IT Doesn’t Matter by Nicholas G. Carr

1. IT Doesn’t Matterby Nicholas G. Carr Presented by Study Team Gold Lisa Roth, Justin Zeulner, Tom Dickey, Ryan Stormer, and Jay Allen

2. Overview 1968 – Ted Hoff, Intel Engineer, discovered a way to put circuits for computer processing on a silicon chip. Technology has become the backbone to operational excellence, electronically linking data internally and externally. IT is seen as a critical resource in fact spending capital spending on technology has risen from 5% in 1965 to over 50% in the late 1990s. Today CEOs often talk about strategic value of IT, and have even created the CIO senior leader position in many organizations. However, the proliferation of IT has reduced its strategic value. A competitive advantage is only an advantage if it is scarce. The premise of the article is that IT has become a commodity that is a business essential and management should focus on risk management in lieu of trying to achieve scarce competitive advantages.

3. Technology as a Competitive Advantage Proprietary Technology – Defined as a technology that can be owned actually or effectively by one company. • Example: Pharmaceutical Company: Patent on Compound Infrastructural Technology – Defined as technology that can not be protected and in contrast to proprietary technology is worth more to the economy as a whole when shared. • Example: Railroad or Electricity IT is considered an infrastructural technology.

4. Vanishing Advantage - The Phases Of Infrastructural Technology Buildout Early Phase – advantage takes the form of proprietary technology and enable new more efficient operating methods. • physical limitations to technology, intellectual property rights, high costs, lack of standards, etc. Market Changes – in addition to improving operations dramatic broad market changes occur due to infrastructural technology. • Example: Railroads in the mid-1800s The Trap – Executives make a mistake and assume that these advantages are sustainable when they are brief due to the technology becoming broadly adopted.

5. Commoditization of IT IT has all the characteristics of a infrastructural technology. • it is a transport mechanism – carries digital information. • it has more value when shared than when used in isolation. Standardization – each stage in the evolution of IT has increased the standardization and homogenization. Highly replicable – the most pure commodity – bytes of data. Perfect Delivery Channel – third party purchases similar to electric power by purchasing fee based services “the grid.” Subject to rapid price deflation – Moore’s Law.

6. Sprint to Commoditization

7. Are we near the end of the IT buildout phase? Power is outstripping business needs Technology is affordable and available Capacity has caught up with demand IT vendors are repositioning themselves as commodity suppliers or utilities Investment bubble has burst

8. From Offense to Defense “When a resource becomes essential to competition but inconsequential to strategy, the risks it creates become more important than the advantages it provides” - Nicholas G. Carr

9. Greatest IT Risk? Overspending… • As costs fall, new capabilities rise and business increases reliance on IT – companies continue to invest resources towards large investments from big hardware and software suppliers. • Meanwhile… • Vast majority of business PC’s rely on a few simple applications. • Applications are technologically mature. • Applications require only a fraction of computing power. • Corporate networks are storing invaluable information.

10. Larry Ellison (Oracle Legend) on IT… “Most companies spend too much on IT and get very little in return”

11. “Simplify and Systemize Before You Computerize” Manufacturer of Helicopter Engines – Problem with Controlling Inventory “After reflecting on its predicament, company managers commented that they would have been better off had they improved the efficiency of the operations by eliminating inventory in the first place and not simply thrown technology at the problem.” - Meredith and Shafer From Operations Management for MBA’s (2nd Edition) Solution: Purchased Expensive Automated Equipment Result: Created More Problems than it Solved

12. New Rules for IT Management SPEND LESS • Rigorously evaluate expected returns from IT investments. • Negotiate contracts ensuring long-term usefulness of your investment. • Assess data storage (eliminate waste and non-relevant information). FOLLOW, DON’T LEAD • The longer you wait to make an IT purchase, the more you’ll get for your money. • Wait for standards and best practices to solidify. FOCUS ON VULNERABILITIES, NOT OPPORTUNITIES • Focus IT resources on preparing for disruptions and proprietary control.

13. Bush Boake Allen SPEND LESS • “Penalties for making this large IT investment needs to be evaluated: • Giving proprietary control to customers. • Placing business at cost-disadvantage. • Internal acceptance and large investment ($500K per client). FOLLOW, DON’T LEAD • Uncertain that competition will make this investment. • If applicable, allow competition to shoulder costs of experimentation.

14. Bush Boake Allen FOCUS ON RISKS, NOT OPPORTUNITIES • Protection of trade secrets. • Uncertain that competition will make this investment. • “Gaps in Maps” goal of supplying consistency. • Consolidation of suppliers. • Optimize “global” internal information (flavorists knowledge).

15. Summary IT is an Infrastructural Technology (no longer proprietary) Vanishing Advantage for Corporate Sustainability IT Has Become A Commodity • Standardization/Highly Replicable • Delivery Channel • Rapid Price Deflation Focus IT Investments on Risk more than Strategic Advantages. Greatest IT Risk is Overspending. To Avoid Overinvesting in IT: • Spend Less • Follow, Don’t Lead • Focus on Risks, Not Opportunities