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Why IT Really Does Matter

Why IT Really Does Matter

Carr's narrative deserves to be read as an intriguing technical argument in the service of grotesquely naive business assumptions. His facts may be flawless and his historical analysis smooth. But the business conclusions he draws are profoundly silly

Businesses can indeed differentiate themselves through IT. It's all a question of how they manage the technology.

The Harvard Business Review is not famous for publishing satire. Then again, when a clever writer pushes a clever idea well beyond the point of diminishing returns, the result can read like parody from the pages of The Harvard Lampoon. You're not quite certain whether you should sagely nod or burst out laughing.

Nicholas Carr's controversial article "IT Doesn't Matter" presents a brilliant example of this rare genre. Ever since its May publication, his thesis has provoked heated debate both in tech circles and the realms of senior management. Much of the debate has been of the "IT does too matter!!!" variety, but Carr's seriocomic screed deserves a rigorous dissection because he's clearly struck a nerve as well as a funny bone.

Carr's narrative deserves to be read as an intriguing technical argument in the service of grotesquely naive business assumptions. His facts may be flawless and his historical analysis smooth. But the business conclusions he draws are profoundly silly. CIOs had better understand why, because they may report to intellectually lazy CEOs and CFOs who actually believe that the Harvard Business Review is giving its imprimatur to a powerful argument when, in reality, it is cleverly overhyping a clever little idea. Caveat lector!

So let's cut to the heart of Carr's case: "What makes a resource truly strategic - what gives it the capacity to be the basis for a sustained competitive advantage - is not ubiquity but scarcity. You only gain an edge over rivals by having or doing something that they can't have or do. By now, the core functions of IT . . . have become available to all. 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."

Excuse me? Who says that resource scarcity is the key to strategy? Why on earth is resource ubiquity inherently the low road to commodity? That sort of glib analysis gives Econ 101 a bad name. In fact, it's shockingly easy to show there is virtually zero correlation between the availability of a commodity and its effective role as a so-called "strategic" resource.

Consider this thought experiment: Three companies bitterly compete against each other for market share and profit - for example, FedEx, DHL and UPS; or Nike, Reebok and Adidas; or American Airlines, Southwest Airlines and JetBlue Airways. Give them each $100 million. No strings attached.

So will these companies be equally better off in their rivalry with each other because they each have $100 million to invest? Of course not. Some of the companies will enjoy significantly greater returns on their free $100 million investment than the others. Capital is a commodity, right? Yet somehow we consistently see enormous disparities within industries in their return on capital. We could keep feeding these companies free capital and the disparities would persist. Would Harvard Business Review publish "Capital Doesn't Matter"?

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