Copyriahs 2005 by Harvard Busines S2ho0 I iii 4 Har AT Lance re Doe sn’'t Matter by Nicholas G. Carr As infor grown, its strategi mation technology's pawer and ubiquity have importance has diminished. The way you approach IT investment and management will need to change dramazically 1s 1568, ayoung Intelengincernamed ‘Ted Hoff found a way to put the cir ‘cuits $2c2535) for computer Sra: ing onto a tiny piece of silicon. His ine vention of tie mictoprowessorspurreda series of techrologial areakthcoughs~ desktop computers, lacal and wide area retaorks, enternrise software, and the Internet ~that have transformed the business would Today. no ae would ise ute that information technology hes become the backbone of commerce. it ‘underpins the operations of individual companies, les together furan sup ply chains, and increasing links busi- nesses to the customers they serve Hardly a dollar or aeuro changes hands anymore without the 2i¢ 9¢ sysems As ITS power and . pandes,compani2s sae come to view it as a resource ever more critica ing Coperaon. At success, 2 ict eleary reflected in the spending habits. 1985, according te a ‘eidy by the 8S, Department of Com- eres Bureau of Economic anny ‘ess than 55 of the capital expendiices of American companies went to infor. ion technology After the incrodu ‘ion of the personal computer in he early 19805, thar percontag: 19861015 By the early 1990s.ithad reached more than 30%, and by the end of the dacads ft had bit nescly son, Even with the re- cent sluggishness in technoiogy spend ing, Dusinesses around the werld eon tinue to spend well over s2 tailion year on i But the veneration of IT goes deeper than dol fn the shitting ch Ieisovident as well 2 of top manzg- _ye115 ago, most executives locked down on computers as prole- ‘arian tocls = glosfied typewsters andHii AT LARGE - IT Ooesn't Matter caleulators~ dest relegated to low level employees lite szerorares, analysts and technicians It was the rare executive who would le his fingers touch = key- board, much less incorporate informa tion technology into his strategic think- ing: Today, that has changed completly Chief executives now routinely talk about the strategic value of information technology, about haw they can use IT to gain 2 competitive edge, about the “cigiization” of their business models. Most have appointed chief information officers to their senior management teams, and many have hied strategy consulting fms to provide tresh ideas fon how toleverage their T investments for differentiation and advantage. Behind the change in thinking lies 2 simple assumption: that as T's potency and ubiquity have increased, so too has its strategis value. It's a reasonable as- sumption, even an intuitive one. Butts mistaken, What makes a resource trly ‘erategje~ what ples it the capacity to bbe the basis for a sustained competitive advantage is not ubiquity but scarcity eu only gain an edge over rivals by having or doing something that they can’: have or do By nowytive core fune> tons of IT data storage, data process- ing, and data transport have become avallable and affordable to all! Thei vety power and presence have begun 1 transform them from potentially strate Fhe rescuzes into zommadity factors oF producti. They are becoming cost 2f dong busines that must be pald by sil bu provide distinction to none. ‘Tisbest sen asthe latest ina series of broadly adopted technologies that have teshaped industry over the past too centuries =fror the steam engine and the malraad to the telegraph and the telephone to the electri generator and the intemal comabustion engine. For a bret period, a they were being boul Inco the infrastructure of com. ‘merce, all thase technologies opened ‘opportunities for forwarclooking com> panies to gain real advantages But as theft avallability increased and thei cose decreased—as they became ubigu tous -they became commodity inputs som a strategic Randpotnr, they be- came inate; they no longer mattered “That fs exactly what is happening to in- formation technology today, and the ‘mplications for serpacate IT manag ‘ment are profound. Vanishing Advantage ‘Many commentators have drawn par lels between the expansion of TT, pare ticularly che Intemet, and the rollouts of earlier technelogies. Most of the comparisons, though, have focused on either the investment paitern