Electricity, the telephone, the steam engine, the telegraph, the railroad and..IT?

In his HBR article, "IT Doesn't Matter," Nicholas Carr has stirred up quite a bit of
controversy around IT's role as strategic business differentiator. He examines the
evolution of IT and argues that it follows a pattern very similar to that of earlier
technologies like railroads and electricity. At the beginning of their evolution,
these technologies provided opportunities for competitive advantage. However,
as they become more and more available as they become ubiquitous they
transform into "commodity inputs," and lose their strategic differentiation
capabilities. From a strategic viewpoint, they essentially become "invisible."
Carr distinguishes between proprietary technologies and what he calls
infrastructural technologies. Proprietary technologies can provide a strategic
advantage as long as they remain restricted through "physical limitations,
intellectual property rights, high costs or a lack of standards," but once those
restrictions are lifted, the strategic advantage is lost. In contrast, infrastructural
technologies provide far greater value when shared. Although an infrastructural
technology might appear proprietary in the early stages of buildout, eventually
the characteristics and economics of infrastructural technology necessitate that
they will be broadly shared and will become a part of the broader business
infrastructure. To illustrate his point, Carr uses the example of a proprietary
railroad. It is possible that a company might gain a competitive advantage by
building lines only to their suppliers, but eventually this benefit would be trivial
compared to the broader good realized by building a railway network. The same
is true for IT - no company today would gain a cost-effective competitive
advantage by narrowing its focus and implementing an Internet only between
their suppliers to the exclusion of the rest of the world.
To further shore up his "IT as commodity" theory, Carr cites the fact that major
technology vendors, such as Microsoft and IBM, are positioning themselves as "IT
utilities," companies that control the provision of business applications over "the
grid." Couple this IT-as-utility trend with the rapidly decreasing cost of processing
power, data storage and transmission, and even the most "cutting-edge IT
capabilities quickly become available to all."
Although IT may seem too diverse to be compared to commodities such as
electricity and the railroads, Carr points out three specific characteristics that
guarantee rapid commoditization: IT is a transport mechanism; IT is highly
replicable; and IT is subject to rapid price deflation.
First, IT is a "transport mechanism" that carries digital information much the
same way that railroads carry goods and power grids transport electricity. And
just like these commodities, IT is "far more valuable when shared than when
used in isolation." Secondly, IT is highly replicable. With the economic efficiency
of off-the-shelf software and the generic business processes that are inherently
available within them, the costs savings and interoperability benefits make the
sacrifices of "distinctiveness" unavoidable. And, finally, IT is "subject to rapid
price deflation." As the cost of processing power, data storage and data
transmission has declined, so has one of the most important barriers to

commoditization cost. Again, as cost declines, availability increases, which

fuels the case for the commoditization of IT.
Although Carr does agree that a myriad of companies, such as American Airlines
and Federal Express, have gained important strategic advantage through IT, he
also points out that these sorts of opportunities are dwindling quickly. He also
postulates that as for "IT spurred industry transformations, most of the ones that
are going to happen have likely already happened or are in the process of
happening." Although industry and markets will continue to evolve and some will
still undergo fundamental changes, Carr suggests that the buildout of IT is "much
closer to its end than its beginning." To support his position, Carr states that: IT's
power is outstripping most of the business needs it fulfills; the price of essential
IT functionality has dropped to the point that anyone can afford it; the capacity
of the delivery mechanism, the Internet, has caught up with demand; IT
companies are positioning themselves as commodity suppliers and even utilities;
and finally, the investment bubble has burst, which is historically a "clear
indication that an infrastructural technology is reaching the end of its buildout."
So, if Carr is correct, what can an IT manager do? Carr suggests that companies
need to shift their thinking around IT and focus on the "new rules for IT
management," which are:
Spend less. It is becoming harder to leverage IT as a competitive advantage,
but is getting easier to put business at a cost disadvantage; therefore, as the
commoditization of IT continues, the "penalties for wasteful spending will only
grow larger."
Follow, don't lead: As IT capabilities become more homogenized, follow Moore's
Law which guarantees that the longer you wait to purchase IT, the more you'll
get for your IT dollar and less risk you'll experience; and
Focus on vulnerabilities, not opportunities. Once again comparing IT to
electricity, Carr points out that no one builds their business strategy around
electricity, but it can be devastating if there is a lapse in service. The same holds
true for IT any disruption can be devastating to a business, paralyzing it in
ways that could not have been foreseen 50 years ago. Therefore, it's critical to
minimize risk.
If Carr is correct, and IT is becoming our newest commodity, then it is critical for
business leaders to shift their thinking quickly. It is no longer prudent to view IT
as a strategic differentiator, but to view it as just another mission critical, albeit
somewhat boring, foundational cost of doing business.