Monday, 1 February 2010

Using IT for Competitive Advantage

Over the Christmas break I read Nicholas Carr's "Does IT Matter". I figured it was about time I read it as I believe passionately that IT can make a difference to companies and within the community we operate. Based on a very quick skim read of his article and all the hype and hysteria it seems that Carr disagrees with this. If he was right or at least made some relevant thoughts I really should know.

My synopsis of his book is as follows. Competitive advantage is typically gained by "owning" items that are proprietary in nature. This makes them hard to replicate as it is expensive and takes a long time. Thanks to the long running effects of Moore's law and IT's relentless march towards openness and standardisation IT has rapidly become cheap and widely available. As a result competitive advantage cannot be obtained from IT as anything you do can be easily replicated by others so individual organisations cannot use IT for competitive advantage.

This is not true however for countries and or regions. Increasingly IT is becoming an open and easily accessible infrastructure. If a country or region does not have a "world class" IT infrastructure in place to support their local economy then they will be at a disadvantage compared to regions that do. The use of the word infrastructure is deliberate as this is how Carr sees IT evolving like other key infrastructures such as electricity, rail roads and the much more closely related telephone. A region with a good stable electricity supply has an advantage over one that doesn't. However individual firms cannot use electricity per sa to gain a competitive advantage as it is comparatively cheap and widely available.

His arguments make sense. The book appears to be very well researched and very well written and while there is likely to still be some way to run for true commoditisation of IT, particularly software, I have come away from reading the book believing that it is the most likely outcome.

So, if Carr is right what could this mean for the IT industry?

Hardware Manufacturers

Equipment manufacturers will continue to try and differentiate themselves by building bigger, better and only available here features. While this may allow one firm to perform better than their competitors at the margin increasingly this will become irrelevant as Moore's law will overtake all their efforts and continue to drive the industry to commoditisation.

Software Companies

Carr argues that traditional software companies provided the first major step towards commoditisation for software as packaging software made the IP widely available at a fraction of the price of in house bespoke systems. This model however will come under increasing pressure by the next wave of innovation/commoditisation. This includes both SaaS and open source software solutions which threaten to undermine the current model of licence, maintenance and on going expensive upgrades.

IT Service Providers

Whether they are currently software companies, hardware companies, Telco's, outsourcers or one of the many other service providers and contractors to the IT industry the IT service provider of the future will be the equivalent to the electricity company of the present and their support infrastructure. They will truly be "service providers" rather than product companies.

Corporate IT teams

Probably my main area of interest as this is where I work.

I don't see this as the death of the corporate IT team, at least not while I am still in the workforce. I do see the rise of the truly services oriented IT organisation. Many, maybe all, IT services will be outsourced to standardised utility providers. This can only be achieved successfully if the internal IT organisation is service oriented. That is, a service oriented IT department is be a prerequisite to be able to outsource standardised services to service providers. The main focus of the internal IT team will be to integrate these services both with each other and into the businesses operating model. I expect that an increasing number of these standardised utility providers will be open source communities. Corporates will actively contribute to these communities developing the open source software as well as using it for their core operations.

So my starter for 10 from my Christmas reading. I may well revisit this as I think some more about it.