IT As A Commodity

We are going to hop on a tangent here for a moment and look at IT through the eyes of Nicholas G. Carr and consider points the he makes in his article, "IT Doesn't Matter"  which was published in May, 2003 in the business management magazine Harvard Business Review.  The article itself is an interesting read and it's publication alone brought Mr. Carr to light as a well respected technology writer, if you have not read the article take a moment to do so here. 

 Mr. Carr starts his article by talking about the evolution of IT and comparing to the evolution of other technologies that we can now consider a commodity such as electricity and the railroads.  Merriam-Webster defines commodity as 1. A mass-produced unspecialized product or 4. A good or service whose wide availability typically leads to smaller profit margins and diminishes the importance of factors other than price. Mr. Carr talks about ITs beginnings in the PC worlds and the fact that managers viewed them as nothing more than "glorified typewriters and calculators".  This was certainly true, before Moore's Law truly began to take its course the processing power of the average PC in the workplace wasn't capable of much more and the modern software market was non existent.  He compares this to the first industrial integrators of electricity for manufacturing and how they simply built near power plants due to lack of infrastructure and only tied their existing systems into the new technology as opposed to rebuilding to its specialized purpose.  However much like their industrial revolution counterparts early adopters of the PC who were able to digitize their business model and design and build special purpose systems were able to gain a considerable competitive advantage.  

Carr goes on to state that while these advantages were significant it certainly did not cement a company as the industry leader.  He relays a story that does a good job of showing our consideration of "Laws" in Chapter 1 is truly important in the real world.  He uses the example of American Hospital Supply which was the first medical supply company to introduce an automated and computerized order system.  This proprietary software led to AHS becoming the industry leader and allowed them to grow by leaps and bounds, Carr states that "From 1978 to 1983 AHS's sales and profits rose at annual rates of 13% and 18%...".  This was great but as Carr points out their system was localized and closed and outdated, after the advent of more modern software and networking the original system was far less superior to that of the competition's.  This led to AHS executives viewing the proprietary system as "a millstone around their necks".  Other companies however did not fail to continue to develop their systems and consider new areas of IT integration using pre-developed software available on the market.  It shortly became the standard in many fields which is what leads to the question Carr poses, Does IT really matter?  Carr tells us that now having IT is the standard, moreover, the standard has a standard.  IT systems tend to not give a competitive edge that is as sharp as it once was.  It is no longer cost-effective to build proprietary systems as buying packaged software is an option and much cheaper, however, it can be assumed your competition will do the same.   The software firms integrate into their operations is now as efficient as it possibly can be as the best practices for its use are now built in and will continue to be so by its design.  It makes IT essential in the modern world of business and it now fits quite nicely into our definitions of a commodity, especially when you consider hardware uses as well as more common software suites.  

Carr states, "When a resource becomes essential to competition but inconsequential to strategy, the risks it creates become more important than the advantages it provides."  Carr drives this home by pointing that a study by Forrester Research showed that the 25 firms that delivered the highest economic returns spent just 0.8% of their revenues on IT when the average was 3.7%.  This seems to show that IT is nowhere near as significant of a factor in profit determination as it once was and shows that in the modern world of business it can a fiscal sinkhole.  The evolution of IT in general and its, in large part, inevitable future as a simple commodity makes its overall value and general direction far less certain that it once was.  One that is for sure is that IT and the systems that employ it are not going away.