It Doesn't Matter Summary

Electricity, the telephone, the steam engine, the telegraph, the railroad and.....IT? In his HBR article, "IT Doesn't Matter," Nicholas Carr has stirred up quite a bit of controversy around IT's role as strategic business differentiator. He examines the evolution of IT and argues that it follows a pattern very similar to that of earlier technologies like railroads and electricity. At the beginning of their evolution, these technologies provided opportunities for competitive advantage. However, as they become more and more available - as they become ubiquitous - they transform into "commodity inputs," and lose their strategic differentiation capabilities. From a strategic viewpoint, they essentially become "invisible."

Carr distinguishes between proprietary technologies and what he calls infrastructural technologies. Proprietary technologies can provide a strategic advantage as long as they remain restricted through "physical limitations, intellectual property rights, high costs or a lack of standards," but once those restrictions are lifted, the strategic advantage is lost. In contrast, infrastructural technologies provide far greater value when shared. Although an infrastructural technology might appear proprietary in the early stages of buildout, eventually the characteristics and economics of infrastructural technology necessitate that they will be broadly shared and will become a part of the broader business infrastructure. To illustrate his point, Carr uses the example of a proprietary railroad. It is possible that a company might gain a competitive advantage by building lines only to their suppliers, but eventually this benefit would be trivial compared to the broader good realized by building a railway network. The same is true for IT - no company today would gain a cost-effective competitive advantage by narrowing its focus and implementing an Internet only between their suppliers to the exclusion of the rest of the world.

To further shore up his "IT as commodity" theory, Carr cites the fact that major technology vendors, such as Microsoft and IBM, are positioning themselves as "IT utilities," companies that control the provision of business applications over "the grid." Couple this IT-as-utility trend with the rapidly decreasing cost of processing power, data storage and transmission, and even the most "cutting-edge IT capabilities quickly become available to all."

Although IT may seem too diverse to be compared to commodities such as electricity and the railroads, Carr points out three specific characteristics that guarantee rapid commoditization: IT is a transport mechanism; IT is highly replicable; and IT is subject to rapid price deflation.

First, IT is a "transport mechanism" that carries digital information much the same way that railroads carry goods and power grids transport electricity. And just like these commodities, IT is "far more valuable when shared than when used in isolation." Secondly, IT is highly replicable. With the economic efficiency of off-the-shelf software and the generic business processes that are inherently available within them, the costs savings and interoperability benefits make the sacrifices of "distinctiveness" unavoidable. And, finally, IT is "subject to rapid price deflation." As the cost of processing power, data storage and data transmission has declined, so has one of the most important barriers to commoditization - cost. Again, as cost declines, availability increases, which fuels the case for the commoditization of IT.

Although Carr does agree that a myriad of companies, such as American Airlines and Federal Express,