Consulting » End of an era fo the IT industry

The IT industry is dead. It’s no longer possible – or worth trying – to achieve competitive differentiation through the use of IT. Companies, as a priority, should therefore reduce their investment in it drastically.

You won’t be surprised to learn that leader of the software industry Bill Gates “strenuously objects” to these heretical suggestions, or that the head of chip giant Intel says this is backward-thinking. But you might be surprised to hear that the source of these anti-IT ideas is no less a prestigious voice in corporate thought leadership than the Harvard Business Review.

The publication of an article in the May issue of the journal provocatively headlined, ‘IT doesn’t matter’ has been raising hackles in the IT industry ever since its appearance in May. George Colony, the head of influential analyst group Forrester Research, is just one of many outraged industry commentators who’ve gone on the attack against the “inanities” practised in the piece by its author, Nicholas Carr, while Fortune magazine put out its own tongue-in-cheek “stupid-journal alert”. Yet, at the same time, the piece has been the topic of serious reading and debate by all IT vendors and many worried tech journalists who fear the author may be on to something.

Interestingly, Katy Ring, practice leader in IT services for UK-based analyst group Ovum, says she has been surprised by the kneejerk reactions of the IT industry to Carr’s challenge – an attitude she characterises as “Neanderthal”. One wonders if there may prove to be more than a little significance in her choice of word, referring as it does to a now-extinct species.

Carr isn’t the usual profile of a Review contributor: he’s a hack, a professional journalist, not an academic or business school leader. Some of his now numerous enemies have tried to use this fact against him, but a reading of the nine-page piece shows careful research, effective marshalling of figures, convincing use of historical parallels and a refreshing sense of ’emperor’s new clothes’ truth-telling.

His thesis is that IT has become a commodity. A common metaphor for IT’s economic function is the car industry: computers, says this argument, are like motor vehicles. Everyone wants one, and a better one every year.

Not so, says Carr. IT is actually a transport medium, a part of the infrastructure – a utility.

Utilities – like power, water and transport – are useful, indeed vital, for businesses to work. But they don’t add value to them. The fellow across the street’s electricity is no better than yours. Following this logic through, Carr argues that IT is now so ubiquitous in corporations that it has become a commodity.

All this may strike one as an interesting, albeit abstract, debate but, of course, we’re talking dollars and cents here. If IT isn’t helping you be a better business, why buy it? He finishes his article by exhorting users to cut their IT spend radically and switch to cost reduction as the main raison d’etre of their IT personnel.

Possibly terrified this argument could further depress their chances of emerging from the ongoing three-year tech downturn, IT’s defenders and practitioners have come out all guns blazing to prove Carr wrong.

The counter-views to his charges split mainly into two camps: those who say he’s plain wrong, and those who say he’s not completely right. Interestingly, there seem to be a lot more in the second group. Take Mike Gilbert, product strategy director for software firm Micro Focus. He believes that, at a bird’s-eye level, Carr’s point has some validity, but says there are many things he hasn’t considered. “IT isn’t a single thing, like electricity or rail, for example; it’s not a single organic resource.

“Another problem is that the process of commoditisation is going on, but not nearly finished after 40 years of commercial IT,” says Gilbert.

US computer executive John Rade, an industry veteran of 25 years and head of financial management system provider Axs One, agrees. “If everyone is using SAP, sure: where can the competitive advantage be? But what this guy’s missing is that advantage exists in the ‘white spaces’ between divisions and parts of companies, and connecting those.”

The essence of this argument is that Carr is jumping the gun. Customers buying standardised packages like Siebel, Oracle or PeopleSoft for doing repeatable common activities like holding general ledger data or HR information is a good thing and should save customers time and money they previously spent home brewing such things themselves.

But that’s not the end of IT. What this level of commoditisation has brought is the ability to separate out the business processes that do add value and competitive testosterone. “IT doesn’t matter; business processes do,” says Howard Smith, European chief technology officer at consultancy CSC. And IT is inherent to every company’s strategy, and the key to defining and improving specific business processes.

George Bailey, global head of the electronics industry practice within IBM, goes further. “The corporate battlefield has shifted so that it’s the combination of business process and IT – that’s what it’s all about.

No one competes or sells technology on raw power, on speeds and feeds nowadays; it’s the fusion of business and technology that my clients are interested in and see great value in. Real value is when the MBA and the technologist sleep together.”

In effect, the central industry knock-back to Carr is that he’s right, but only as far as he goes.

But while objections like these are useful to widen the scope of Carr’s observations about the use of technology in business, they don’t seem to trump Carr’s other allegation that the industry as we know it has vanished. Ominously, perhaps, the ‘IT doesn’t matter’ row has paralleled this summer’s technology business kerfuffle over Oracle head Larry Ellison’s attempt to buy rival firm PeopleSoft.

Ellison has been making disturbing trade press headlines, with his allegation that such consolidation proves that the old-style IT industry – predicated on endless innovation, revolution in technology styles and lots of new upstart companies pushing aside the old guards, all this usually taking place in Silicon Valley – is dead and gone.

In the new story, say some, the industry will boil down to a few key players who will make a living selling outsourced or on-demand services to companies that will have few internal IT people at all.

It’s a picture that terrifies suppliers. For in this model, from where would innovation, change and commercial opportunity come? IT may still matter, but the IT suppliers may not.

According to the Harvard Business Review, IT spending patterns need to change. Companies should:

Spend less – the biggest spenders rarely achieve the best financial results. Don’t disadvantage your company with heavy investment in technology.

Don’t lead – there’s no point trying to beat the pack in technology terms, as commoditisation means you’ll get it cheaper a bit later anyway.

Problems, not opportunities – it’s much better to use your IT resources to cover your tracks in terms of governance, security and exposure to risk than risky innovation.