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In the following article, originally published in the May 2003 edition of the Harvard Business Review, I examine the evolution of information technology in business and show that it follows a pattern strikingly similar to that of earlier technologies like railroads and electric power. For a brief period, as they are being built into the infrastructure of commerce, these “infrastructural technologies,” as I call them, open opportunities for forward-looking companies to gain strong competitive advantages. But as their availability increases and their cost decreases – as they become ubiquitous – they become commodity inputs. They may be more essential than ever to the economy and to society, but from a strategic business standpoint, they become invisible; they no longer matter. The staff of HBR voted “IT Doesn’t Matter” the best article to appear in the magazine during 2003.
The article caused quite a stir – I documented the controversy as it unfolded – and it continues to be a lightning rod for debate in IT circles. I went on to greatly expand the argument of the article, and clarify a few of its points, in the 2004 book Does IT Matter?, which you can order here. You can also purchase the full text of “IT Doesn’t Matter,” in its original form, here. The original article includes some additional sidebars and graphics as well as many pages of letters written to HBR in response to the article.
IT doesn’t matter
In 1968, a young Intel engineer named Ted Hoff found a way to put the circuits necessary for computer processing onto a tiny piece of silicon. His invention of the microprocessor spurred a series of technological breakthroughs – desktop computers, local and wide area networks, enterprise software, and the Internet – that have transformed the business world. Today, no one would dispute that information technology has become the backbone of commerce. It underpins the operations of individual companies, ties together far-flung supply chains, and, increasingly, links businesses to the customers they serve. Hardly a dollar or a euro changes hands anymore without the aid of computer systems.
As IT’s power and presence have expanded, companies have come to view it as a resource ever more critical to their success, a fact clearly reflected in their spending habits. In 1965, according to a study by the U.S. Department of Commerce’s Bureau of Economic Analysis, less than 5% of the capital expenditures of American companies went to information technology. After the introduction of the personal computer in the early 1980s, that percentage rose to 15%. By the early 1990s, it had reached more than 30%, and by the end of the decade it had hit nearly 50%. Even with the recent sluggishness in technology spending, businesses around the world continue to spend well over $2 trillion a year on IT.
But the veneration of IT goes much deeper than dollars. It is evident as well in the shifting attitudes of top managers. Twenty years ago, most executives looked down on computers as proletarian tools – glorified typewriters and calculators – best relegated to low-level employees like secretaries, analysts, and technicians. It was the rare executive who would let his fingers touch a keyboard, much less incorporate information technology into his strategic thinking. Today, that has changed completely. Chief executives now routinely talk about the strategic value of information technology, about how they can use IT to gain a competitive edge, about the “digitization” of their business models. Most have appointed chief information officers to their senior management teams, and many have hired strategy consulting firms to provide fresh ideas on how to leverage their IT investments for differentiation and advantage.
Behind the change in thinking lies a simple assumption: that as IT’s potency and ubiquity have increased, so too has its strategic value. It’s a reasonable assumption, even an intuitive one. But it’s mistaken. What makes a resource truly strategic – what gives it the capacity to be the basis for a sustained competitive advantage – is not ubiquity but scarcity. You only gain an edge over rivals by having or doing something that they can’t have or do. By now, the core functions of IT – data storage, data processing, and data transport – have become available and affordable to all. Their very power and presence have begun to transform them from potentially strategic resources into commodity factors of production. They are becoming costs of doing business that must be paid by all but provide distinction to none.
IT is best seen as the latest in a series of broadly adopted technologies that have reshaped industry over the past two centuries – from the steam engine and the railroad to the telegraph and the telephone to the electric generator and the internal combustion engine. For a brief period, as they were being built into the infrastructure of commerce, all these technologies opened opportunities for forward-looking companies to gain real advantages. But as their availability increased and their cost decreased – as they became ubiquitous – they became commodity inputs. From a strategic standpoint, they became invisible; they no longer mattered. That is exactly what is happening to information technology today, and the implications for corporate IT management are profound.
New Book! Excellent!
