Viewpoint: May 15, 2003
For those of you who have not seen it, the latest (May 2003) issue of Harvard Business Review has an article that will have significant impact in the business world. The article, by Nicholas Carr, an Editor at Large for HBR, is provocatively, but somewhat inaccurately, titled “IT Doesn’t Matter”. Carr doesn’t actually say that in the article – instead, he argues that the opportunity for strategic differentiation through IT is rapidly diminishing. While he acknowledges that IT is essential for business operations, he makes the case that IT should be managed as a commodity input, squeezing cost out of IT budgets while at the same time ensuring that IT platforms deliver the necessary reliability and security to avoid business disruptions.
We believe this is an important article because it very effectively captures the backlash sweeping through executive suites against IT spending. Certainly much of what Carr writes is spot on: companies have spent too much on IT in the past with only minimal (if any returns) and there is a need to focus on the increasing vulnerabilities we face as we become more dependent on automated operations. But Carr’s article is also dangerous because it endorses the growing view that IT offers only limited potential for strategic differentiation.
We ended up writing an extensive rebuttal to Carr’s article that will be published in the July 2003 issue of Harvard Business Review. In the meantime, we thought we would briefly recap the three key points we made in this rebuttal, so that we could at least make our voices heard earlier in the debate that is sure to develop around this article:
– Extracting business value from IT requires innovations in business practices. In many respects, we believe Carr attacks a red herring – few people would argue that IT alone provides any significant business value or strategic advantage.
– The economic impact from IT comes from incremental innovations, rather than “big bang” initiatives. A process of rapid incrementalism enhances learning potential and creates opportunities for further innovations.
– The strategic impact of IT investment comes from the cumulative effect of sustained initiatives to innovate business practices in the near-term. The strategic differentiation emerges over time, based less on any one specific innovation in business practice and much more on the capability to continuously innovate around the evolving capabilities of IT.
Carr refers to previous technology innovations like the railroad and electricity to make the claim that rapid early investment in the technology is soon followed by commoditization. We argue that IT differs fundamentally from these other technology innovations in two key respects. First, performance improvements in the underlying technology components has proceeded at a faster and more sustained pace than any of these previous technologies. Second, the performance improvements in the technology components have enabled a series of architectural shifts from centralized mainframe architectures to client-server architectures and, more recently, to three tier architectures. Each of these shifts has amplified the power of the underlying technology components, in part by creating more flexibility in the deployment of these resources. In contrast, previous technology innovations began to stabilize and commoditize as a dominant architecture emerged (e.g., think about the standard railway gauges that helped to connect tracks and establish a national railway system). We have yet to see a dominant architecture for IT emerge. In fact, we believe we are on the cusp of another major shift toward a true distributed service architecture that will represent a qualitative breakthrough in terms of delivering more flexibility and fluidity to businesses.
In other contexts, John Seely Brown has championed a perspective he describes as radical incrementalism. This perspective emphasizes the role of architecture in facilitating the ability to rapidly build and deploy radical new components. With an appropriate architecture, radical individual components can significantly amplify their impact. We believe that distributed service architectures will be exactly this kind of architecture in terms of amplifying the innovative potential of individual technology components. But it won’t stop there.
Distributed service architectures have the potential to create a powerful virtuous cycle when coupled with the FAST strategy outlined below. By amplifying the potential of individual technology components, these technology architectures will expand the range of options available to business executives in terms of how they organize and run their companies. The FAST strategy approach helps business executives to innovate business practices in rapid increments, focused by a longer-term view of the opportunities and requirements for business success. Thus, the technology architecture will amplify options for business innovation and the FAST strategy approach will accelerate the innovation process – giving businesses powerful tools to build and deepen strategic advantage.
Bottom line, far from believing that the potential for strategic differentiation through IT is diminishing, we would maintain that the potential is increasing, given the growing gap between IT potential and realized business value. For the more detailed development of this position, you will unfortunately need to wait until the July issue to read the full letter.