Information technology managers should get ready to run for cover.
Last year, Nicholas Carr raised a big stir with his article, IT Doesn't Matter. Now, he's published a book, titled Does IT Matter? (Harvard Business School Press).
Mr. Carr says not to take his catchy titles literally (then why does he keep repeating them?). He claims to really mean that IT actually does matter, but not as a basis for competitive advantages.
Competitive advantage, he argues, derives from rarities, like control over a pharmaceutical patent or a unique customer segment. But IT is fast becoming part of the common infrastructure — generic, cheap, and plentiful. Just like electricity and railways, anyone can use it and they only notice when it's missing.
His advice: Spend less, follow others, innovate only when risks are low, and focus on operational vulnerabilities such as service outages and spam (rather than on opportunities).
In my humble opinion, this thinking is wrongheaded and silly.
A keystone of Mr. Carr's story is a crude and simplistic direct attack on the concept of business webs, which Don Tapscott, Alex Lowy and I described four years ago in Digital Capital: Harnessing the Power of Business Webs. According to Mr. Carr, the business web idea is part of what he calls the "post-company school," which allegedly advocates tearing down corporate walls and turning firms into amorphous little blobs.
Nothing could be further from the truth.
Since the Internet lowers the costs of doing business on a global scale, companies will increasingly focus on what they do best and rely on business web partners, suppliers and even customers for the rest. At the same time, as we said, "the co-ordination tools of the digital infrastructure enable firms to expand massively in highly focused areas of competency." Rather than amorphous little blobs, many business web winners will be laser-focused mega-enterprises.
This is not mere advice. It describes how the world is changing, like it or not. The concept doesn't only apply to Internet success stories (such as eBay and Amazon). It also applies to very traditional firms. Take Loblaws, which scours the global marketplace to find hundreds of third-party suppliers that inspire or create President's Choice products. Loblaws even uses a big bank (CIBC) to provide the underpinning of its Internet-based PC Financial services.
Mr. Carr says such strategies betray "obliviousness to the competitive realities of business." Relying on partners, he cautions, makes you vulnerable to suppliers with sneaky ulterior motives to displace your firm. Even worse, "standardized modular companies would have fewer ways to distinguish themselves."
Odd. My impression is that using creative third-party ideas and capabilities for President's Choice has helped Loblaws distinguish itself from both powerful national brands and boring house brands. The idea that Loblaws is vulnerable to President's Choice suppliers is absurd. The company's private-label strategy has set the standard that others across its industry (even Wal-Mart) strive to emulate.
At first blush it's bizarre to see Mr. Carr foment against business webs. After all, he forcefully argues that as IT becomes a commodity, the business processes that it supports inevitably follow. You'd expect him to conclude it makes sense to outsource such commodity processes to the lowest bidder.
This is where the house of Carr collapses. Many of today's innovative, competitive, and sustainable business models depend precisely on creative business web thinking. For example, Loblaws is now going into car insurance. It has engaged Aviva Canada, part of a global insurance company, to run the President's Choice-branded service. Aviva, in turn, draws on an India-based firm to complement its core Canadian call centre — not just to save money, but also because it's the quickest way to ramp up.
Another very current example is Dexit, a Toronto-based startup that offers a wireless transmitter inside a key tag. The product is a consumer cash replacement for low-value purchases such as fast food or parking. The business model is unique. The company has ramped up to a decent size since a launch seven months ago. Yet only some of the work was done inside the company — the equipment, the software, and even operational setup of individual merchants are handled by other firms in Dexit's business web. While the company is firmly in charge, it simply could not have got this far this fast if it had tried to do everything itself.
Both the established Loblaws and the startup Dexit apply the very business web thinking that Mr. Carr inveighs against. Rather than look at the integrated firm as the starting point for creating value, they started with a customer's value proposition and a blank slate for the production and delivery system.
For both Loblaws and Dexit, IT — in sync with a series of business innovations — matters tremendously as a contributor to competitive advantage. IT facilitates their delivery channels, unique business designs, fast ramp-up, and low costs. These are local, ready-to-hand examples. Countless others exist everywhere. Mr. Carr ignores today's kaleidoscope of IT-based business innovations and plays down a famous few (like Apple iTunes) as exceptions.
Mr. Carr could have made one credible argument: That competitive advantage, no matter how achieved, by definition only accrues to the few. After all, if everyone had "it," it would not be an advantage. As with any resource, most uses of IT will not yield competitive advantage, they will merely let you get along. But if you go from there to entirely discounting the differentiating potential of IT — or any other resource at your disposal — you may be handing the game to a more creative competitor.
David Ticoll's new book is The Naked Corporation: How the Age of Transparency Will Revolutionize Business, written with Don Tapscott.
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