I’m secretly hoping to one day see a Nicholas Carr book on “Does it MATTER – Digital Fabrication and the corrosion of competitive advantage” covering why inkjet printing of physical objects and electronics will commoditise and distribute the manufacturing process turning us all into consumers and manufacturers.
While an avid reader of Mr. Carr writing, I still believe his views have a few basic flaw. The primary one is mixing and confusing computing and IT.
Cars, Trains and Air Lines could be considered commodities. Transportation isn’t.
Electricity and water are utilities, power and colling aren’t.
Major elements of computing have been turning commodities (CPU, RAM, Disks) or turning to utilities (Communications), but IT is more then that.
IT matters in the same sense that manufacturing, finance and operations matter. It is the art of making the most of the available resources to advance corporate goals.
The mistake many corporations did was to treat IT as part of of their core business. Many others avoided IT like the plague. Both extremes were wrong.
IT is mission critical, and part of the cost of doing business. No more, no less.
IT expenditure is the wrong tool to evaluate the weight of IT. Aside from the dot.com bubble (now known as web 2.0), the reduced spending can point to a growing understanding of IT importance.
Not only is the market saturated with sufficient resources (sufficiently powerful PC and Servers and abundant storage) Time is invested as apposed to money. Knowledge and information management is replacing disk space, for one. Virtualization and open-source are reducing shopping sprees, for another.
IT has never mattered so much.
Gil, you seem to be agreeing?
The majority of IT is CODB (cost of doing business) with a minority providing any real differentiation and potential competitive advantage except as highlighted by Andrew Mcafee in the advantage of good implementation in an environment where everyone is poor at implementing.
Being cost of doing business – the sensible course of action is no better than your competitors and either the same price or cheaper. The best way of achieving this is through standard services, preferably utility based (i.e. SaaS etc) and to avoid customisation.
This is what Carr is talking about. This is what you are talking about.
Mission critical – of course, so is electricity for most businesses.
Do you need your own flavour of electricity – of course not. You want it regular, reliable and cheap.
I don’t think there is much disagreement with your view and Carr.
Of course the minority which does bring some differentation needs to be treated differently – but then you were talking about CODB
By the way, a lot of the web 2.0 talk is about commoditisation of IT and operating environments – there were at least five major sessions on this one issue at the web 2.0 summit
I have to agree with Simon-
I have agreed with Mr. Carr since the article was written in HBR. And to date, any argument I have heard against it, states that company A or B is using IT for X and Y. However their argument does not answer the following;
1) Is company A or B’s competitors also using IT? or they stuck on mimeograph paper and carbon copies?
2)Is company A or B’s advantage in *how* they are using that CODB IT
Well, to paraphrase what was (cough) originally written, IT does not matter, how you manage it does.
I appreciate Nick’s trying to keep us informed/entertained, while he’s off writing. The thesis of the original article was only disputed by those with no vision. Yet even now several years later, what is self evident to most and reality to many, is still hard to grasp for some.
When mainstreamers like Dave Berlind over at ZD Net publish articles that posit that small businesses (SMBs) “should outsource everything and vendors must adjust .” It’s over. This just 3 years after Carr’s disruptive, “Does IT Matter?” What was once heretical is coming to pass. HP and IBM are working feverishly on “dark data centers” (i.e. few or no employees and the lights are out). The transformation to “utility” computing has begun. And it will not abate. That is good news.
Mike Whatley
Altadena, Ca.
OK, this is problem bad form and a shameless plug for my company – so please forgive me.
For about the last decade, I’ve been talking about commoditisation of a number of areas – from IT to the manufacturing process – as a general theme. I’ve spoken over the last three years at a number of conferences on this, plus also the use of “worth based development” techniques for areas of IT which can be considered CA (competitive advantage) – it’s a more VC way of funding those projects.
Hence I’m in complete agreement with Carr and his book – though the title is fairly inflammatory. When Carr released his HBR article it was a turning point for the industry due to amount of noise it created – the cat was truly let out of the bag.