associ- ated with the technologies~the boo to-bust eycie-orthe tecnologies roles Inreshaping the operations of entice i ddustries or even economies. Litle has rightstoa new packaging material that tives is product a longer shel life than ‘competing brands. as long as they re ‘main protected, proprietary technolo- gies can be the foundations for long: term strategic advantages, enabling ‘companies to reap higher prodts than their vals, Infrastructural technotogis, in com ‘rast offer far more value when shared than when used in isolation. Imagine ‘yourself Inthe early nlneteenth century, ‘and suppose that one manufacturing ‘company held the rights to all the nelogy required to cteatearallraad. it wanted to, that company caulil just build proprietary lines between is supe pliers its factories, and its distributors andcunits ow locomotives and railcars onthe tracks. And itmieht well operate more efficiently asa result, But, for the broader economy, the value produced When a resource becomes essential to competition but inconsequential to strategy, the risks it creates become More important than the advantages it provides. Deen said about the way the technolo ges influence, or fail to influence, eom- petition atthe firm lowe. Yer ie fs here thax hiory offers some ofits most im portant lessons zo managers A distinction needs to be made be ‘tween proprietary techn: what might be called technologies. Proprietary technologies am be owned, actually or etectively, bya single company. A pharmaceutical firm, for example, may noida patent on 1 particular compound that serves 25, ‘he basis for a family of drugs. An im ustrial manufacturer may discover an innovative way to employ a process technology that competitors find haxd 10 replicate. A company that produces consumer goods may acqulce exclusive ‘Nicholas G. Corrs HBR’ editor at large. He edited The Digital Enterprise, « alec: (im of HR articles published by Harvard Business Scneol Pres in 2001, cna hes swritenfor te Financial Times, business 20, and te Incstry Standard in adation to HBR. He can be recched at rhea hareard edu bby such an arrangement would be trie- lal compared withthe value that was bbe praduced by building an open rl stork connecting many companies ang many buyers. The characteristics and economics of infrastructural teen nologies, whether railroads or telegrapa snes or power generators, make it nev- ‘table that they will be broadly share¢— ‘that they will become part of the gen cera! business Infrastructure. Inthe earliest phases of is bulldous, Dowever, an inftastructural technology can take the form of 2 proprietary tec’ nology, As long as accessto the technol- ogy Is restricted through physical lime ‘tations, intellectual property rights, high eostsor lack of standarts-acom- pany can ise itto gain advantages over rivals. Consider the period between ‘construction of the fist electric power stations, around :8¥o, and the wiring af the electrle grld early in the twentieth century. Electricity remained a scarceresource during this time, and those ‘manufacturers able to tap into it~ by, for example, building their plants near generating stations - often gained an import edge. It was no coincidence that the largest U.S. manufacturer of ‘nuts and bolts atthe tur ofthe century, Plumb, Burdict, and Barnard located ies factory near Niagara Falls in New York, the site of one ofthe earliest large-scale hydroelectric power plants ‘Companies can also steal a march on their comperitors by having superiorr- sight into the use af a new technology. ‘The n:roduction of electric power again provides a good example. Until the end Of the mineteenth century, most ufacturers relied on water pressure or steam to operate their machinery. Power fn those days came from a single, xed source waterwheel at the side of a mill for instance-and required anelab- ‘orate system of pulleys and gears to isuibute i to individual workstations ‘throughout the plant. When electric generators rst neeame avallable, many ‘manufacturers simply adopted them a3 i iiplaeme rh geen cesta tain: them te power the existing system of pulleys and gears Smart manufacturers, however, sam that one of the great ade vantagescfelecric power sthatitiseas: ily distAburablethar it can be browghe directly ta workstations. By wiring theic ants and installing electric motors