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A CRITICAL REVIEW OF NICHOLAS CARR'S "IT DOESN'T MATTER"
STUDENT 1D: 07066996
Brief outline for this coursework
Nicholas Carr's article "IT doesn't matter" (2003) still continues to be controversial even though it was published five years ago. Even now, it is still hard to find people who either agree or disagree with his views in their entirety. Most of his critics concur with him to the extent that IT has become ubiquitous but think his article was faulty since it emphasised the possession of IT rather than its utilisation and management.
This paper begins by reviewing Carr's article and summarising it. It goes on to examine the strengths and weakness of the article and also documents the arguments of his critics, both those in support and against his article. The paper concludes by not totally agreeing with Carr's generic statement that "IT doesn't matter" and articulates the areas of concurrence and divergence. It is the view of this author that IT can still be a source of competitive advantage to an organisation if it is aligned with the organisation's business strategy and the right management, staff and culture are in place to exploit and leverage on the IT assets.
Introduction
Carr's article can be summarised as follows.
o IT is now ubiquitous and essentially a commodity required for day-to-day running of businesses
o Due to this ubiquity, IT can no longer offer significant competitive advantages to organisations since it is readily available to all
o Organisations should therefore reduce their investments in IT by being followers and not leaders
o Organisations should focus more on the vulnerabilities/risks of their IT investments.
Interestingly Carr is not the first person to question the impact and contribution of IT on the performance and bottom-line of organisations. Indeed the Nobel Prize laureate Robert Solow (1987) also generated a lot of interest when he commented that there was no way to prove that technology had an influence on organisational productivity. He arrived at this conclusion by looking at industry statistics and by comparing IT-intensive organisations to those that were not. He realised that the organisations that had large IT investments in previous years did not increase in productivity in any measurable way over those that did not.
But technology is not something that always has an immediate effect or works right away thereby improving productivity in a fantastic way (Dans, 2003). Recent documented experiences with IT investments have shown that they can be hard to implement, may require big changes in training, mentality and even complete redesign of processes in order to generate profits.
Strengths of Carr's arguments
Carr's definition of IT focuses mainly on the technology component for which the three technology laws apply (Metcalf's law, Moore's law and Gilder's law). Carr's arguments on the development of proprietary systems by organisations no longer being advantageous also holds true to the extent that unless it is a core competence of the organisation, it may be better to buy IT as an off the shelf solution. Grant (2003) supports Carr's position in this regard by pointing out that an organisation that develops a proprietary technology to create differentiation and barriers to entry for competitors may not realise any long-term advantage due to the increasing ubiquity of IT.
The emergence of IT use in organisations was in the areas of production efficiencies, rapid information exchange and meaningful staff reductions. Smith, (2004), points out that IT used in this way provided a competitive advantage for the early adopters but this is no longer the case as the use of IT in this manner has become the norm in most organisations. Figure 1 shows the change in the level of competitive advantage enjoyed by early adopters over a period of time. Early adopters have already reaped the majority of the advantages offered by IT as shown in Figure 2
Figure 1: Poisson distribution for competitive advantage (Kimber, 2005)
Figure 2: S-curve of ubiquity vs. Z-curve of advantage (Carr, 2004)
Basic transaction processing has crossed the second knee in the S curve and is a mature technology around the world. Powerful computing and communications technologies are accessible to most organisations and skilled personnel required for implementation and maintenance are also available (Smith, 2004). Therefore the use of IT in back office applications such as transaction processing may have lost its power in providing any type of advantage.
The growth in outsourcing of IT supports Carr's view of it being a commodity. Any operation/function that is outsourced is one not considered strategic by an organisation (Bannister and Remenyi, 2005). The power of most PCs today is more than enough to meet existing organisational needs. The same holds true for software with organisations becoming increasingly reluctant to pay for upgrades and waiting longer to do so (Bannister and Remenyi, 2005). All these support Carr's views that the first mover advantage offered by IT is rapidly declining.
Buttressing Carr's opinions, Grover (2003) makes it clear that any IT value created through improvements in productivity can be quickly lost if the IT involved becomes a competitive necessity for the industry.
