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The Engine That Drives Success

The Engine That Drives Success

The best companies have the best business models because they have the best IT strategies.

Nicholas Carr is once again grabbing centre stage now that his new book, Does IT Matter? is hitting the bookstores. The book is essentially an expanded version of his provocative Harvard Business Review article in which he argues that IT has become a commodity - necessary for competitiveness but insufficient for advantage.

Carr argues that, in the past, companies such as American Airlines, FedEx and American Hospital Supply built their own proprietary systems to differentiate their offerings or lock in customers. Now that IT has become a commodity - a pervasive infrastructure - any company has access and any system can be instantly replicated. And therefore, he argues, any competitive advantage goes out the window.

Trouble is, his newly improved argument, like his original paper, is fundamentally wrong. Companies that heed his advice - don't spend; follow, don't lead - are doomed to mediocrity or worse.

To begin, his core thesis is not supported by facts. There were no halcyon days of proprietary IT competitiveness as he describes. I've been advising companies since 1975, and looking back, I can testify that there were only a handful of stories that demonstrated how companies used IT to radically change their business models. Rather, in the era of data processing, companies used IT for mundane purposes - to automate old business processes like accounting and HR. Systems targeted at competitiveness were rare, very expensive and took years to build. Proprietary systems benefited vendors more than users, as companies were locked into their computer vendors. Software was not portable, and vendors made gross margins of more than 80 percent on hardware.

Successes like American, FedEx and American Hospital Supply are legendary precisely because they were so rare. For every success story where companies used IT to compete, there were countless failures. At nearly all companies, IT mattered lots, but not to achieve competitive advantage. Carr's rewrite of history makes for a good read - but only if you enjoy fiction.

Today the positive examples are actually much more plentiful. Even when it comes to dotcoms and Internet pureplays, many early innovators are competing well today, which undermines Carr's assertion that "the technology cycle works against pioneers". For sure, the early Internet companies with bad business models failed. Yet, household names like Amazon.com, Ameritrade, CheckFree, DoubleClick, eBay, E-Trade, Google, Salesforce.com, University of Phoenix Online, Yahoo and even Priceline - to name a few - have highly distinguished business models and are growing rapidly in revenue and earnings.

More important, Amazon.com, Best Buy, Tesco and Wal-Mart dominate their respective retail markets - enabled by superior IT, customer relationships, business designs, differentiated offerings and other benefits.

The same is true for many other industry competition leaders: banking (Citigroup), consumer credit (American Express), consumer food products (PepsiCo), household (Procter & Gamble and Colgate-Palmolive), furniture (Herman Miller), communications technology (Cisco), property insurance (Progressive Casualty Insurance), metals (Alcoa) and hotels (Marriott). Of Fortune's recent top 10 most admired companies, eight are well-known for their superior use of IT in supporting a unique business strategy - Dell, FedEx, GE, IBM, Microsoft, Southwest Airlines, Starbucks and Wal-Mart.

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