The company I run has been using utilty concepts and worth based concepts (along with supporting the open source movement) for some time within IT.
We’ve extended this further by releasing (in Jan ’06 and then launching in June ’06) a commoditised web operating environment (known as Zimki) that uses a utility model for billing. We’ve been working on this for some time, and we plan to open source this during 2007 in order to allow competitors to form and for us to release the Grid components.
The key part of this is that data centres with spare capacity can sell into the grid, customers can use the grid or their own systems (avoid lock-in etc) and we’ve aimed to simplify the process of building.
It’s still all beta but it is growing. End of plug.
We are not the only one’s working in this area, and yes there are a number of others groups also building large data centres to act as utility “IT power houses”.
There is also a growing realisation of the distinction between CA / CODB (and the in-between or transitional stages) of various IT services.
This is all good news and is just a well trodden path of progress.
This doesn’t mean that “IT doesn’t matter” – it does, but for the majority just in the same way that electricity does.
This just shows the influence of Carr’s writing. Five years ago, when I talked about such concepts the howls and nashing of teeth were most unpleasant. These days, it’s a major theme of the web 2.0 summit and fairly universally accepted as a future direction. From what Jeff Bezos calls “Muck” to what we call “Yak-Shaving” – the simplification of all those commonly repeated bits of IT, from hosting to CODB like apps provided as SaaS.”
I agree with Mike that IT as we know it is over, and it’s a good thing. The million dollar software projects, the hardware pork barrel, the glorified developers/janitors that write 1500 lines of code per year. IT definitely has a dial tone and the phone is ringing.
The key for me is that T (Technology) is not over, in fact, I think we will be entering the most exciting period yet. I see this period as one where IT staffs are used to switch companies into sustainable business practices – solar data centers, appropriate business-centric technologies, information shaping. This is where all the interesting stuff is anyways. Crunch the Capex into Opex and kill IT as we know it – let the Googles and HPs do the grunt work of email and apps. Then we can get on with the most pressing problem, green business.
Simon:
“Do you need your own flavour of electricity – of course not. You want it regular, reliable and cheap.”
Surprisingly I see more and more example to the contrary. When the utilities fail or get more expansive, this is exactly what happens. Private power sources, building sites according to power grids and (especially in Israel) SMB’s moving to residential areas, as power supply is overloaded and more expensive in industrial areas.
When I say “IT does matter” I mean that SaaS or SOA do not mitigate the risk analysis, they simply move them.
There are a number of issues around utility computing services – from lock-in, to QoS & reliability to disaster recover.
Though we run our own utility based web application development and hosting cluster (our CWOE – commoditised web operating environment – called Zimki) with a HA (high availability) structure, we realise these issues exist.
That is why we have chosen to take the route of open sourcing the entire service this year, and providing higher level grid elements to create a “national” grid of Zimki providers.
With such a mechansim, no customer is locked-in (you can host your own) and customers can choose multiple providers to mitigate risk in a way that is not simple to them today.
At this moment is time in the computing world you need to either build your own power station or lease time from someone else’s. There is no grid balacing supply and demand between multiple customers and multiple power generators – there exists no market
This is what is starting to happen – many groups are looking at this problem in different ways and yes there will always be examples of companies wanting their own power station.
Most of us though don’t want our own power station, or flavour of electricity – we’d rather just plug into a grid
IT has more faces. Of course there are some established “low level” types of IT that can be seen as utilities. But there also “high level” IT like SOA and enterprise wide BPE. With that techniques managers has opportunities to deeply understand and optimize processes in their companies. Of course primarily creative people at every company level are matter in this case. But if you go on to establish your enterprisewide IT-Architecture with low-cost principle, you will later run in troubles just because the maybe cheapest solution is not flexible or maintainable. This will run your company on troubles. So in my opinion the decision of IT is what really matters and in that sense the IT matters to.
As mentioned before IT has much faces and levels. To say in general, that IT does not matter is just imprecise. But in the average of all IT facets the
assertion “IT does not matter” may be the truth.
Nice information.Thanks