Does IT matter? Temporarily? Multiple perspectives


When Nicholas Carr (2003) stated that IT did not create a competitive advantage, he created uproar amongst many. Carr argued that IT became a general, standardized and affordable commodity that can be shared by all competitors. In his opinion, IT investments can be reduced and do not need special attention from higher management (Brown 2004).

Experts, such as HBS professors F. Warren McFarlan and Richard L. Nolan (2003), responded to Carr by saying that IT needs consideration from multiple different perspectives:

  1. Efficiencies and cost savings
  2. Incremental improvement of products, services and organizational structure
  3. Creating competitive advantages

They argue that competitive advantages can be created through IT and although likely to be temporarily, it can be extended through nurturing and evolving. The first two perspectives would relate to Porter’s concepts of operational effectiveness and the third to strategic positioning (Porter 2001).

I was impressed by business models such as FreshDirect. The company used IT as an important component of its entire unique online groceries business model. Their business model avoids paying high rent in large metropolitan cities, and their warehouses serve groceries directly to customers through their purchases on apps instead. Their large success and strong differentiation attracted giants like Amazon, which could confirm Carr’s point (Bruno 2010).

Ten years after writing his article, Carr commented that he got some parts right and some parts wrong (Bednarz 2013).

My view

I related all the different opinions to Geoffrey Moore’s business process lifecycle. It provides an overview of how a process evolves from a differentiator to a commodity (see illustration below).

Featured image

I agree with Carr on one point: a highly profitable IT differentiator will soon be imitated by competitors and become a commodity. In my opinion, this is a property of economics in general, and not a part of IT. A fundamental economic principle is that arbitrage opportunities can only be exploited temporarily, before the rest of the market discovers them. Although these differentiators will disappear, that does not mean we should not chase them. That is the whole essence of what traders are doing for example.

In general, IT can be used as a differentiator when used in combination with other assets for strategic positioning. IT should enable your company to exploit its other strengths, but it should never be solely relied upon. It is an economic principle that arbitrage opportunities come and go.

Dilara Okci

S.I.D: 366348ao

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3 responses to “Does IT matter? Temporarily? Multiple perspectives”

  1. 342890ls says :

    I’m glad that you Dilara have posted regarding this article. As one of the first few articles i read for this course I must say that being in a corporate environment opens horizons and allows relating to the theory learned.

    I have experienced working with a company which had major investments in IT tools. The tools by themselves did not of course deliver leverage or productivity gains as the company had expected. By the contrary, by neglecting communicating with end-users (evaluating and building acceptance), the IT organization had created additional work to their IT specialists.

    Users were not making use of the tool to complement and add value to their business processes; they were dropping the work on IT specialists’ desks. Unable to make use of the tool – that was important for productivity gains – users were frustrated, unwilling to make use of the tool, leading to full resistance.

    Within a company, the IT organization may be inclined to implement IT solutions without taking regard of the after-support or deploying a flawed implementation plan. This approach and its consequences, simply highlight the fact that IT by itself cannot deliver competitive advantage. If the stakeholders themselves are not willing to use IT to innovate business practices all investments are simply sunk costs (to take the extreme side). Thus, in my view, independent of the IT investment size, change management should be at the core of any IT solution deployment.

    Finally, based on this experience, I believe that IT isn’t the differentiator but the innovated business practice is what creates that differentiation. IT is more often the enabler for innovation in business practices.

  2. 418375nl says :

    I do agree on your notion that IT may be most valuable when it is used to exploit the other strengths of an organization. But I would like to add on the notion of sustainable competitive advantage.

    Jay Barney wrote a strategy-related article about this theme. In his article ‘Firm Resources and Sustained Competitive Advantage’ he introduced the so-called resource-based view of the firm. He argued that firms can be seen as a bundle of resources, and that some of these resources may lead to sustained competitive advantage if four requirements are met. The resource has be valuable, rare, inimitable, and non-substitutable.

    When looking solely at IT as a resource, without links wit other business units/processes/areas, I think we could argue that this resource would not meet many of the requirements. It might be valuable on its own, but it would definitely not be rare, difficult to imitate, or non-substitutable. According to that very article, this resource would then be considered to be a competitive parity; it would be a competitive disadvantage not having the resource.

    However, when certain links are created between the IT and business areas, the organisation might actually be able to create a sustained competitive advantage as these bundles of resources can be rare, harder to imitate (especially when the links between resource areas are difficult to identify), and alternatives may be harder to develop.

    Hence, a sustained competitive advantage could be created by combining IT and other strengths within the organization.

  3. jpeene says :

    When discussing the strategic value of IT and using examples to illustrate your arguments, I think it’s important to acknowledge that IT can have different roles in an organization. In order to advance your discussion, I would therefore like to introduce a framework I find very useful in this regard.

    The strategic grid for IT, developed by McFarlan, McKenney and Pyburn (1983), is a 2×2 matrix in which you can plot both the current operational dependence on, and the potential strategic impact of information systems. This results in four combinations: ‘support’ (low, low), ‘turnaround’ (low, high), ‘factory’ (high, low), and ‘strategic’ (high, high).

    From your description, 342890ls, it seems that the IT systems at the company you worked had a low operational, and low potential strategic impact (‘support’). In that case, the IT systems can only give you some simple support in your current processes, without giving you a sustainable competitive advantage. Even if the current operational dependence within that firm would be high (‘factory’), it would only provide the firm with competitive advantage on the short term, as every company is able to develop similar types of IT systems (Porter, 2001). Instead, firms can use IT to differentiate itself from other firms by competing in a distinctive way (‘strategic’), for example by developing an innovative business model.

    Using this framework, we can conclude that even if the company’s management and employees fully supports the implementation of a new IT system, and even if the right processes are used to carry out this implementation, it can still have a disappointing effect on the firm’s long-term strategic position. It could simply provide them with a ‘way of working a bit more efficiently’, instead of providing them with a long-term improved competitive position. Therefore, firms that are looking to gain sustainable competitive advantage should definitely take the message behind this framework into account when defining a new, and assessing the impact of their current IT strategy.

    McFarlan, F.W., McKenney, J.L., and Pyburn, P. 1983. The Information Archipelago — Plotting a Course. Harvard Business Review 61, 1 (January/February 1983), pp. 145- 155.

    Porter, M.E. 2001. Strategy and the Internet. Harvard Business Review 79(3), pp. 62- 79


    343244jp

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