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strategy and business
 / Summer 2004 / Issue 35(originally published by Booz & Company)


Does Nick Carr Matter?

Thus, IT strategy for most companies should become a game of defense. The shrewd executive, Mr. Carr writes, will in most cases keep his or her company focused on the trailing, rather than the leading, edge of technology. He offers four guidelines for IT strategy: “Spend less; follow, don’t lead; innovate when risks are low; and focus more on vulnerabilities than opportunities.”

In Mr. Carr’s view, there are two kinds of technologies: “proprietary technologies” and “infrastructural technologies.” The first yields competitive gain, whereas the second is just plumbing, at least from a strategic standpoint. Technologies shift from proprietary to infrastructure as they mature. When a technology is young, companies can gain a big strategic advantage, and Mr. Carr deftly describes how companies like Macy’s, Woolworth, and Sears, Roebuck exploited the new economics of retailing made possible by rapid, long-distance shipments by rail, and how a new breed of national high-volume manufacturers like American Tobacco, Pillsbury, Procter & Gamble, Kodak, and Heinz sprang up by gaining advantage from modern transportation, the telegraph, and electricity.

Once a technology moves into the infrastructure category, however, corporate opportunity wanes. In IT these days, Mr. Carr sees just about everything being folded into the infrastructure, including the Internet, Linux, Web services, and Windows. Mr. Carr is particularly insightful on the subject of enterprise software, such as SAP’s enterprise resource planning offerings and Siebel’s customer relationship management programs. As he does throughout the book, he succinctly draws the analogy between the present and an earlier technology. In this case, enterprise software is depicted as the modern version of machine tools.

Before the 20th century, machine tools were bespoke gadgets made by each factory for its own requirements. But then machine-tool vendors emerged. Their economies of scale brought lower costs and standardization to the machine-tool industry. Innovation continued, but it was the vendors who developed and distributed those innovations for all manufacturers — and thus no competitive advantage accrued to any individual manufacturer. Mr. Carr sees a similar “vendorization” in enterprise software, where core business processes like supply chain management and customer relationship management are handled by standard software packages. The result is a straitjacket of standardization, leaving little room for a company to distinguish itself. Small wonder, Mr. Carr writes, that in the late 1990s enterprise systems came to be called “companies-in-a-box.”

Even the companies that seem to be IT-based success stories — notably Dell Computer and Wal-Mart — are not, Mr. Carr tells us. Yes, Wal-Mart was a leader in using advanced computing and private networks to link sales, inventory, and supply information. But Wal-Mart’s real edge today, Mr. Carr says, is the scale of its operation, which enables it to strong-arm suppliers and zealously pursue efficiencies everywhere in its operations. And Dell, he contends, has an edge over rivals because of its direct marketing and build-to-order strategy. “It’s true that IT has buttressed Dell’s advantage, but it is by no means the source of that advantage,” Mr. Carr writes.

More generally, Mr. Carr observes, strategic advantage derives not from technology itself but “from broad and tightly integrated combinations of processes, capabilities, and, yes, technologies.” Translation: How you use technology, not the technology itself, is the crucial variable. “Indeed,” Mr. Carr writes in his preface, “as the strategic value of the technology fades, the skill with which it is used on a day-to-day basis may well become even more important to a company’s success.”

It has the ring of innocuous truism, but wait a moment: Does that statement really apply to a utilitylike infrastructure technology? Does the skill with which we use electricity, commuter rail service, or the telephone have anything to do with corporate success or failure? No one seeks insights from research firms, like Gartner, or advice from consultants, now including Mr. Carr, on how to use real infrastructure technologies. This suggests that information technology may be a bit different after all.

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IT Resources:
Works mentioned in this review

  1. Nicholas G. Carr, Does IT Matter? Information Technology and the Corrosion of Competitive Advantage (Harvard Business School Press, 2004), 208 pages, $26.95
  2. Does IT Matter? An HBR Debate. Letters to the Harvard Business Review: Click here.
  3. IT Doesn’t Matter, responses, articles, and resources related to Nicholas Carr: Click here.
  4. Steve Lohr, “Is the Technology Business Still a Growth Industry?”  Originally published in the New York Times: Click here.
  5. Remarks by Bill Gates, chairman and chief software architect, Microsoft Corporation, CEO Summit 2003, Redmond, Wash.: Click here.
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