IT has been a critical part of the production of running a
business since the early days of the IBM 360. IT supports every
aspect of the business from human resources to operations - yet it
has primarily been perceived to be a part of the backstage crew. IT
has been extremely important to the success of the show, but it is
not seen as a key actor who is centre stage and critical to
determining the final outcome. In fact, some have gone so far as to
declare that IT doesn't really matter anymore [1]. Of course, we
were reminded of its importance during the Y2K frenzy when, for the
first time, IT found itself on the agendas of the board of
directors in many corporations around the world, giving
play-by-play reports on their coding problems. Around the same
time, IT became a key player in the dot-com bubble, giving rise to
the need for speed as dot-com businesses created their Web sites.
However, IT organizations have been mostly perceived as one of many
business support functions, just like finance, manufacturing, or
HR. Until recently, IT has typically not been recognized as a
determining factor in a business's ability to gain or lose market
share or as the driver of the competitive dynamics of entire
industries.
In a recent Wall Street Journal article titled "Dog Eat Dog,"
Andrew McAfee from Harvard Business School and Erik Brynjolfsson
from MIT's Sloan School of Management share their research findings
regarding IT and market share [2]. They divided the US private
sector into 61 industries and determined the IT intensity of each
one by the amount of spending on computer hardware and software as
a percentage of total spending on fixed assets, grouping them into
high-IT, medium-IT, and low-IT industry groups. Their study focused
on the period after 1996 when technology investments increased
sharply in the high-IT industries. Some of their key findings
include:
Market share increases were greatest in industries that used IT
most extensively.
High-IT industries experienced different competitive dynamics
than other industries.
Sales turbulence (i.e., the amount of shifting in where a
company ranks in sales within an industry from year to year) was
substantially higher in the high-IT industries than in the other
two categories.
McAfee and Brynjolfsson state that the direct link between IT
and market share has surprised many researchers and executives
because companies expect to buy technology in order to gain control
over their environment, not lose it. How exactly has IT caused this
to happen? It has been through the use of IT in process innovation
and replication. Enterprise-wide software applications have enabled
companies to integrate across functions, and the Internet has made
IT-enabled tasks widely accessible. Improvements to algorithms,
software updates, and new capabilities can be made very quickly and
distributed broadly in a seamless manner. A company's leadership
position today can be disrupted by a competitor the very next day
if the competitor is more insightful, more connected to its
customers, and quicker to deliver solutions. This is the new norm
in this highly competitive and dynamic environment, and the
turbulence will only become more intense and more pervasive as IT
usage expands across all industries.
The good news is that IT really does matter. The bad news is
that as every company and industry becomes more and more dependent
on IT over the next 10-20 years, all industries and companies will
experience this dog-eat-dog competitive cycle. It is not sufficient
to merely react to the competition's last move companies have to
drive the competitive dynamics of their industries to be successful
in keeping and/or gaining market share. As companies realize how
important IT is in determining competitive advantage, they are
making changes where necessary so that they can engage IT as a true
business partner. As a result, IT is being forced to be much more
agile and increasingly more engaged and integrated with both
internal and external customers and suppliers. IT is back in the
hot seat but with a much better negotiating position. Its
performance and capability are being directly linked to the
revenue-and-profit side of the financial equation. It is no longer
a mere overhead expense IT is being recognized as a true asset in
determining a company's competitive position. However, the IT
mindset has to shift in a number of ways to effectively meet the
challenge.
I have had the opportunity to listen to presentations from a
number of CIOs over the last year, and I have observed a common
theme: IT organizations face a new challenge -- how to capitalize
on the growing demand for IT-enabled innovation. CEOs are giving
their IT organizations a new, broader mission: enable business
strategy, drive productivity, and facilitate company-wide
innovation. In fact, a CEO from one of the largest technology
companies has recently stated that he wants to enable every company
move through its IT organization and eliminate the shadow or hidden
IT functions across the company. In response to the pull from the
businesses and CEOs, CIOs must transition their organizations from
utility provider to business partner while shifting a significant
portion of IT spending from supporting the business to growing the
business. CIOs are increasingly being challenged to deliver value
by driving common processes across the enterprise, optimizing IT
spending with a shift to value-add, partnering to define enabling
technical solutions, and utilizing these enabling technologies to
generate revenue.
IT organizations are discovering that a "copycat" portfolio and
IT strategy will not suffice in this intensely competitive
environment. The traditional IT organization has been constructed
to most efficiently and effectively plan, build, run, and maintain
internal hardware and software. Over the last 10 years, IT
organizations have taken on a new leadership role and
responsibility in the areas of processes transformation,
back-office consolidation, and shared services. The new IT is not
only about automation, not just about process transformation, not
primarily cost-focused, not necessarily focused on new
technologies, and not about IT alone. The IT world is becoming more
encompassing with both an external and an internal focus. Today's
IT perspective is shifting to take on a joint ownership of the
business's extended value network by helping businesses connect
with customers in innovative ways and providing intelligent
communication networks that serve their entire enterprise.
This overall trend is affecting IT in many ways, including its
portfolio of projects, people, organizational structure, processes,
corporate role, governance, investments, technologies,
partnerships, and suppliers. IT must construct a balanced portfolio
focused on maintaining IT operational excellence while investing in
the business goals for growth, profit, and innovation. IT-enabled
transformation projects will be more and more integrated across
sales and marketing, engineering, and manufacturing, where they can
drive their company's profit. IT is becoming a necessary and
welcomed partner in the quest for innovation across the corporation
as they lead efforts to take advantage of new and emerging
technologies. In addition, the people in IT organizations are
required to be more broad, flexible, versatile, and collaborative
while blending IT technical skills with product development and
marketing skills. In some traditional IT organizations, IT
associates are learning to say yes instead of the standard "No, we
don't do that" when asked if they can, will, or should do something
differently. Processes are being forced to become more agile and
risk-tolerant to meet the demand for speed, creativity, and
flexibility. At some leading-edge companies, IT is no longer
walking around with a tin cup begging for dollars it now has a seat
at the table. In these enlightened companies, IT investments are
starting to be seen as a cost of doing business with longer-term
payback. And finally, IT will be moving into more complex
multidimensional relationships with internal functional
departments, suppliers, and third-party technology organizations
such as universities.
What if you are in a company that is still living in the
traditional model? Your tin cup is out there, and nobody is making
eye contact. Well, you can try to enlighten your leadership by
giving them data on how IT is affecting market share and show them
what leading-edge companies are doing about it. If they stay in
denial for very long, it probably won't be an issue anymore since
the company will more than likely fade away as it loses any
competitive advantage it once enjoyed. You may want to dust off
that résumé and join one of those organizations that has embraced
IT as its hope for the future.
I welcome your comments on this issue of the Cutter Edge and
encourage you to send your insights on the market in general to me
at cdavis@cutter.com.
Christine Davis, Fellow, Cutter Business Technology Council
References
1. Carr, Nicholas G. "The End of Corporate Computing." MIT Sloan
Management Review, Vol. 46, No. 3, Spring 2005.
2. McAfee, Andrew, and Erik Brynjolfsson. " Dog Eat Dog." Wall
Street Journal, 28 April 2007.