in their machines, they were able fo die pense with the curersome, inflexible, ane costly gearing sysems, gaining an important efficiency advantage over ‘their slovaer moving competitors, ‘Inadditior to enabling new, more ef- ficient operating methods infrasteuc- tural technologies often lead to broader market changes. Here, too, a company that sees what's coming can gain a seep ‘on myopic rivals. n the mid-800s,when ‘America started olay down ral lines in eames it was alveady possible to trans port goods over long distances ~ hun- dreds of steamships pied the country’s ‘ers, Businessmen probably assumed that rail transpore would essentially fo low the scearship model, with some in ‘remental envancements. In fact, the kreater speed, capacity, and reach ot she ralzoads fundamentally changed the structure of American incutry. Ir sud dealy became economical to ship fin [shed produets, rather than just raw materials and industrial components, ‘ver great distances, and the mass con- sumer market came into being. Compa nies that were quick to recognize the broader opportunity rushed to build largescale, mass-production factories The resulting economies of scale al- lowed them to crush the smal, local plants tase unel tren had dominated smanufscruring. ‘The crap that executives often fall into, howeves, is assuming thas oppo tunities for advantage will be available indefinitely. In actuality the window for nlning advantage from ani tural echnology is open only briefly. ‘When the technology's commercial po- temtial begins tobe broadly appreciated, hnuge amounts of cash are inevitably iar ‘vested im it, 2nd its buildour proceeds with extreme speed. Rallroad traci, telegraph wires, power lines~all weve Taid or stcung in a fremay of activity @ frenay s9 inzense inthe ease oF rll ines that it eos hundreds of laborers theit lives). inthe 30 years Desween 2846 and 6, repocts Eric Hotsbawm in The Age 2 Capital, the world's tora all trackage increased from v7.24 kilome- ters to 309,641 kilometers. Curing this saine peiog, total Reamship tonnage also exploded, from 135 973 103293,.072 tons. the telegraph system spread even more swiftly. in Continenzal Europe, there were juse2,c00 miles of telegraph \wiresin a8ag; 20 years later, there were 10,000. The pattern continued wich electrical power. The number cf central ations opecated by utilities grew from. «46d in 1889 2D 4.364 in 197, and the av erage capacity of each increased more shan tenfold. (For a discussion of the angersof overiavestnent 502 the side- Dar"Teo Much of Good Thing”) By the end ofthe bulldout phase the ‘opporcunities for individual advantage ae largely gone: The rash invest eads to more competition, greater capac!sy, and falling prises, making the technol ‘ogy broadly accessibie and affordable, ft the same time, the bulldout forces + HOR aT Larce ‘users to adopt universal technical sta. dards, rendering proprietary systems obsolete. Even the way the technology is used begins to become standardized, as best practices come to be widely ur derstood and emulated. Often, in fact, the best practices end up being built 0 the infrastructure iselG afer elee- ‘tification, for example, all new factor ‘ies were constncted with many We! distributed power outlets. Both the ‘technology and its modes of use b-- ‘come, ineffect,commoditi2ed. The only ‘meaningful advantage most companies ean hope to gain from an infrastructural technology after its Buildout is a cost advantage ~and even that tends to be very hard to sustain, ‘That's not to say that infrassructucal technologies don’t continue to inti fence competition. They do, but their influence is felt at the macroeconomic Jewel, not atthe level ofthe individual company. Ifa particular country, for in- stance, lags in installing the technol- ‘ogy ~ whether it's a national rail net ‘work, apower erid,ora communication snfrasenacrute its damestc industries will suffer heavily. Similarly, if an in- Gustry lags in hamessing the power of ‘the technology, it wll be veinerable to isplacement. as always, a company’s ‘ae is tied to broader forces affecting, ‘ts region and its industry. The point, however, that the technology's poten- al ‘Se differentiating one company ‘rom the pack its strategic potential inseerably declines ast becomes acces- sible and affordable to all. ‘The Commoditization