Weaknesses of Carr's arguments
The applicability of Moore's law to the software aspect of IT is questionable and his suggestion that organisations compel vendors to stop making constant upgrades to their solutions seems far fetched. Carr's concept of IT does not take into cognisance the value of organisations having the right information at the right time. Having a superior IT platform can enable the flow and availability of superior information. While IT resources may have shifted from being a proprietary to a purchased good that levelled the playing field, the opportunities that are available for customising even off the shelf IT solutions can prove to be a source of differentiation for an organisation (Tapscott, 2004).
For instance, different organisations may all buy the same SAP ERP software but not all will customise and use it in the same way. Carr argues that the availability of web services means competitors will be able to reproduce technology innovations easily but he fails to realise that web services also means organisations are able to create software faster (Tapscott, 2004). For example, Amazon and eBay do not have proprietary terminals in the homes or offices of their users but their competitors have not caught up with them because most of their users are locked in by the power of their software application and business models. Their proprietary resource in this instance is the resilient power of their IT-enabled relationships.
Carr fails to understand the role IT can play in the development of business models though he agrees that business models can be a source of competitive advantage (Tapscott, 2004). The impact is particularly felt with the emergence of business webs that allow organisations focus on their areas of core competence while partnering in the other areas. This is a business model that is greatly facilitated by IT. For some IT, it may make sense just to be a follower and achieve competitive parity while in others, an organisation should try to be a leader though not necessarily a big spender. And with technologies like service oriented architecture (SOA) and intelligent information networks, being a leader in IT innovation and usage no longer needs to be costly for an organisation (Tapscott, 2004).
IT as a commodity
Carr's views of IT as a commodity suggests that IT systems , services and suppliers can be quickly changed without a major loss of functionality and productivity thereby implying that switching costs are minimal and frictionless (Grant,2003). Research and practitioner literature have however discussed many failed IT projects that were due to inappropriate sourcing decisions. Organisations still battle with understanding the technologies they are acquiring, their suitability and how to measure their contribution to the organisation's bottom line (Scott and Vessey, 2002).
While some of Carr's views can be understood in the context of North American and Western European organisations, the situation in developing countries is quite different with a lot of them still grappling with the provision of basic IT infrastructure to support business activity. The ubiquity that Carr refers to is therefore clearly not global (Grant, 2003). Regarding IT as a commodity implies that very little change is expected in that industry in the future. However, the IT industry over the last couple of years has been characterised by radical shifts happening in innovations in hardware, software and communications technologies (Grant, 2003).
The strategic value of IT can be understood using the dynamic capabilities perspective (Teece and Pisano, 1994; Teece et al, 1997; Eisenhardt and Martin, 2000). In attempting to explain how organisations acquire and sustain entrepreneurial rent and competitive advantage, these researchers argued that strategic advantages depend on the ability of an organisation to effectively adapt, configure and manipulate resources and dynamic capabilities to address the requirements generated by increasingly dynamic and unpredictable environmental conditions rather than residing in the just the possession of valuable resources and capabilities assembled by the organisation.
Unsuitability of Carr's analogies
The comparison of IT with railroads does not seem a suitable analogy because the speed and reliability of railroads has not significantly changed in the last 100 years unlike computers and communication technologies that are getting faster, more reliable, easier to manage and more flexible (Bannister and Remenyi, 2005). Additionally, rail systems are still capital intensive unlike IT systems that which are usually just capital intensive in the initial stages. The comparison of IT with electricity seems to be a better analogy if it is examined in the context of pure processing power or bandwidth. But with electricity, it is what you can do with it that really matters which is exactly the same case with IT. All of Carr's analogies however do not explain the software component of IT.
The different types of strategic value accruable from the use of IT
The strategic value of IT as discussed by Bannister and Remenyi (2005) is summarized below.
Strategic value as fundamental to an organisation's business/industry: Most organisations cannot function without IT. IT is now a norm and not an exception for the daily running of organisations. Examples of industries heavily dependent on IT are the financial services and airline industries.
Strategic value as long-term vale: IT has short life cycles, but the embedded knowledge is usually cumulative. This has a long-term impact which is usually difficult to measure.
