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Published: November 30, 2004


Best Business Books 2004: IT & Innovation

The industry, perhaps more than any other, is a test bed for innovation and new business models largely because its essential ingredient — software — is a building material without material constraints. As one market opportunity fizzles, entrepreneurs quickly retool and chase another. In The Business of Software, Cusumano presents a fascinating litany of successes and failures, including those of startups he knows firsthand, like firstRain (whose distinguished backers include Stanford president John Hennessy).

Cusumano’s theme is that the $600 billion software industry is transitioning from a products orientation to a services orientation. Until the recent technology slump, he writes, “I believed — and I think most venture capitalists, managers, and entrepreneurs also believed — that it was better to be mainly a product company. I no longer think this is true.” The industry isn’t so much maturing as evolving, according to Cusumano, as more and more vendors offer their customers hybrid solutions of software and services. This has been IBM’s strategy for years; SAP has its version of the same formula; and even Microsoft, the classic software product company, has moved in that direction by adding in-house experts in everything from banking to health care and forging close partnerships with services suppliers like Accenture.

The Microsoft ecosystem, as Iansiti and Levien would put it, embraces services these days. The value in software is moving up the food chain of business, closer to partners, suppliers, and customers, and farther away from the innards of computing.

A Defensive Weapon
Does IT Matter? Information Technology and the Corrosion of Competitive Advantage, by Nicholas G. Carr (Harvard Business School Press, 2004), is the most skeptical of the books reviewed. Carr, a former editor of the Harvard Business Review and now a consultant, author, and columnist for this journal, argues that IT is going the way of the industrial technologies of the 19th century — think of the railroads and the telegraph — to become an ordinary factor of production. “From a strategic standpoint they began to become invisible; they mattered less and less to the competitive fortunes of individual companies,” Carr writes. “Information technology is heading down the same path.” This is the seemingly subversive thesis of Does IT Matter?

The book is a longer treatment of a Harvard Business Review article, published in May 2003, that touched off a fierce debate, especially among those who read little more than its inflammatory headline, “IT Doesn’t Matter.” Of course IT matters, Carr writes, just not in the way many businesses assume. Yes, he agrees, technology lifts productivity and reduces costs. But Carr asserts that as IT matures, spreads, and becomes more standardized, the strategic value any individual firm can gain from technology diminishes. His strategic advice, then, is to keep a tight grip on the IT budget and “innovate when risks are low.”

In Does IT Matter? Carr is not the counterrevolutionary that the tabloid headline on the HBR article suggested. He says that IT is more a defensive weapon than an offensive one for most companies, but still a vital one. “Indeed,” Carr writes, “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.”

The authors of all four of these books, including Carr, suggest that the importance of information technology as a stand-alone thing, the raw bits and bytes, is receding. Yet that is because it is becoming a more integrated part of business and society with the potential for great benefit or mischief, not less important or necessarily a commodity.

The future of information technology and its impact on our world depends on whether it is more like an industrial technology, as Carr suggests, or more like biology. Cusumano, for example, may be skeptical about the fate of many of today’s software companies, but he betrays no doubts about the technology. Software applications, he writes, are “limited mainly by human imagination. Since human creativity is so vast in potential and computer hardware is still evolving by leaps and bounds, it would be foolish to think of software technology as being mature.”

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