of 1T Although more complex and malleable than its predecessors, rhasall the hall: marks ofan infrastructural technology. fn Fact, its mix of characteristics guar antees particularly rapid commoditi- tatien. Tis, Sestof al, atrangpore mech- snism-itcar‘es digital information just ste ere history of IT in business has been a his tory of increased interconnectivity and Inzeroperabiliy, trom mainframe ime- 7hua AT LaRG: sharing to minicomputer-based local area networks to broader Ethernet net- ‘works and on to the Internet, Each stage Too Much of a Good Thing Inthat progression has involved greater csdeaticalred merecoeiievanl ‘As many experts have pointed out, the everinvestment in information SF eek eomdin crest aoe ‘technology in the 19305 echoes the overinvestment in allroad inthe ‘Hon ofits functionality. For most bus: 1860. In both cases, companies and individuals, daznled by the seer ness applications today, the bene®ts of ingly unlisted commeral possiilties df the technologies, thew large customization would be overwhelmed quantities of money aay on half-baked businesses and products. Even by the coss of isolation. worse, the flood of capital led to enormous overcapacity devastating Tis alo highly replicable, Indeed, it arire tiesis, is hard to imagine a more perfect com ‘modity than a byte of data ~ endlessly and perfectly reproducible at virually no cost. The nearinfnite scalability of many IT functions, when combined We can only hope that the anslogy ends there. The mid-nineteenth ‘century boom ia rilcoads (and the closely related technologies of the steam engine ard the telegraph) helped produce not only widespread industrial overcapacity but a surge in productivity The combination set prin, Bisigiie, esrnegrtonts the stage for two solid decades of deflation. Although worldwide economic a oreitar? aeeiatlons i eo production continued to grow strongly between the mid-870s and the ‘nomic obsolescence. Why write your ‘id-18905, prices celled ~ in England, the dominant economic poner ‘own application for word processing ‘of the time, price levels dropped 40%. In turn, Business profits evaporated fr e-mail or, for that matter, supply: (Companies watched the value oftheir products erode while they were in chain management when you can buy the very process of making them, As the First worldwide depression took a ready-made, state-of the-art applica- hold, economic malaise covered much of the globe. “Optimism about a tion for a faction of the cost? But its | yxureofincefnite progress gave way 0 uncertainty ard sense of agony” ‘ot just the software that is replicable. ‘wrote nistarian OS. Landes. Because most businem sctivieies and: Its a very different worid today, of course, and it would be dangerous roceses have come to be embedded | 5 sssume that history will peat tee Sut with companies struggling to in software, they become replicable, too, : Ree Aichcaasans RIT Gee Genie vie ae i tin ts to Rh el a sation, they buy a generic process as ‘well. Both the cost savings and the in- teroperabilty benef make the sacr- Soe fice of distinctiveness unavoidable Finally, and for all the reasons al- petitors. Even the mos euttlngredge ‘The arrival of the Internet has accel- ready discussed, IT is subject to rapid IT capabilities quickly become aval price deflation. When Gordon Moore able to all. made his famously prescient assertion its no surprise, given these charac- generic appliestions. More and more, that the density of circuits on a com- teristics, that IT's evolution has closely companies will full their IT require- puter chip would double every two mirrored that of eave infrastructural ments simply by purchasing fee-based years, he was making a prediction technologies. Itsbuildout has beenevery “Wieb services" ftom third parties - about the coming explosion in process- bit as breathtaking as that of the rail- similar to the way they currently buy ing power. But he was also making a roads (albeit with considerably fewer electric power or telecommunications prediction about the coming fee fallin fatalities). Consider some statistics Dur- secvices. Most of the major business- the price of computerfunctionalityThe ing he last quarter of the twentieth cen- technology vendors, from Microsoft to cost of processing power has dropped tury, the computational power of BM, ae trying