Strategic value as a platform for change: IT can provide a basis for change of direction. Organisations like Boeing have used IT to change the way they do business (Tapscott and Williams, 2006). Another example is the Lyons Tea Company (Ferry, 2004).
Strategic value as necessary for survival: IT is becoming increasingly compulsory in some industries. For instance, no bank can operate without the use of IT. The online retailing sector is another example where IT is becoming the status quo.
Strategic value as a platform for innovation: This is an area that Carr overlooked in his article. Drawing from his analogy of IT and electricity, it is obvious that the main benefits of electricity do not accrue from how it is distributed or stored but from the variety of things it can be used to power (televisions, radios, cookers, washing machines, e.t.c). The advent of electricity led to the production of these devices and spawned whole new industries. This same view is what Carr should have extended to IT.
Strategic value as a first mover: This is one of the thrusts of Carr's article and in this case being a follower rather than a leader in adopting some types of IT can actually be beneficial for an organisation because it can gain from the best practices built into the IT solution based on lessons learnt from early adopters of that IT.
Strategic value as incremental improvement: Ciborra (2004) indicates that long-term sustainable competitive advantage does not come from technology breakthroughs but from the different ways of doing things better through a process of continual improvement. This is the underlying principles of the Kaizen and lean manufacturing techniques which Japanese automakers pioneered in the early 1990s. Organisations should be on the lookout for small ways in which they can use IT to make themselves a little better rather than waiting for the next big thing from IT vendors.
Figure 3 shows how these strategic values of IT are changing and Carr enjoys some concurrence in the decline in the strategic value as a first mover and for long-term delivery. But some of the other forms are maintaining a steady state with some actually increasing with time (i.e. incremental improvement and platform for innovation). This analysis shows that while Carr may have been right in his attack against traditional justification of IT as giving strategic value through competitive advantage delivered through radical differentiation and/or cost, he ignored the other types of strategic value delivered by IT (Bannister and Remenyi, 2005).
Figure 3: Change in strategic importance of IT (Bannister and Remenyi, 2005)
Business Process Re-engineering
The current wave of business process re-engineering is IT enabled. With the use of tools that are radically different from the traditional systems which are the basis of Carr's arguments, dynamic organisations are now able to model many of their business processes digitally. This moves the use of IT away from being data-centric to being process-centric. The advantages of using IT for process-centric functions are significantly greater than when it is used for data-centric functions.
An organisation's position in an industry by a competitor can be threatened if the latter is more insightful, more connected to its customers and quicker to deliver solutions. All these can be achieved by a competitor who uses its IT resources in a more superior manner than others. Therefore copying the portfolio of a business rival may provide competitive parity but not advantage (Davies, 2008). IT is becoming a factor in innovation and growth and organisations that do not rise to using it for than cost-cutting, efficiency enhancing and process improving are the ones not likely to obtain any significant benefits from using IT.
IT alignment with business strategy
The work of Henderson and Venkatraman (1993) indicates that the lack of functional alignment between the business and IT strategies of organisations is the main reason for their inability to realise value from their IT investments. The discrepancy in IT management is further exacerbated because technological aspects of IT management have been overemphasised to the detriment of information management. Henderson's and Venkatraman's strategic alignment model contains four inter-related domains that are relevant to the alignment of IT. These are
1. Business strategy
2. IT strategy
3. Organisational infrastructure and processes
4. IT infrastructure and processes.
Ehrenhard at al (2006) however refine this model by arguing that the IT strategy domain can be subsumed into the business strategy domain leading to the model becoming triangular and not rectangular as shown in figure 4. They call this new model 'the process alignment model' and it their view that it supports the traditional perspective in which business strategy is the driver and the focus of the IT staff is on strategy execution.
