Oregon Executive Dads (OED) Team IT Doesn’t Matter HBR Article by Nicholas G. Carr Including debate by John Brown, John Hagel III, Paul Strassman, et al Oregon Executive Dads (OED) Team

Core Arguments of the Article Do we really need to care about IT? IT has become ubiquitous and a commodity Commodities don’t have strategic value Greatest IT risk is overspending Puts your company at a cost disadvantage Instead make IT management boring To avoid over investing Spend less on IT Follow don’t lead industry in IT use Focus on IT risks not opportunities

Premise IT has moved from being differentiated technology to infrastructure technology. Core functions of IT – data storage, processing and transportation are available to all Like railroads, electricity and telephone IT as a resource therefore cannot offer sustained competitive advantage There is little value in creating proprietary differentiated solution for an advantage IT technology as a data transport mechanism is more valuable when shared than used in isolation E.g. Linking ERM systems for gaining efficiency in SCM

Premise Executives continue to spend more on IT assuming advantage will be available indefinitely One can only hope to get short term advantage with competitors eventually catching up Even best IT practices are quickly added or replicated US dept of Commerce Bureau of Economic Analysis

So what should companies do? Go from offense to defense Late 90s showed significant IT build-up Post build-up manage risk instead of overspending “When A Resource Becomes Essential To Competition But Inconsequential To Strategy, Then Risk Created Outweighs Advantage Provided” Stronger cost management is critical

So what should companies do? Reevaluate your refresh cycle Push back on vendor driven upgrade cycles Drive waste out Top performers tend to be tightfisted 25 best performing companies spend just 0.8% Typical company spends 3.7% of revenue on IT Data from Alienan Consulting 2002 Intel spends 2.9% of revenue on IT Mark Bryan, Intel Oregon Site Manager

Recommendation 1. Spend Less Rigorously evaluate expected returns from IT investments Penalties for wasteful spending will only grow larger as commoditization of IT continues Explore simpler and cheaper alternatives

Recommendation 2. Follow, don’t lead Moore’s Law gives you bigger bang for your buck if you wait Let impatient rivals take the burden of higher cost of experimentation Buy only when standards and best practices solidify

Recommendation 3. Focus on risks, not opportunities Competitive advantage from mature infrastructural technology is rare Outsourcing is likely when reducing costs which can make your systems vulnerable Technical glitches, outages, and security breaches are inevitable in ubiquitous systems - shift attention from opportunity to risk management

Do you agree… why?

Analysis Title perpetuating a misguided view IT DOES matter!!! Carr is suggesting that IT is diminishing as a source of strategic differentiation However companies with insight to harness IT’s potential can still differentiate Differentiation is in the practice of IT Extracting value from IT requires innovations in business practices IT’s economic impact comes from incremental innovations rather than “big bang” initiatives like in the late 90s Cumulative effect of sustained initiatives brings strategic impact

Analysis Graph show commoditization of IT Subject lesson for Darrell Huff’s well-known book – How to Lie with Statistics Growth in computing power based on Moore’s Law is a source of differentiation that can be leveraged with services, product features and cost structures Financials: E*Trade vs Charles Schwab vs Merrill Lynch Laptops: Dell vs HP vs IBM vs Toshiba vs Sony Shoes: Nike vs Adidas vs K-Swiss

Analysis IT is not about the box as Carr suggests it’s about what’s inside the box IT has the potential to improve productivity dramatically, this time by changing the way businesses work together First companies used steam engines, then conveyor belts, and today we use information systems and especially software, to automate business activities.  We might call it “softwarization” ….. And this softwarization is not a one-step affair, like flipping a switch, but an ongoing process

Our Analysis Carr trying to instigate a debate – which he did! Article written in 2003 Touched a nerve with executives that had made large IT spending in late 90s and were questioning business value IT is more that just infrastructure technology. It includes systems and processes. Therein lies the differentiation Companies must challenge themselves in using IT in innovative ways

Our Analysis IT MOST CERTAINLY MATTERS!!! The combination of business strategy and IT is the key Examples Customer Support Blogs Sharepoint Google for Intranet search Net meeting Wireless WAN based tools IT MOST CERTAINLY MATTERS!!!

Additional Information Nicholas Carr’s website Includes responses to his article by Craig Barrett, Bill Gates, Carly Fiorina and others http://www.nicholasgcarr.com/articles/matter.html Intel’s Business Value Index http://www.intel.com/it/business-management/it-investment-value.htm

Intel Business Value Index Chart