to postion themselves telentissly, from $480 per million in- a microprocessor increased by a factor as IT utilities, companies that will con- structions per second (MIPS) in 1978 of 66,000. nthe dozen years from 1989 trol the provision of a diverse range of t0'$50 per MIPS in 1985 0a per MIPS to 2001, the numberof host computers tusiness applications over what isnow in 1995, a trend that continues un- connected to the Internet grew from called, tellingly, "the grid Again, the abated. Similar declines have occurred 80,000 to more than 125 milion. Over ‘upshot is ever greater homogenization in the cost of data storage and trans- the last ten years, the numberof sites ‘oF TC capabilities, as more companies mission. The rapidly increasing afford) on the World Wide Web has grown replace customized applications with ability of fT functionality has not only from zero to nearly 40 million. And seneric ones. (For more on the chal- “democratized the computer revolu- since the 1980s, more than 260 million lenges acing [T companies.eetheside- tion, it has destroyed one of the most miles of fiberoptic cable have been ia- ‘bar“What About the Vendors?”) important potential barriers to com- stalled ~enough, as BusinessWeek re- ’ HARVARD BUSINESS REVIEW. *e'5 eion ere”cenily noted, to “tele the earth 11320 times" (See the exhibit “The Sprint to ‘Commoditization") ‘As with carer Infrastructural tech nelogies, IT provided forwardlooking ‘companies mary opporwunities for come etutive advantage early in itstaudous, ‘when itcomld still be “owned” ke a pre prietary technology, A classic example is Amer‘an Hospital Supply. A leading distributor of medieal supple, AHS inwoduced in 976 an innovative system aalled Analytic Systems Automated Purchasing, of ASAP, that enabled hos- pitalsto order goods electronically. De- veloped in-hosse, te innovative syste used proprietary software running on a mainframe computer, and hospital purchasing agents accessed ft through terminals at thal sites Because more efficient ordering enabled hospltals to reduce their inventoriesand thus theit cos.s-customers were guickto embrace the system, And because it was prope ‘tary to AHL, it effectively lacked our competitors. Far several years, in fact, ‘AHS was the only distributor offering electronic orcesing, a competitive ac \antage that led to years of superfor fnanetal results. From 1978 to 1983, ‘AHS’ sales and profits rose at annual tates of 136 and 18x, respectively well above Industry averages. AHS gained a true competitive au- antage by caializing on characteris iis of intastructural technologies that are common in the early stages oftheir Dbuildouts, in particular their high cost and lack of standardization. within decade, however, those barriers ta com- petition were crumbling. The arrival of personal computers and packaged soft- ‘ware, together with the emergence of networking standards, was rendering ‘propsletary communteaton systems un tractive to their users and uneconorn- salto their evmers. Indeed, nan iron, predictable, twist, the closed nature and outdeted technology gf ANS'S 595. ‘em tured i:from an ssef¥o a labill By the daw: ofthe 1990s.after AHS had merged wih Baxter Travenol to form Baxter International, the company's se- lor executives nad come to view ASAP as*a millstone around their necks ac- av 2003 Gs ‘yevtayy” Soweto” cording to a Harvard Business School erating or marketi advantages to leapfrog the competition in ane process ‘Myrlad othercompanies have gained gr activity: Others, ke Reuters with its important advantages through the in- 1970sfinanclal information network or, novative deploy nent of TT Some, like moxe recently, eBay with its Imernet American Aisines with 3 Sabre tose auctions, had superior insight into the vation system, Federal Express with \way (7 would fundamentally change an package-tacking system, and Mobil Oil industry and were able to stake out com With is automated Speedoass payment —manding positions. In few cases, the system, used (T to gain particular op dominance companies gained through What About the Vendors? Juste “ew mans ago, at the 2003 World Economic Forum in Davos, Switzer and ily the chief scientist and kofounder of Sun Micro systems, poses wnat for him must have been 2 painful esti: "What #158 eealty itt peonie have already bought mast ofthe suffthey