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:
- Efficiencies and cost savings
- Incremental improvement of products, services and organizational structure
- 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).
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).
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.