Figure 4: Modification of the Strategic Alignment Model to the Process Alignment Model (Henderson and Venkatraman, 1993; Ehrenhard at al, 2006)
IT offers capabilities of exploitation and capabilities of exploration. By using it for exploitation, an organisation gains greater outputs or lowers inputs for productivity gains. Using it for exploration however means increasing the intelligence of the organisation on the feasible set of opportunities using IT which senses the environment, enable tacit knowledge exchange and facilitates the interactions required for new innovations. Mata et al (1995) point out that the conversion of valuable but ubiquitous IT assets to capabilities of exploitation and exploration creates heterogeneity across firms and this can be a source of competitive advantage. This view also conform to Soh's and Markus' (1995) process theory synthesis which is illustrated in figure 5 below.
Figure 5: How IT creates business value (Soh and Markus, 1995)
Categorisation of IT investments
The nature of IT investments can be explained using the tri-core model proposed by Swanson (1994) which demonstrates the three levels of innovation in IT. This is shown in Figure 5. The first which is the most internal one is called the technical core. Innovations at this level affect only the way technical tasks are performed (e.g. operating system migration, a new database or a revamped architecture). The second layer is the administrative core and innovations in this layer affect the way administrative tasks are carried out in an organisation. Examples include ERP packages. The third layer is the business core and it allows innovations that change the nature of the business. An example of this is Amazon's collection of opinions from customers, making them available to other potential customers and thereby creating an information product that improves its online value proposition.
Figure 6: A tri-core representation of IT/IS innovations in organisations (Swanson, 1994)
Organisations may of course interpret IT investments as belonging to different layers other than Swanson's categorisation. While on organisation may implement e-commerce as a way of reducing administrative tasks with key customers thereby placing it in layer 2, another organisation may consider e-commerce as a means of accessing new markets and customers thereby placing it in layer 3 because of its strategic context (Dans, 2003). Common sense dictates that Carr's suggestions on how organisations should manage their IT investments are applicable mainly to the first layer and to some extent the second layer. Business and IT executives must be able to discern which investments fall into each layer so that some can be treated as 'pure efficiency' (layer 1 and part of layer 2) and others as 'the name of the game' (predominantly layer 3 but may contain some parts of layer 2) (Dans, 2003).
Conclusion
Carr's article succeeds in bringing to the front burner the fact that IT investments are an important area for organisations and that not all IT investments should be automatically embarked upon. Also, the vulnerabilities/risks of an organisation's IT-enabled relationships (internally and externally) must be carefully managed. However, if organisations adopt Carr's suggestions in their entirety, stagnation will occur further eroding their market share and fortunes.
Competitive advantage from possession of IT should no longer be the justification for making IT investments. Rather, adding value to the organisation should be the new rationale. Organisations must determine whether they have the desire or capability to use IT for creative advantage and decide which IT investments can help realise that goal.
Value creation using IT does not occur by simply having the best technology available in the market. Organisations have to be able to assemble, motivate and deploy knowledgeable and competent managers, technical specialists and users who , working together are able to craft and execute innovative strategies and tactics in applying and exploiting the deployed IT. The value of IT lies more in its use than its possession.
The effect of people and organisational culture must be placed in proper perspective. This will explain why although two organisations may have the same IT assets, one still performs better than the other. IT-enabled relationships and processes such as SCM, JIT are widely used in most organisations yet some still continue to outperform their counterparts. In the auto industry for instance, the Japanese manufactures (famous for their origination of JIT, lean manufacturing and kaizen principles) are still ahead of the North American and European counterparts despite the fact that they are all basically using the same IT resources.
Organisations must realise that simply playing the technology card is no longer enough to ensure competitive advantage. Competitive advantage is achieved through the application of innovative, creative and imaginative procedures, processes and practices that can differentiate an organisation from its competitors. IT can play an important role but only to the extent to which it supports the organisation's innovation, creativity and imagination. As Ciborra (2004) and Curley (2004) have pointed out, the problems relating to the use of IT strategically, maybe in the deficits of imagination by CIOs and CEOs rather than in inherent limits in the technology itself. IT will really matter in future as an accelerator of innovation and appropriate use of IT will require considerable complementary investment in people, process, culture and support.
IT will definitely matter not when you just own it, but when an organisation has forward thinking, innovative/creative personnel who constantly come up with new ways of taking their organisation to greater heights and know how to use IT to realise this objective.
References
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