Information Technology

IT has its roots in the beginnings of the computer industry and the emergence of the Internet as business tools. Initially, both of these technologies were experiments into what could be accomplished. Their early applications were in very specialized fields that required computing power, like the analysis of nuclear weapon effects, or problems that needed long-distance reliable communications, like military command and control. However, as these technologies became more affordable and more accessible, other businesses began to apply them to every form of industry. Companies gradually discovered the best approaches for leveraging these IT systems toward improved production efficiencies, rapid information exchange, meaningful staff reductions, and additional new inventions – each of which proved to be a competitive advantage. However, IT is not a proprietary technology. It is a publicly available product that can be purchased by any company that can afford the price. Therefore, advantages achieved through computer controlled milling machines are soon copied by other companies until everyone in the industry is performing more efficiently. IT lifts all companies that adopt it, while those who do not, sink to the bottom and lose their relevance.

Since a company cannot defend, control, or hide IT from its competitors, it cannot retain a long-term monopoly on any advantages gained from it. Carr argues that the advantages are temporary and are lost over time. Early adopters realize some benefits at the beginning. With experience, they are able to increase these benefits through improvements in implementation and by finding the places where IT has the most leverage. However, as competitors adopt this same technology, the relative advantage of one company over another diminishes. Therefore, after reaching some peak, the advantage decreases until it is a very small part of the business. Like the Poisson distribution, the advantages gained never recede completely to zero. Small advantages can be gained through IT system improvements, wise selection of competing products, and good timing on new purchases and implementations. However, the lion’s share of the advantage is in the past and will not be repeated.

The crux of Carr’s argument is not that this transition happens for all innovations, but that it has already occurred for IT. He suggests that the early adopters have discovered the most powerful ways to extract value from IT for business activities and that these methods have been copied across the industry. Therefore, IT is already becoming ubiquitous and providing correspondingly less advantage to those who use it. His argument is that we are certainly in the central region labeled “Diminishing advantage” and may even be getting close to the right-hand side of “Weak advantages”.

The ubiquity of the technology is the source of its own downfall in providing an advantage, but this is also its strength as an enduring ingredient within business. A similar path has been followed by the steam engine, railroad, telegraph, telephone, and electricity generation. All of these have become an integral part of world industry. None of them would be considered optional (assuming that the telegraph is the grandfather to the Internet), though none are considered a unique source of competitive advantage to the companies that use them because every competitor has access to them as well. Lumping IT into the same “old” category as electricity has drawn criticism from across the IT industry. Robert Metcalfe, inventor of Ethernet, is one of those leaders who have challenged Carr’s position. However, like many other IT defenders, Metcalfe does not really address the question of whether IT has reached its peak in providing competitive advantage. Instead, he points out that IT sales are still strong, companies still need the products, and vendors continue to create better products for these customers. He seems to miss the entire connection to competitive advantage and focuses instead on revenue generation. Andy Grove, legendary Chairman of Intel, does understand what Carr is saying. He agrees that basic transaction processing has crossed the second knee in the S-curve and is a mature technology around the world. However, he disagrees that all IT services and computer-based systems can be lumped into this category. He believes there is considerable room for innovation in areas like digital music, digital telephones, wireless access, and data search. He contends that Carr attracted such a flood of attention because he published the book during the third year of a technology recession.