A recent article by Nicholas Carr in Harvard Business Review (May 2003) entitled “IT Doesn’t Matter” forcefully argues that investments in IT, while acutely important, are less and less likely to deliver competitive advantage to an individual company. Unsurprisingly, this has set off a heated debate in business, academic, and technology circles about the value of IT as a driver of strategic advantage. In reflecting on the significance of IT to the CMS industry, I thought it would be useful to summarize and expand arguments on both sides of the issue, while using this article to solicit points of view on this important debate from you—the practicing CMS community.

Carr’s argument goes like this: Like many broadly adopted technologies, such as railways and electrical power, IT has become a commodity. Affordable and accessible to everyone, it no longer offers strategic value to anyone. Carr distinguishes commodities from sources of potential strategic value by pointing to examples of past innovations. For example, companies don’t build strategy on electrical usage— but even a brief lapse in supply can be devastating, as the recent Northeastern power outage can attest. Today, an IT disruption can prove equally paralyzing to your company’s ability to make products, deliver services, and satisfy customers. Carr rightly concludes that: “Scarcity—not ubiquity—makes a business resource truly strategic.” Companies gain an edge by having or doing something others can’t have or do. Now that IT is ubiquitous, however, Carr believes focus should be redirected to IT’s risks more than its potential strategic advantages. While conceding that IT is alive and well and will continue to be a source of dramatic change, Carr argues that IT is diminishing as a source of strategic differentiation, and that the benefits of such changes will go to whole industries rather than individual companies. Thus, instead of seeking advantage through technology, Carr contends that companies should manage IT defensively—watching costs and avoiding risks despite any renewed hype about its strategic value. This should help companies avoid overspending on technology in the quest for business value, the author claims.

Following its publication, there was an outcry from a varied audience that was universally critical of Carr’s argument. Many people convincingly responded that the reality is subtler (and even quite different) than the author would have us believe. The consensus is that Carr’s viewpoint risks perpetuating an incomplete understanding unless the following factors are considered:

1. IT may be widespread, cheap, and available to all (commoditized), but the insight required to harness its potential will not be as evenly distributed.

It is now understood that the biggest investors in IT don’t necessarily get the most value from the technologies. Firms using identical information technologies and spending comparable amounts on IT display an enormous variability in profitability. In underperforming companies, rather than focusing on the challenge of innovating business practices, vendors have convinced their clients that signing a purchase order will solve all their woes. What does this mean? What a company invests in, and how well it is applied to improve and innovate business practices, counts far more than how much is spent. Carr is correct that the hardware, network, and IT infrastructure have evolved into commodity services to some extent. His treatment fails to explain that the intelligent application of IT – the “information” in information technology remains an underexploited source of competitive advantage. In short, IT never mattered. What matters is how companies use it – the “unique and differentiating ways in which we marry information technologies with our intellectual capital: our business models, our organizational cultures, our creativity.” (See Mark Lewis's response, page 12.) These strengths stem from people.

2. IT is fundamentally different from other “infrastructual technologies” and can sustain and extend the value of a firm’s knowledge capital.

Carr draws some misguided analogies, and it is important to differentiate IT from other infrastructure cited in his article. With railroads, electricity, and telephones, the technology came in one major “chunk” or innovation, and the rate of improvement quickly reached a point of diminishing return. Not so with IT. Witness the exponential growth of processing power: a computer in 2000 was 10 million times faster than a 1960s computer, and continues to grow exponentially, consistent with Moore’s law. There is no evidence that IT innovations have reached a plateau. Rather, companies will continue to see cumulative effects from sustained innovations in technology and business practice. Technology performance improvements have multiplicative effects by forming entirely new ways of storing, distributing, and processing data. These capabilities in turn precipitate fundamental new opportunities for thinking about how we organize ourselves, and execute on new ideas.

3. IT still has the potential to provide dramatic competitive advantage by changing the way companies work together.

Even if—as Carr defines it—IT has essentially become a “utility”, and limits to individual productivity have been reached, thinking about IT’s possibilities “outside the enterprise” is a new frontier. Several respondents argue this factor alone will continue to make IT an issue of strategic importance. This is particularly relevant to the CMS world, where opportunities for redefining relationships among companies will make the ability to bring together complementary assets and capabilities a differentiator enabled by IT. As one respondent maintained: “…IT is all about creating integrated business relationships in which suppliers, producers, and customers act as if they were in one company, sharing information on inventories, production, demand forecasts, lead times, and maybe costs and pricing.” (See Roy Pike's response, page 13.) This is functionality that cannot be quickly copied by competitors.

CMS companies face a multitude of choices regarding how to collect, organize, distribute, and manage data. To improve business results in light of this debate, ask yourself: what is our technology strategy, and how does it affect our corporate strategy? Many, myself included, believe IT is too important to be written off. However, organizations need to be realistic about what IT can and cannot do for them. As Bernadette Hearn, editor of e-business Chemicals Newsletter, so eloquently puts it: “Just because I have oil paints and canvas does not make me capable of painting like Rembrandt. Neither does merely having the latest IT make me capable of dominating my market. But Rembrandt could not have painted without oils and canvas, and no business leader today can create innovative solutions to complex business problems and gain competitive advantage without IT.”

What’s your take? Write gmarett@tellus.org with your opinions on this important debate.