“If a company needs evidence of the kind of money that might be saved, it need only look at Microsoft’s profit margin” Excerpts from a company’s strategy document • … the company will ensure that it will have at least 2 plug points in each room with AC connection. • The switches will be white in color and will make a ‘click’ sound on pressing • Press to hear the click sound Disclaimer • We all agree to the fact that IT plays a crucial role in running an organisation. • All that we are driving at is that the existence of IT does not grant a competitive advantage to a company, anymore
In other words, IT lets you remain in the race, Winning is a totally different ball game altogether The (lost) Edge • Can IT provide an edge for you? • You only gain an edge over rivals by having or doing something that they can’t have or do. • By now, the core functions of IT – data storage, data processing, and data transport – have become available and affordable to all. • And hence they are becoming costs of doing business that must be paid by all but provide distinction to none
Risk >>> Advantage • When a resource becomes essential to competition but inconsequential to strategy, the risks it creates become more important than the advantages it provides • Lets classify technologies into • Proprietary technologies • Infrastructural technologies. • Proprietary technologies can be owned, actually or effectively, by a single company. • Infrastructural technologies, in contrast, offer far more value when shared IT has all the hallmarks of an infrastructural technology.
• Its mix of characteristics guarantees particularly rapid commoditization. • IT is, first of all, a transport mechanism–it carries digital information just as railroads carry goods and power grids carry electricity. • And like any transport mechanism, it is far more valuable when shared than when used in isolation Hence the technology’s potential for differentiating one company from the pack – its strategic potential – declines as it becomes accessible and affordable to all. Mainframe timesharing local area networks Ethernet networks Internet
• Each stage in the above progression has led to Greater standardization of the technology and hence greater homogenization of its functionality. • The benefits of customization would be overwhelmed by the costs of isolation. • Because most business activities and processes have come to be embedded in software, they become replicable • Both the cost savings and the interoperability benefits make the sacrifice of distinctiveness unavoidable The arrival of the Internet has accelerated the commoditization of IT by providing a perfect delivery channel for generic applications
Signs that the IT has reached Saturation • First, IT’s power is outstripping most of the business needs it fulfills. Second, the price of essential IT functionality has dropped to the point where it is more or less affordable to all. Third, the capacity of the universal distribution network (the Internet) has caught up with demand – indeed, we already have considerably more fiber-optic capacity than we need. Fourth, IT vendors are rushing to position themselves as commodity suppliers or even as utilities.
Finally, and most definitively, the investment bubble has burst, which historically has been a clear indication that an infrastructural technology is reaching the end of its buildout. Do the Right Thing… • The operational risks associated with IT are many – technical glitches, obsolescence, service outages, unreliable vendors or partners, security breaches, even terrorism–and some have become magnified as companies have moved from tightly controlled, proprietary systems to open, shared ones.
IT may be a commodity, and its costs may fall rapidly enough to ensure that any new capabilities are quickly shared, but the very fact that it is entwined with so many business functions means that it will continue to consume a large portion of corporate spending. IT buyers should throw their weight around, to negotiate contracts that ensure the long term usefulness of their PC investments and impose hard limits on upgrade costs. And if vendors balk, companies should be willing to explore cheaper solutions, including open-source applications and bare-bones network PCs.
Most of the major business technology vendors, from Microsoft to IBM, are trying to position themselves as IT utilities, companies that will control the provision of a diverse range of business applications over what is now called, “the grid. ” The upshot is ever greater homogenization of IT capabilities, as more companies replace customized applications with generic ones. Wal-Mart and Dell Computer are exceptions to this though. In2002, the consulting firm Alinean compared the IT expenditures and the financial
results of 7,500 large U. S. companies • The 25 companies that delivered the highest economic returns, spent on average just 0. 8% of their revenues on IT, while the typical company spent 3. 7%. • Larry Ellison, one of the great technology salesmen, admitted in a recent interview that “most companies spend too much [on IT] and get very little in return. ” • The key to success, for the vast majority of companies, is no longer to seek advantage aggressively but to manage costs and risks meticulously. Thank You