want ‘2 own?” The pacele was slking ancut are, ofcourse, businasspeor, {and the stuffs information technclogy With the end ofthe great buldout of thecommercia|T infraerucnire apparently hand, oy's question it anethat al IT vendors should be asking themselves. Theze is gone reason 1p believe that compe’ enssing IT cap2o ites are largely sufficient for ther needs and, hence, cat the recent and widespread slugeshoes in iTdemand lsas mucha structural as a cyelcal phenwmenan, ven \ftnarsta, ne pieaure may not be as bleak as itseems for ver ors atleast those with the foresight and ski to adapt tothe new environ 1 The impatance of infrastructural technologies othe day tocay petet ons of business “eans tnt they cantinue 9 abtorb large amounts of wrporate cash long after they have beceme commodities ~ indefinitely, in mary case. Virially all companies today cortique to spenc heavily fn elec ty and shone service, fo exaiale, and many manatuters omtinue to spend alo:ar ral rarsport. Moreover the standardized inanira nf nfraerensa|taehna cles aan lands to the ecta|ienmect ang Sf SHAscTueaia 2ehna oles San land ts the SRSA EAE OF lucrative monopoles and otigapaies. Mary technology verdors 272 already repositioning themselves and theie produersin response 70 tne changes inthe market. Microsofts push toturn its Ofice soft 1m a packaged good into ar ancual subscrialon serie sa tacit ackrowlecgment that companies ae losing ‘thelr neze ard their aaneite-for constant urgrades, Dell has sucozeded by cxpiitig the commaaitization ofthe PC mareet and is now extending hat strategy tfal genius nas ahuays oeen his unsentimenta trust inthe commoditin>- tion ofinfo-mavion techrclogy) And many ofthe major suppers cf corporate 7 ncuding Microsoft, 18M, Sun, and Oracle, are batting 9 postion themselves a: dominans supplies of Web services"=10 turn themselves, in 7c, "19 utltes. This war for sale, combined withthe entinuing trarsformation of ito a commodity, wil lead wo te fare eonuniaat on ot many secorsaf the 'T industry The winners will d0,very the ‘gone ers st3725@, 2nd even services (Michael Del's asten-NOR AT LARGE + (7 Doesn't mat T innovation congerred additional ace fantages, uch a8 sesle economies and brand recognition, chat have proved move durable thar the echno- logical edge. WalMart and Dell Com- puter are renowned examples of firms thar have been able wo turn wemporary technological advantages intoenduring ositioning advantages. ‘But the opportunities for gaining based advantages are already dvvin- cling. Best practices are now quickly built ino software or otherwise repli> cated. And as for I-spurred industry ‘ransformations, most of the ones that are going to happen have likely already happened or are in the process of hap peninglindustries and markets will con tinue td evolve, of course, and some vill, tundergo fundamental changes the fu ture ofthe music business for example, continues to be in doubt. But history shows that che power of an infrastruc ture technology to transform industries always diminishes as its bulldout nears completion, ‘While no one can say pretsely when ‘he bulldout of an infrastructural tech: nology has concluded, there are many signs that the IT bulldoutis much closer to [ts end than Its begianing Fes, (1's ower is outstripping most of the busi- ress needs it fulfills. Second, the price cf essential [T functionality has dropped to the point where it is more or less affordable to all. Think. the capacity of ‘he universal dstefbution network (the Interet) has caught up with demand — indeed, we already have considerably moze fiberoptic capacity than we need. Fourth, IT vendors are rushing t0 posi fon themselves as commodity suppli- ersorevenas utilities Finally and most definitively, the investment bubble has Durst, whic historically has been aclear indication that an infrastructural tech- nology is reaching the end ofits uile- ut A few companies may still be able to wrest advantages from highly spe- cialized applications that don't offer stcong economic incentives for repli fetion, but those firms will be the ex ceptions thar prove the rule ‘At the close ofthe 1990s, when Inter: net hype was at Full bol, echnologisss 10g sncae Mares’ nae” ia oe ee es) The Sprint to Commoditization ‘One of the most salient characteristics ofinfastructural technologies the