NEW YORK (02/10/2004) - The commoditization of hardware and software will make it increasingly difficult for companies to leverage IT to achieve sustainable competitive advantage.
So said Nicholas G. Carr, the author of the controversial May 2003 Harvard Business Review article "IT Doesn't Matter". Carr was one of the panelists who tackled the topic of IT and competitive advantage at a finance conference in New York that was presented by the Boston-based CFO Publishing Corp.
Carr, who has written a follow-up book to be published in May by Harvard Business School Press titled Does IT Matter? Information Technology and the Corrosion of Competitive Advantage, maintains that technology has become so pervasive "that (companies) can still innovate ... but the competitive advantage" gained through the use of IT can quickly be neutralized by corporate rivals, he said.
And as companies have become more concerned about the cost of IT investments, Carr argued, "the center of innovation has moved from the user to the vendor.
Users are saying, "I just want (technology) that's good enough from low-cost suppliers," he said.
That phenomenon has already begun to play out for customers of third-party software, said Carr, pointing to the CRM market as a prime example. Until recently, vendors such as Siebel Systems Inc. built only sophisticated and expensive systems for corporate customers. Then low-cost rivals such as Salesforce.com Inc. hit the scene with cheaper and simpler CRM systems, forcing Siebel and others to respond with comparable offerings.
As a result, the industry is reaching a point "where the technology becomes a necessity but no longer remains a source of competitive advantage," he said. Early adopters of leading-edge technologies are "going to pay a lot for the competitive advantage of a new technology, but they won't be able to maintain that advantage long enough to make (the investment) worthwhile."
Carr said the same argument can be applied to homegrown software that companies develop themselves to help provide a service or product ahead of the market.
The window of opportunity for companies to capitalize on internally developed applications is shrinking, Carr said. Instead, companies should strive to use existing technology "as efficiently as possible," he said, and not bother investing in technology that can provide, at best, only a short-term competitive edge.
Bill McNee, CEO of Saugatuck Technology Inc., a Westport, Conn.-based research and consulting firm and a conference panelist, said he agreed with Carr "on many counts" but took exception to Carr's IT-infrastructure-focused argument. "IT is not just about data transport," said McNee. "His primary argument is around infrastructure, and software is not infrastructure. Software is a very different game, and that's where I'd beg to differ with Nick."
McNee, a former Gartner Inc. analyst, also said he disagreed with Carr's conclusion that IT innovation has slowed to a crawl. "IT is not dead, innovation is not dead," said McNee, pointing to recent technological advances in radio frequency identification tags and nanotechnology. "I'd say we're in the fourth or fifth inning of this thing."
The other conference panelist, Dan London, a partner in Accenture Ltd.'s Atlanta office, agreed that IT "in itself can't provide (a company's) competitive advantage." The companies that will succeed, said London, are those that apply IT effectively to gather the right information quickly for top brass to make informed business decisions.
Drawing upon his experiences at Gartner and Saugatuck Technology, McNee estimated that "maybe" 5% of Fortune 2,000 companies could be characterized as leading-edge technology adopters, while another 15% to 20% manage to keep pace with current technology. The rest, he said, could be considered tech laggards. Therefore, McNee said, "there are very few firms that use IT as a strategic weapon."
McNee also agreed with Carr that IT innovation can't provide companies with sustainable competitive advantage. But, he said, "channel masters" such as Wal-Mart Stores Inc. will continue to invest in IT wisely to help them dominate their respective markets.
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