Magazine article Government Finance Review

Information Technology - Competitive Advantage or Competitive Necessity?

Magazine article Government Finance Review

Information Technology - Competitive Advantage or Competitive Necessity?

Article excerpt

Information Technology - Competitive Advantage or Competitive Necessity? Does IT Matter? Information Technology and the Corrosion of Competitive Advantage Published by Harvard Business School Press www.HBSPress.org 2004; 224 pages; $26.95

Like many earlier innovative technologies, information technology has been influential in reshaping the structure, operations, and processes of organizations. In the "digital age," IT has enabled economies to grow at extraordinary rates of productivity. Still, business writer and thinker Nicholas G. Carr contends that IT is no longer a source of competitive advantage; rather, it is a commodity input that is a necessary cost of doing business.

Does IT Matter? Information Technology and the Corrosion of Competitive Advantage is a follow-up to Carr's highly controversial 2003 Harvard Business Review article, "IT Doesn't Matter." His main contention is that IT has been commoditized to the point that it is no longer a source of competitive advantage, but rather a competitive necessity. Under this new perception of IT, limiting risks and costs takes priority over seeking innovation and new investments. According to Carr, managers must first recognize this new paradigm and subsequently rethink the role of IT in their organizations. This is not to say that organizations can do without IT; to the contrary, they must invest in IT in order to keep pace with their competitors.

The author traces IT's evolution from a proprietary technology to an infrastructural technology through the historical retellings of technologies with similar business impacts, such as the railroad and the telegraph. He says the commoditization of IT is a natural process that maximizes the overall economic benefit to society. By contrast, a proprietary technology maximizes the profit of one or a few organizations at the expense of overall market productivity, similar to a monopoly.

Carr describes the commoditization of hardware and software through standardization, modularization, and economies of scale and the resulting cost savings and improved performance experienced by many organizations. As hardware and software systems are standardized across organizations, best practices become universal practices and the competitive advantage afforded by distinctiveness is forgone. Organizations accepted commoditization of IT because the cost savings outweighed the benefits of differentiation.

One of Carr's aims is to provide a reality check on the glorified visions of IT held by many industry insiders. He says IT has matured to the point that most of the significant innovations have already transpired. …

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