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Nicholas Carr: IT still doesn't matter, part 1

CHICAGO -- "IT is shifting from a potential source of competitive advantage to just a cost of doing business," said Nicholas Carr, author of Why IT doesn't matter anymore, during his opening keynote at this month's SIMposium 2004. Even though the name of his newest book, "Does IT matter?," might make you think he's changed his mind, he hasn't.

A few days before the conference, he talked about his controversial article, his new book and what lies ahead for IT. In part one of the interview, he clarifies his theory, explains why it may have been misinterpreted, talks about outsourcing's role, and discusses IT's strained relationship with business.

At last year's SIMposium, the delegates heard a speech from Harvard Business School Professor Warren McFarlan and received a packet of "letters to the editor" debunking your article "IT doesn't matter." Are you here this year to defend yourself?
No. I wasn't really aware of last year's program. I just think it's a great audience in terms of IT managers and seemed like a good one to talk to. What are the best arguments that you've heard against your position? Have they caused you to alter your opinions in any way?
I think some of the arguments are definitional -- how broad a definition you use of information technology. In some cases, people will say it's not the technology, it's the people. I have no debate with that. Whatever business resource you're talking about, whether it is computer systems or raw materials, it's obviously the talent, skill and understanding of a company's people that set apart how effectively they use that resource. But it seems to me that broadening the definition of IT so far just muddies the issue of the role of technology. So that's one line of arguments.

I think one of the most interesting criticisms is along the lines that as we see IT components, hardware and software become cheaper, more available and more flexible, then companies will be able to combine those components much more quickly, much more flexibly, and perhaps therein will lay the opportunity for advantage.

If there's a misinterpretation, it's more along the lines of understanding the distinction I draw between an essential business resource and a strategic one. 
Nicholas Carr
So would you say the most misinterpreted part of your theory is in the actual definition of IT?
I wouldn't call it misinterpretation as just people defining it in different ways. I would say if there's a misinterpretation, it's more along the lines of understanding the distinction I draw between an essential business resource and a strategic one, because you can have something [in IT] that's essential. It's the cost of doing business; you have to buy it and you have to maintain it well. But it doesn't necessarily provide you with the basis for competitive advantage or competitive differentiation, which is what I think characterizes a strategic resource.

My argument is not that you don't need IT or that it's not important, but that it doesn't matter strategically and doesn't provide one company with a way to distinguish itself in any meaningful way from its competition. Given that you believe IT is no longer meaningful strategically, would you advise a corporate management committee to outsource every possible IT function as cheaply as possible and shrink its IT expenditures to the bare minimum?
I wouldn't say outsource everything possible in a blind fashion, because outsourcing is not without its costs and risks and, as we've seen, many outsourcing contracts don't go all that smoothly or don't produce the gains that were expected.

Having said that, I do believe that as more IT processes and more IT functions become standardized and routinized, then outsourcing is certainly one option that companies should look at. Anytime something becomes routinized and non-strategic, then it becomes a good candidate for outsourcing, and what we're seeing today is that a lot of the IT-related processes that you once had to do yourself inside your company, you can now look for an outside supplier to provide. That doesn't mean that it's always going to be the right decision, but it's certainly another option. If IT doesn't matter as much as it used to, what are companies supposed to turn to for innovation or advancement? Is some other field rising up as an engine of innovation or business creativity?
Every company needs to innovate if it's going to stay ahead of the competition, but the key decision is 'where do we innovate, and where do we not innovate' because innovation is costly and risky. So you don't want to do it everywhere, particularly those places where it's not going to provide you with an advantage. But I think there are all sorts of places where companies might decide to innovate, whether it's in product development in the services they provide, in their manufacturing processes or in seeking sale advantages. I think all along, IT has been one area of potential innovation but there are hundreds more. Do you think there was a particular time during the last few years that marked the loss of credibility IT had with business? Was it Y2K, the dot-com bust, the economic downturn, all three, none of the above?
I think there was a combination of forces. I certainly think Y2K and the dot-com bust showed executives that there was a lot of marketing hype focused on IT. At the same time, I think longer term trends toward the greater standardization of IT and toward rapid price declines of IT components have also influenced executives in leading them to move away from the cutting edge and look for cheaper ways to get the capabilities they need. So I think it's a mix of things. It also needs to be pointed out that a lot of companies have had a lot of IT initiatives that haven't worked out the way they would have liked -- they've gone way over budget, way off schedule, have been abandoned, or haven't produced the benefits they were expecting. So I think there's been a lot of frustration over the last five to 10 years with IT, and that's led toward a more conservative posture toward its purchase and its management.

If IT doesn't matter, do CIOs matter? Click here to read the second half of the interview, where Carr discusses his take on the future of the CIO role.

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