IT Does Matter

Any discussion of how IT can create value in business needs to begin with the notion that IT value is defined by how it is used – internally by enterprise IT clients and externally by customers who buy it. In each case, the value of the technology needs to be seen in terms of what those constituent groups want to do with it.

Internally, enterprise executives are interested in how IT impacts things like shareholder value, customer churn or return on assets or investments. Externally, customers need to know how IT solutions affect what they want to accomplish. In the final analysis, the whole business – internal IT clients, CFO, shareholder interests – and the value it creates and reaps, depends on customer-defined and customer-perceived value.

All businesses are keenly aware that their market position and value are based on future earnings potential. All of that potential is based on the enterprise creating value for customers and being equitably compensated for its offerings. This may appear to be self-evident, but it has an implicit, positive message for businesses that push the value envelope with IT-enabled improvements or innovations. If the only business future worth having is one that genuinely revolves around customers, then a number of customer-related issues are worth noting.

• Customers may be fickle and fluid, but they are full of ideas for sharp businesses. Companies that diligently focus on creating customer value will discover a bottomless pit of potential value. Customers change, constantly, in response to market conditions, internal issues, various strategies, and internal organizational situations. They may appear fickle, but they are simply acting in their own best interest. Businesses that constantly find ways to best meet the customer’s best interests will never be short of opportunities to provide value.
• Customer change drives seller/provider value creation opportunities. The only way to create meaningful value for customers is to understand how they define it. To provide better, tailored value propositions, sellers need to know the factors customers consider, and the tradeoffs they may evaluate.

In today’s business climate, being truly customer-driven means being change-driven, improvement-driven and innovation-driven. This continuum of new value is good news for businesses seeking to create customer value and enterprise business value. It means an open field of rich possibilities. The history of commerce has always moved from “selling more stuff” to “selling better stuff.” With information technology advances, the commercial chronology has moved to providing remarkably new products and services, and a basis to discover better ways to serve their own and others’ interests. Now, how does IT fit into the overall customer-based business value equation?

An interesting debate has been engaging the attention of many in the business community and IT industry, sparked by an article by Nicholas Carr in the May 2003 Harvard Business Review, IT Doesn’t Matter. On his website, Carr further explained his argument in the article that IT has become a commodity, and although essential to competitiveness at the regional and industry level, “it is no longer a source of advantage at the firm level – it doesn’t enable individual companies to distinguish themselves in a meaningful way from their competitors.” (Nicholas Carr, personal website. The article said,

The rapidly increasing affordability of IT functionality has not only democratized the computer revolution, it has destroyed one of the most important potential barriers to competitors&The opportunities for gaining IT-based advantages are already dwindling. Best practices are now quickly built into software or otherwise replicated&Their very power and presence have begun to transform them from potentially strategic resources into commodity factors of production. They are becoming costs of doing business that must be paid by all but provide distinction to none.”

Carr’s thesis is built on the notion of scarcity. He says that what makes a resource truly strategic-the basis for sustained competitive advantage-“is not ubiquity but scarcity,” and notes that the core functions of IT have now become available and affordable to all.”

However, the same notion about the value of information (the “information is power” principle) was firmly disproved by the now common diffusion of information by networks and the Internet. One of the key tenets of knowledge management, for example, has been that the value of information increases by its use, distribution and transfer to create new forms and configurations of knowledge, which go on to create new kinds of value, and as history shows, value that can be translated into currency.

Few would argue with Carr’s point that “most companies can&reap significant savings from cutting out waste.” That is a perennial problem for most organizations, and they are trying to address it as best they can. Many companies can also count themselves in Carr’s assertion that “companies have been sloppy in their use of IT,” citing inessential volumes of information on corporate storage networks. That too is an ongoing challenge for most organizations.

It is when Carr claims that corporate IT spending studies “consistently show that greater expenditures rarely translate into superior financial results” that he exposes the space in which IT can truly matter. The disassociation between spending and results sheds no light on what was done with the IT investments to lead to those disappointing outcomes. Similarly, Carr cites a 2002 Alinean study, comparing those same parameters for 7,500 large U.S. companies, which found that “the top performers tended to be among the most tightfisted.” Again, what is missing is how those top performers used the IT investments to their advantage.

How organizations create, capture and use information, how they execute on strategies and make things happen, and how they deliver value to customers and partners and shareholders is what sets top performers apart from the pack. IT is now an essential part of orchestrating the creation and delivery of business value, but that does not mean it is irrelevant to competitive advantages.

The documents in this series have consistently argued that the value of IT in an organization exists in the symbiotic relationship between the technology and associated business processes and practices. The perennial question, “To what extent does IT make business results possible?” must be complemented by an equally important question: “To what extent do business processes and practices help or hinder IT’s ability to deliver results?”

Carr’s point that the ubiquity of IT cancels the ability of its owners/users to generate competitive advantage assumes that the advantage rests with the technology alone. Technology, however, derives its value from the way it is used in a particular context for particular purposes. Having the tools doesn’t mean everyone who has them wins.

“Advantage doesn’t derive automatically from investment in anything,” says Michael O’Neil, Country Manager, IDC Canada. “Tools (everything from a lever to a sophisticated system) enable workers to accomplish more with a given unit of time and effort, but that benefit only accrues to organizations that deploy the tool properly.” Even widely available tools can contribute to competitive advantage when they create processes that take advantage of capabilities enabled by technology.

O’Neil summarizes as follows: “As is the case with anything, competitive advantage comes from doing business better, not merely from spending money on tools; however the innovation that enables organizations to ‘do better’ is often predicated on their ability to adopt, combine and exploit the capabilities of those tools.”

For further information contact Margaret Tanaszi at 416-673-2237 or mtanaszi@idc.com