The document discusses how IT starts as a strategic advantage but eventually becomes a commodity as its adoption increases. It argues that early adoption of proprietary IT provides benefits, but once standards are established, IT no longer provides competitive advantages and instead firms should focus on risk management and reducing IT costs. The key points are that IT shifts from a potential strategic resource to a commodity factor as its functions become universally available and affordable, and that overspending on IT poses greater risks than opportunities once widespread adoption makes IT essential but no longer differentiated.

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IT Doesn’t Matter
28/02/2017
Dejan Munjin

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1. IT gives strategical advantage in early adoption phase
2. Proprietary technology gives an advantage while protected
3. When the infrastructural technologies reach the buildout phase they become
commodity
4. Strategic advantage shifts to the “risk management”
5. Spending less on IT gives a competitive advantage
Main issues addressed

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• 1965 – 2000 = 50% of capital
• World business spend over $2 trillion a year
• Shifting attitude of top management towards competitive advantage
• Problem: assumption that as IT’s potency and ubiquity have increased, so too
has its strategic value
• By now the core functions of IT have become available and affordable to all
• Their power and presence have become to transform them from potentially
strategic resources into commodity factors of production
IT Expansion and strategic shift

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• How the technologies influence competition at the firm level
• Proprietary technologies: as long as they remain protected, can be a long term
strategic advantage
• Infrastructural technologies offer far more value when shared then when used
in isolation
• Restricted access and superior insight in technology gives advantages over
rivals (e.g. Electricity, steam train…)
• There is an initial frenzy in technology uptake
• The trap: assuming that opportunities for advantage will be available
indefinitely
Vanishing Advantage

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• After the buildout phase: creation of standards
• Standards are beneficial at the macro economic level
• Only competitive advantage for forms is cost reduction
End of Buildout Phase

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• IT is an infrastructural technology
• IT is a transport mechanism: interconnectivity
• IT is highly replicable
• Most of the business processes become replicable
• IT Becomes an utility (e.g. fee based services)
• + Investments = Overcapacity consequently surge in productivity
• Gordon Moore: predictions about doubling computing power every 2 years
IT Commoditization

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• Ex. Sites on WWW has grown from 0 to 40 million in 10 years
• Ex. American Hospital Supply (AHS) with Analytic Systems Automated
Purchasing (ASAP)
• Standardization leads to lucrative monopolies whereas the vendors are
changing the business model to “Web Services” and subscriptions (e.g.
Microsoft Office
IT Commoditization

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• When the buildout of and infrastructural technology has concluded?
• IT’s power is outstripping most of the business needs it fulfills
• IT functionality has dropped and is affordable to all
• The universal distribution network has caught up with demand
• IT vendors are positioning as commodity suppliers
• The investment bubble has burst
Loosing Competitive Advantage

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1. Spend less, avoid penalties
2. Follow, don’t lead (Moore’s Law)
3. Focus on vulnerabilities, not opportunities: even brief disruption can be
devastating
Guideline for the future

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• When a resource becomes essential to competition but inconsequential to
strategy, the risks it creates become more important than the advantages it
provides
• Overspending is a risk: focus on essential functions of IT (e.g. personal
computers, Microsoft profit margin, waste of storage)
• Spend less get more by buying IT when it’s standards and best practices
solidify
• Studies show that the companies who invest the most are not the best
performing
Guideline for the future

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• Google search engine as infrastructural technology ?
• Any other market players and examples ?
Short Case Study

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• Limited to economic point of view
• What about new business models and market actors ?
• What about education/training ?
• Other interdependencies of business with IT ?
Critical view

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• Nicholas G. Carr “IT Doesn’t Matter”. Harward Business Review, May 2003
Issue
• https://hbr.org/2003/05/it-doesnt-matter
Citations and References