IT shops shrink along with their value

IT departments are shrinking and their value diminishing as companies realise technology and innovation is no longer a market differentiator that delivers a competitive advantage.

In a bleak appraisal of the future of technology investment, Nicholas Carr, the controversial author of the book Does IT Matter?, said IT departments will eventually disappear, as technology becomes no different to electricity and becomes a function spread across the organization rather than a separate entity.

Thankfully, this won't happen in our lifetime and his argument that IT is losing its strategic value as it becomes more available and affordable to everyone was remarkably well-received by delegates at the CIO Conference in Sydney this week where Carr was a speaker.

Carr said IT has evolved from a profit-boosting resource to a simple cost of doing business as competitors replicate hardware and software innovations, so neutralizing the technologies' strategic power.

He said the focus today is on IT cost control and risk management rather than cutting-edge investment or early-adopter strategies.

With IT investments increasing from 5 percent of capital expenditure in the 1960s to 50 to 60 percent in the 1990s, companies are now spending $2 trillion a year on technology.

"The focus now should be on decreasing that spend by around 5 percent a year; it may not happen, but set it as a goal," Carr said.

"Making IT strategic shouldn't be the goal, but that doesn't mean it isn't important; by moving away from focusing on strategy we can manage IT better and accept it isn't a silver bullet."

Pointing out that hardware and software has become completely commoditized, Carr said innovation should be left with the vendors.

Stop thinking IT is different, he said, and realize it has become standardized and homogenized, citing Intel chipsets and the Windows operating system as examples.

"Instead of looking for the latest and greatest, go with what gets the job done; software has become a simple, packaged good which is why vendors are trying to position themselves as a provider of software as a service rather than a component or product," he said.

Carr said 10 years ago there were advantages in being innovate and an early adopter citing the Sabre system developed by American Airlines to gain market dominance but today early adopters are the losers as competitors can replicate those benefits very quickly.

Aggressive innovation is out, he said, but the good news is that these changes make it a buyer's market.

"Spending has traditionally been driven by vendor strategies rather than the interests of buyers. IT suppliers have become very good at parcelling out new features in ways that force company's to buy new PCs and applications more frequently than they need to," Carr said.

"But most of that technological capacity is not being used and dates pretty quickly so buyers have learnt their lesson to get value out of past investments before making new ones."

Technology commoditized but not leadership

IT consultant and author Nicholas Carr rejects analyst claims that IT should not be seen as a cost centre within an organization.

He says the simple fact is that IT is a cost centre and with the maturation of IT and little distinction between the technology residing in most organizations, the real differentiator will be leadership skills.

"You can give two bakers a tonne of flour each, but only one will produce the best loaf. Flour is not a strategic resource; the greater skill is in how you use those resources," Carr said.

"Skills don't get commoditized like software and hardware; that is what will distinguish one company from another."

Acknowledging the debate about his book, Does IT matter?, as emotive, Carr said the response hasn't exactly been an academic one with Microsoft's Steve Ballmer calling his book "hogwash" and HP's Carly Fiorina saying he is "dead wrong".

When his extracts were first published in the Harvard Business Review a year ago, Carr said the IT industry responded negatively out of fear because he was preaching IT cost cutting during tough economic times.

Carr rejected claims he was trivialising IT or reducing its value to business, saying he was promoting a more realistic view and encouraging a more rigorous approach to spending.

"There is still enormous opportunity for a good manager to do smart things with IT, but it will be measured more by cost rather than innovation," he said.

There will always be trade-offs, he said, giving as an example the cost of customization, which often outweighs the benefits of packaged software.

"Outsourcing neutralizes the ability to gain a competitive advantage, because a service provider can give the same benefits to any customer, but the trade-off is you save money," Carr said.

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