rapidity oftheir instalation, spurred by massive investment, capacty soon skyrockets, eacing to falling prices and, quicky commoditization 350 200 Railways aliroaa wack in thousands oflometert 5.000 f Electric Power isco f US.ctcvicutiiy 9 generating eset Bmegautae gon9 2 ieeo 1802907 200 Information Technology umber of For athe internet Gmmiiers) 21954 1996 1958 7000 2002 Sout ata: Bic etamen. eae Cs Feetomeerhcsh outta a weenyoffered grand visions of an emerging dighal fucure” ft may well be that, in terms of business strategy at least, future has already arrived. From Offense to Defense So what should companies do? From a practical standpoint, the most impor- tant lesson to be learned from ear infrastructural technologies may be this: When a resource becomes essen tial to competition but inconsequential to strategy, the risks it creates become mere important than the advantag provides, Think of electricity. Today, no company builds its business strategy around its electricity usage, but even a brie lapse in supply ean be devastating (as some California businesses discov- ered during the energy crisis of 2000), The operational cisks associated with IT are many ~t2chnical gltehes, obso- lescence, service outages, unreliable ‘vendors or paruners, security breeches, ‘even terrorism=and some have become magnified as companies have moved from tightly controlled, proprietary sy tamst0 open, shared ones. Today, an IT iseuption can paralyze a company’s abllity to make its products, deliver its services, and connect witivitscustomes, ‘ot to mention foul its reputation. Yet few companies have done a thorough {Job of identifying and tempering their vulnerabilities. Worrying about what ‘might ge wrong may not be as glart ‘orous ajob as speculating about the ture, ut itis more essential job right now (See the sidebar® New Rules for IT Management") Inthe long run, though, the greatest FT risk facing most companies fs more prosaic than a catastrophe. it's, simply, ‘ove:spening. [T may be a commodity, adits costs may fall rapidly eough to censure that any new capabbileles are ‘quickly shared, but the very fact that it is emiwined with 50 many business functions means that it will continue % consume a large portion of corporate spending For most companies jus stay- ig in business will require Dig outlays for ff What's important—andthis holds true for any commodity input-is tobe ble to separate eseential investments Mav 2008, IT Doesn't Matter + HBR AT LARGE that are discretionary, un- by goday i microprocessors Neverthe- necessary, or even counterproducive, 66 Temipanies continue to roll out ‘Ata high level, ranger cost man. acrossthe-Doand hardware and software agStTETEToqures Mone gor Inevalue upgrades ingewected returnsfom gstemsite Much of that spending, if truth be SERFEN Tore creaiuityan exploring told isdriventby vendor’ strategies Big Tnmterind cheaper altematives,and 9, hardware and software suppliers have seater openness to outsourcing and become very good a parceling out new cther partnerships. Butmost companies features ané capabilities im ways that can also reap significant savings by sim- force companies into buying new com ply cutting out waste Personal comput- puters, applications, and networking crsarea good example. Every year busi equipment much more frequently than ‘esses purchase more than 190 milion they need to. The time tas come for IT PCs, most of which replace older mod buyerstothrow their weight around, to ls. Yetthe vastmajortyof workerswhc negotiate contracts that ensue the long- See ae ‘term usefulness oftheir PC investments WORT prOceSIng. spreadsheets, and impose hard limits on upgra ‘eEmail-and Web browslnw These apoli- costs. And if vendors balk, comeanics i Tave been technologically ma should be willing to explore cheaper 30 Sa Gren es aus ne for years; they requite onty.a frac. \yonsymeNtcIng OpenrsOunee applica Tovar the computing power orovded Honea ere TOESTANOEPCS eT? ore New Rules for IT Management \With the opportunities for gaining strategic advantage from informe techalagy epid)y ditsppearing, many companies will want 9 fake 3 hard look at how Syuest in Tand manage theieeysteme As a starting point, nereare torte guidelines fr the ftu | spend tess. Stucies shaw that te comeanies with the biggest IT invest: | ments carely post the best nancial