IMS5042
Information Systems Strategic
Planning
Week 12: IT Doesn’t matter…So what
should a poor planner do?
Copyright 2004 Monash University
Agenda
1. Nicholas Carr’s view of the role of
Information Technology
2. Reactions to Carr’s article
3. Debating the Organisational Role of IS
4. Implications for IS planning
Copyright 2004 Monash University
1. Carr’s Article (2003) IT
Doesn’t Matter
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May 2003 Harvard Business Review
Caused an uproar - amongst IT people!
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Business community reaction ranged from
silence to “we told you so”
Today
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we consider some of his main arguments
evaluate and critique
more importantly…. What implication does
Carr’s arguments present in terms of
STRATEGIC IS PLANNING
Copyright 2004 Monash University
What do we mean by “IT”
Carr refers to this
We are concerned
with this
Carr’s article: (i) Current corporate
attitudes
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Corporate IT-related expenditure has grown to
be a major part of organisational costs
•
•
•
•
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1965
1980s
1990
1999
5% of capital expenditure
15%
30%
50%
Much of this expenditure is aimed at
achieving competitive advantage
Consultants/CIOs play major role in advising
on corporate directions based on IT’s impact
Copyright 2004 Monash University
Carr’s article: (i) Current corporate
attitudes contd…
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CEOs are told to
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Appoint CIOs, CKOs, CTOs etc.
Talk about the “strategic” value of IT
Digitise your business models
Get on-line or be swept away by the tidal wave of ecommerce
But privately there is concern that IT expenditure
& contribution of IT to their organisations
Prevalence/ubiquity of IT increases its strategic
importance (‘if it costs a lot and we use it a lot, it
must be strategic’)
Copyright 2004 Monash University
Carr’s article: (ii) Commodities
and strategy
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Competitive Advantage derives from
scarcity not ubiquity
IT is becoming commoditised
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Therefore, available to all
Becoming the cost of doing business
 You MUST have IT
Therefore because IT is ubiquitous, it loses it
ability to be a source of competitive advantage
Become ‘invisible’ IT no longer matters
Copyright 2004 Monash University
Carr’s article: (ii) Commodities and
strategy contd..
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IT has become like other commodity items power, railways, telephones, etc;
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Electricity initially a replacement for water powered or
steam powered plant
Over time, configuration of plants changed to
accommodate electricity
Once entire nations are networked (grid) no
advantage to be gained from electricity
Before --> scarce and expensive (therefore strategic)
... now commodities
Commodities are sources of cost to
organisations, not sources of competitive
advantage
Copyright 2004 Monash University
Carr’s article: (iii) Infrastructure
technologies and competitive advantage
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Proprietary technologies vs infrastructural
technologies; sharing and its implications for
competition
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The build-out phase: scope for competitive
advantage which can be derived by superior
insights into HOW to use a new technology
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examples American Hospital Supply Corp. ASAP
system
American Airlines SABRE system
BUT, that advantage may evaporate very rapidly
Ending the build-out phase: losing
opportunities for competitive advantage
Copyright 2004 Monash University
Carr’s article: (iii) Infrastructure
technologies and competitive advantage
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Ending the build-out phase: losing
opportunities for competitive advantage
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Excitement about new technology, rapid & huge
investment over short period
More competition, greater capacity, falling prices
Technology becomes broadly affordable, accessible
and available to all
Thus, potential of technology to differentiate (its
strategic) potential declines
Copyright 2004 Monash University
Carr’s article: (iv) The commodification of IT
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IT and connectivity; sharing and standardisation
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Replicability of IT
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costs of customising software very high
practice is increasingly to adopt packages “as is”
standardisation, homogeneity of functionality
not just the software that is replicable
Business activities and processes becomes embedded in
software, thus even the processes become replicable
Advantage of unique processes disappears (what about the
logic of BPR!!!)
Price deflation of IT
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cost of processing power has dropped relentlessly from $480
per MIPS in 1978 to $50 per MIPS in 1995
similar declines in the cost of data storage and transmission
Copyright 2004 Monash University
Carr’s article: (iv) The commodification of IT
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Computing power
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Supply matching demand
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Capacity of the universal distribution network(the Internet) has
caught up with demand
Vendor behaviour
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IT power is outstripping most of the business needs it fulfils
vendors driving much of the spending
like other infrastructural technologies..will lead to the
establishment of lucrative monopolies
Conclusion: IT is near the end of its build-out phase
Copyright 2004 Monash University
Carr’s article: (v) Implications..New
Rules for IT Management
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Spend Less
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Follow; don’t lead
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IT is now essential for competition (everyone has it), but
useless for strategic advantage ((everyone has it)
Biggest IT risk is over-spending - machine power, storage
space, etc etc
Separate essential investments from those which are
discretionary, unnecessary & counterproductive
Don’t be aggressive with IT; be a follower, not a leader
(experimentation is expensive)
the longer you wait the more bang for your buck!
Focus on Vulnerabilities
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Focus in IT management should be on risk management
Even a brief disruption in the availability of the technology can
be devastating
Copyright 2004 Monash University
2. Reactions to Carr’s article
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Many gurus (academic and corporate)
responded very quickly and at length
Strength of reaction - touching a nerve?
