to everything else and make everything else more efficient and more reliable.
Can you make the case for proprietary IT in light of globalization? Carr: It's harder to make the case. There is a point where pursuing distinctiveness in IT can backfire because the great power of IT now comes from its becoming a shared infrastructure that allows you to transact business easily with other companies.
For more and more companies, the right path is to go toward more standardized, less distinctive IT. You don't want to be an IT island as companies used to be, when they were all out developing their own architectures and their own infrastructures
One of my core thrusts is that it's to the benefit of the company to stop thinking about IT as a way to gain advantage. Once you accept that position, you can begin to tap into the big productivity gains and effectiveness gains that come with building your business on top of a common, shared, cheap, reliable infrastructure.
McDowell: That's one of the things I disagree with. I agree with Nick that as the technology matures and becomes more available, more of a commodity, then costs come down and everyone has access to it. People are not going to gain competitive advantage from just using that.
But I don't think that negates the argument that there are still untapped opportunities to take advantage of IT in a unique way—either how you optimize core processes, or how you use information—that can be to your advantage interoperating in a standards-based world.
One of the difficulties with this discussion is you can't define what IT means today insofar as it will be absolutely accurate 5 to 10 years down the road. Unlike electricity and the railroad, you're going to see continued innovation.
I would argue innovation will be happening at an even faster rate than we're seeing today. As that occurs, there will be more opportunities to take advantage of it. The quicker movers will be ahead, and those that hold back will be hurt.
Obviously Microsoft has helped to a great extent to make IT a "commodity." Do you think Microsoft has stifled innovation? Carr: To some degree you could have argued that a number of years ago, when Microsoft became so dominant on the desktop. I think there were a lot of people who might have done interesting innovation in the PC world who said businesswise this doesn't make sense.
But I think it's less so now, because the desktop isn't as important as it used to be, and Microsoft is facing competition in many areas much more aggressively than it has for years. I think that's good for everyone and ultimately for Microsoft, too.
McDowell: That reinforces the point about the definition of IT. The environment today is as competitive as I've ever seen it. It's good for our industry, and it breeds more innovation. I don't perceive that stopping.
What are your thoughts on legacy software systems such as those from Oracle and SAP and their impact on creativity? Carr: They have great benefits in automating a lot of processes that were fragmented. On the other hand, traditional enterprise applications like SAP's (SAP) and Oracle's (ORCL) are so complex and so hard to manipulate, particularly at the user end, that they often have locked companies into processes. Although they make those processes more efficient, they also make it harder to react in many cases to changes in the environment, changes in competition, and changes in markets.
Those traditional enterprise applications are still a little bit the IT of the past. We're now going to move to an era where there is more flexibility, less monolithic software, and more modular pieces. These are built on an underpinning of shared standardized data that each company has, but then can be manifested in many different and more flexible ways. My sense is that companies like SAP and Oracle understand that, and the challenge is how to get from a business that is so reliant on maintaining the old systems, to the new world.
McDowell: I think it's a natural evolution of the technology to try to architect systems in such a way that they're more flexible and more responsive to change. That's the reality that SAP and others are facing, and so are we.
Do you notice a different attitude in Europe toward IT vs. the U.S.? Carr: At the technology [infrastructure] level, there are huge differences throughout Europe itself. In terms of attitudes, I've found that Europe is less prone to buying into a lot of hype about IT. While I think that's healthy, there can also be a drawback, it can lead to complacency.
But in general I think Europe doesn't share the tendency that the U.S. has to see IT as a solution in and of itself to problems. In this era, a more skeptical attitude toward IT is the right one to have.
Where do you see this debate going? McDowell: I think Nick and others who've raised this issue are doing a service because it's causing the industry to be a lot more serious in focusing on true business value. One of the risks, and I'll admit it, of the '90s, was a lot of us got involved to some extent in hype and promises that exceeded reality, and some mistakes were made.
There is a lot more businesslike focus in IT today. From an industry perspective, I think you can differentiate…one supplier from another on how well they make the business case, not on how much they focus on technology as an end in itself.
Carr: Focusing on the exceptions and what can we learn from them is a much more interesting discussion than the way it started out. We've moved beyond the era where IT vendors can get away with just saying every new product was "strategic" and "you've gotta have this."
The industry has moved beyond that. We're at the stage of the debate where it's focused on more concrete things that can help the actual buyers and users of technology do a better job.
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