results. As the commositization of T | Continues, the panaltis for wasteful spending will only row larger itis fsleg mach harder to achieve a compel ve edwantage through an 7 Investment, bt it asiting mich easier t9 put your business at a cost dsadvantoae | ol dont ea. aor’ te | make an ourchare.the moe ow ‘ke buying something technological wee or domes to apd obsolescence In some cara oeing on necting edge | caakes sense: But those caer ace eco ng arr and rarer Tepabi | j thaethe longer you for your money And uaiting cies became more homogenized Focus on vulnerabilities; not opprtinites tts unusual for3 company | aagaina competitive advantage through thee stinctve ese of @ mature inftastruetutal tc nology bu: aven a brief cisruption in the availablity of technology can be devastating. As corporations continue to cede con- {1ol over their IT applications and networks to vendors and other tied par the threats they face will pol ferate, They need to prepare themselves + echnical glitches, outages, ard security aresches shifting thelr ater tion For opportunities to wulrerabilies uHBR AY LARGE - (T Doesn't Matte ifit means sacrificing features. Ifa com another powerful way 12 Sut soa Fany Beeds evidence ofthe kind of heat retucng + Gans chance Tape amlce tee ttredcay petieosied wer ear oc a looker Micoior’s peat maria. BEobsolete technology Many compa In addition to being passive in their ~ ntes particularly during 19908, urdasing cxmpaieshave been siasoy® cashed thes TE vestments ether De inthe ue off Thetsparceularyrce cause they hoped to capture a fist vith data storage, which has come to. mover advantage orbecatse hey feared count for eore than hal of many beng left betel: Eeept very eae cormpanes expenditures The blk cases both the hope and he far were ‘what's being stored on corDorate Det unwarranted. The smartest users of Works HastnttetreowIarmakINg prod technology —here again, Dell and Wal CetrOrSEIVIESISOTRETSTETONSRE™ Marsan out-say wel back rom the Studies of corporate IT spending consistently show that greater expenditures rarely translate into superior financial results. In fact, the opposite is usually true. ‘of employees" saved Smalls and Ales eu iieluding terabytes of spamyMMESSand. unt! standards and best practices solid ideo clips. Computerword estimates ify They et thei impatient competitors that ss much as 70x ol the storage ce” shoulder the high cot of experiments pacity of a typical Windows network fs tion, and then they sweep past them, wISTEC=an enormous unnecessary ex — spending less and getting more. pense, Redricting employect ably to Some managers may worry shat be- Save les indiscriminately and inde8. ing stingy with IT dollars wil damage nitely may seem distasteful to many their competitive positions But studies ‘managers butt can have areal impact of corporate TT spending consistently gn the bottom line. Now that [T'has show that greater expencitures rarely become the dominant capital expense translate into superior foancil results. for mast busineses, there's no excuse In fact, the opposite is usually true. fa fer waste and sloppiness. 2002, the consulting rm Allnean com- Given the rapid pace of technology's pared the [T expendicures and the f- advance delaying FFlmesimentscan be nancial results of 7.500 large US. com panies and. formers tended to be tightfisted. The 25 companies that de- lUvesed the highest economic for example, spent on average just 0.5% ofthefrrevenues on Tt, while the tical ‘sompany spent 3.7¥. A recent study by Forrester Research showed, similarly, that the most lavish spenders on IT rarey post the best results Even Oracle's Lary Bison, one ofthe gceat teehnok ‘ogy salesmen, admitted in 2 recent in- ‘erview that*most companies spend too much fon IT] and get very litle in re- tum" As the opportunities for TPbased ‘advantage continue ro narrow, the pen ates for overspending will only grow. naeere aaa te sees A qreer ame ares a sally and thinking more pragmatically, you te already on the cxht course. The Challenge wil be to maintain that dice pline when the business cycle strength- fens and the chorus of hype about IT's strategic value rises aneve, infomation chology" yer. in his Round netecnnologesuns recs MeCN, [ieSinssorang seorstom mera or Reprint no305s; HBR OnPoint 3566 “To place an order call S00 S485, () Descuirdans 7