Some ‘surface’ acknowledgment of Carr; eg:
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“excellent but incomplete analysis”
“many of Carr’s arguments are sound, but the
situation is subtler”
Reluctance to concede any specific points
Some acknowledgment that dot.com crash
and cost blow-outs have left IT supporters
with some explaining to do
Copyright 2004 Monash University
Arguments raised against
Carr’s article
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The IT growth curve has not yet ended;
new products and usage ideas lie ahead
IT is not like other infrastructures;
flexibility, range of functionality, etc make
commodification less possible
Commodification of IT is not widespread;
affects only a few areas of IT and IT usage
You can commodify hardware, but NOT
usage, processes, systems,
architectures, information, etc
Organisations are unique in the way they
use IT
Copyright 2004 Monash University
Issues for IS planning
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What attitude should an IS planner take to all this?
Carr’s view:
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Treat IT applications as commodities
Forget the IT for CA and BPR approaches
Be cautious, conservative and pragmatic
Focus on risk and cost minimisation
Follow the leader wherever possible
Is there any difference between IS and IT?
For how much of the IT-related field does the
commodification argument hold?
What does this mean for IS strategy?
Copyright 2004 Monash University
3. Debating the Organisational Role of IS
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Does IS/IT create a strategic impact in
organisations
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McFarlans Strategic grid might present some
answers
How does a planner cope with competing
uses of resources like capital, time etc?
Is IS/IT an organisational resource which
is unique within each organisation and
which cannot be easily copied or
transferred to other organisations?
Assessing the Strategic
Impact of IT
FACTORY
IT Impact on Core Operations
High
GOAL: Improve performance of
core processes
LEADERSHIP: Business Unit
Executives
PROJECT MANAGEMENT:
Process Engineering
SUPPORT
GOAL: Improve local
performance LEADERSHIP:
Local level Oversight
PROJECT MANAGEMENT:
Grass roots experimentation
STRATEGIC
GOAL: Transform Organization
or Industry
LEADERSHIP: Senior
Executives & Board
PROJECT MANAGEMENT:
Change Management
TURNAROUND
GOAL: Identify & launch new
ventures
LEADERSHIP: Venture
incubation Unit
PROJECT MANAGEMENT: New
venture development
Low
Low
IT Impact on Core Strategy
High
Example IT portfolio of a
manufacturing company
FACTORY
IT Impact on Core Operations
High
BILL OF MATERIALS
INVENTORY MANAGEMENT
SHOP FLOOR CONTROL
PRODUCT COSTING
MAINTENANCE SCHEDULING
EMPLOYEE / CUSTOMER DB
RECEIVABLE/PAYABLES
SUPPORT
TIME RECORDING
BUDGETARY CONTROL
EXPENSE REPORTING
GENERAL ACCOUNTING
MAINTENANCE COSTING
STRATEGIC
ORDER MANAGEMENT
LINKS TO SUPPLIERS (JIT)
MRP
SALES FORECASTS & MARKET
ANALYSIS
PRODUCT PROFITABILITY
TURNAROUND
EDI WITH WHOLESALERS
MANPOWER PLANNING
DECISIONS
SUPPORT(CAPACITY PLANS)
Low
Low
IT Impact on Core Strategy
High
Managing the application
Portfolio
FACTORY
STRATEGIC
Applications on which
the organisation currently
depends for success
Applications which are
critical to future business
success
SUPPORT
TURNAROUND
Applications which are
valuable but not critical to
success
Applications which may
be important in achieving
future success
IT Impact on Core Operations
High
Low
Low
IT Impact on Core Strategy
High
Managing IS & Technology
Investments
IT Impact on Core Operations
High
FACTORY
STRATEGIC
Time
TIME
QUALITY
Quality
Cost
Cost
SUPPORT
TURNAROUND
Time
Quality
(R & D Projects)
COST
Low
Low
IT Impact on Core Strategy
High
4. Implications for IS planning
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Although the Carr debate is controversial
from many angles it is fundamental to the
way IS planning is carried out in
organisations
For instance
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If IS is a commodity, what does that mean for IS
planning… does it cease to be strategic
Are only some parts of IS commodified?
Copyright 2004 Monash University
Implications from the debate
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Can planning act as a means to achieve innovation?
Whether we accept IS/IT is commodified or not, for it to be
strategic it needs to be used effectively and creatively
Strategic differentiation might perhaps be something that
appears over time
Significant consensus on greater economic impact from
incremental innovations rather than a “big bang” approach
Are companies thinking too narrowly about IT possibilities
(maybe a dose of utopian philosophy might be handy!!!)
Recognising that IT Planning is largely a political process
IS IS planning boring?
Copyright 2004 Monash University
Some specific problems for IS planning
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Time lines for implementation and development of
IS/IT are long
Resource allocation decisions for IS and IT are
‘lumpy’
The investment costs for IS and IT are significant and the hardware and software components are
the cheap bits
The systemic nature of IS/IT means that decisions
taken in one area have downsides somewhere
else; pretending otherwise is delusionary and
counter-productive
Most IS/IT investments will be demonstrably
‘wrong’ within 12 months ( the ‘waiting for the bus’
effect)
Copyright 2004 Monash University
Some implication of these problems
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The flexibility, etc we seek in an ideal planning
process can never be actually achieved
Optimal solutions are a contradiction in terms
IS/IT decisions/outcomes should be assessed
against what they actually deliver; not against
theoretical outcomes
Technology can be analysed ‘rationally’
‘Information’ and ‘systems’ are can be treated
rationally in theory, but are inherently nonrational in implementation
Copyright 2004 Monash University