Real World Case: The Competitive Advantage of IT

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C-Level Wine | Chief Executive Officer, Chief Technology Officer, Chief Information Officer, Chief Financial Officer

The content of this article is taken from the book Management Information System written by:

• James A. O'Brien | College of Business Administration, Northern Arizona University
• George M. Marakas | KU School of Business University of Kanas
• Ramesh Behl | International Management Institute, Dehli

Real World CASE | General Electric, Dell, Intel, General Motors, and Others: Debating the Competitive Advantage of Information Technology

There's nothing like a punchy headline to give some attention to an article. A piece in the "Harvard Business Review" (May 2003), shockingly labeled "IT Doesn't Matter," garnered more buzz for the magazine than at any time since the Jack Welch affair. The article was approvingly cited in The New York Times, analyzed in Wall Street reports, and e-mailed around the world. Without such a dramatic and reckless title, however, the article probably would have received little notice. It's sloppy mix of ersatz history, conventional wisdom, moderate insight, and unsupportable assertions. More over it is dangerously wrong.

Author Nicholas Carr's main point is that information technology is nothing more than the infrastructure of modern business, similar to railroads, electricity or internal combustion engineering advances, which have become too commonplace any company to wangle a strategic advantage from them. Application of information technology that were once innovative are now merely a necessary cost. Thus, Carr thinks today's main risk is not underusing IT but overspending on it.

Before we go any further, let's have a reality check. First, let's ask Jeff Immelt, the CEO of General Electric Co., one of the premier business corporations in the world, "How important is information Technology to General Electric? Immelt's answer: "It's a business imperative. We are primarily a service-oriented company, and lifeblood for productivity is more about tech than it is about investing in plants and equipment. We tend to get a 20 percent return on tech investments, and we tend to invest about $2.5 billion to $3 billion a year."

Then let's ask Dell Corp. CEO Michael Dell, "What's your take on Nick Carr's thesis that technology no longer give corporate buyers a competitive advantage?" His answer: "Just about anything in business can be either a sinkhole or a competitive advantage if you do it really, really bad or you do it really, really well. An information technology is often misunderstood field. You have got a lot of people who don't know what they are doing and don't do it very well. An information technology is often misunderstood field. You have got a lot of people who don't do it very well. For us, IT is a huge advantage. For Wal-Mart, General Electric, any many other companies, technology is a huge advantage and will continue to be. Does that mean that you just pour money in and gold comes out? No, you screw it up really bad."

Finally, let's ask Andy Grove, former CEO and now chairman of Intel Corp., "Nicholas Carr's recent Harvard Business Review article says: "IT does not Matter". Is information technology so pervasive that it no longer offers companies a competitive advantage? "Grove Says:

"In any field, you can find segments that are close to maturation and draw a conclusion that the field is homogeneous . Carr is saying commercial-transaction processing in the United States and some parts of a S-curve. But instead of talking about that segment, he put on provocative spin on it - that information technology does not matter- and suddenly the statement is grossly wrong. It could not be further from the truth. It's like saying: I have an old three-speed bike, and and Lance Armstrong has a bike. So why should he have a competitive advantage?."

So, basically, Carr misunderstands what information technology is. he thinks it's merely a bunch of networks and computers. He notes, properly, that the price of those has plummeted and that companies bought way too much in recent years. He's also right that the hardware infrastructure of business is rapidly becoming commoditized and, even more important, standardized.

Computers and Networks per se are infrastructure. However, one of the article's most glaring flaws is its complete disregard for the centrality of software and the fact that human knowledge or information can be mediated and managed by software.

Charles Fitzgerald, Microsoft's general manager for platform strategy, says that Carr doesn't put enough emphasis on the I in IT:

• The source of competitive advantage in business is what you do with the information that technology gives you access to. How do you apply that technology gives you access to?
• How do you apply that to some particular business problem?
• To say IT doesn't matter is tantamount to saying that companies have enough information about their information about their their operations, customer, and employees. I have never heard a company make such a claim."

Paul Strassman has spent 42 years as a CIO at General Foods, Xerox, The Pentagon, and, most recently, NASA. He was more emphatic: "The Hardware- the stuff everybody's fascinated with-isn't worth a damn,".

He says, "Its just disposable. Information Technology today is a knowledge-capital issue. It's basically a huge amount of labor and software." He continues: "Look at the business powers-most of all Wal-mart, but also companies like Pfizer or FedEx. They are all waging information warfare."

One person with truely unique set of qualifications with which to asses the article is Ralph Szygenda, CIO of General Motors. "Nicholas Carr may ultimately be correct when he says IT does not matter and they are not commodities. To facilitate these business changes, IT can be considered a differentiator or a necessary evil. But today, It's a must in a real time corporation."

Syzgenda did concur with one of Carr's corollar recommendations: spend less. In the article, Carr stated, "It's getting much harder to achieve a competitive advantage through harder an IT investment, but it is getting much easier to put your business at a cost of disadvantage."

Syzgenda's reaction: " I also agree on spending the minimum on IT to reach desired business results. Precision investment on core infrastructure and process -differentiation IT systems is called for in today's intensely cost conscious business versus the shotgun approach sometimes used in the past."

The real message; Spend what is required but no more to achieve essential differentiation via business processes and the IT systems that support them.

The CIO of GM continues with another agreement, though one with a significant qualification: "yes, IT has aspects of commoditization. PCs, telecommunications, software components such as payroll, benefit programs, business process outsourcing, and maybe even operating systems and database management systems are examples. But the application of information systems in a corporation's product design, developments, distribution, customer understanding , and cost effective internet services is probably at the fifth-grade level."

In conclusion, Szygenda's thoughts on the commodity claim. "After being a part of IT industry for 35 years, I have heard similar pronouncements during the introduction of the of the integrated circuit, microprocessor, PCs office systems, ERP, systems, and the internet.

Nicholas Carr and others need to be careful not to overstate the speed of the information-management journey or they may make the same mistake that the Charles H Duell, the director of the U.S. Patent Office, did in 1899 when he said, "Everything that can be invented has been invented."

Mahatma MOHANdas Karamchand Gandhi Quote:

• A sign of a good leader is not how many followers you have but how many leaders you create.

Quaid e Azam Muhammad Ali Jinnah Quote:

• You will have to make up for the smallness of your size by your courage and selfless devotion to duty, for it is not life that matters, but the courage, fortitude and determination you bring to it.

TECH WINE SIPS:

• IF YOU GIVE LIFE, FOSTER, FRUCTIFY NON-LIVING THINGS THEN THE NON-LIVING THINGS WILL GIVE LIFE, FOSTER AND FRUCTIFY YOU.
• SCIENTIFICALLY, NON-LIVING THINGS ARE THE LIVING THINGS.

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