Article Review: "IT Doesn't Matter" by Nicholas Carr (2003)

by Matthew Murphy

Nicolas Carr stunned the business world in 2003 with his bold and counterintuitive assertion that IT doesn’t matter, unambiguously proclaimed as the title of the Harvard Business Review article that brought him to prominence.   Carr’s thesis, simply put, is that information technology no longer offers firms a competitive advantage and that its value as a strategic concentration is diminishing.  Coming soon after the bursting of the dot.com bubble, and apparently cementing a disillusionment with the promise of high tech wizardry, his article infuriated many in the IT field, including the CEO’s of technology companies such as Microsoft, HP and Intel.   

Carr begins by pointing at both corporate spending patterns and managerial attitudes toward IT, noting that businesses worldwide spend “well over $2 trillion a year” in IT capital investment and that CEO’s “routinely talk about the strategic value of IT.”   Yet, Carr argues that this is a misplaced priority dependent on a mistaken assumption, that IT’s predominance ensures its strategic value.  According to Carr, “What makes a resource truly strategic is not its ubiquity – but its scarcity.”  By taking a broad view of technological development Carr is able to draw parallels between the current massive buildup in IT capacity and earlier transformational technologies, like electrification and rail transport.  While initially the adoption of these technologies offered individual firms a strategic advantage, as they became more widespread and commoditized, they offered less in the way of competitive advantages.  Carr makes a distinction between what he calls proprietary and infrastructural technologies.  Proprietary are those that are owned exclusively by a particular firm, analogous to a firm’s specific business model or patented products.  Counterpoised to this are the infrastructural technologies, like electricity and railroads that offer scalable, networked platforms that attain greater value they more people adopt them.  Carr contends that IT is becoming more like a standardized commodity, that it is in effect an infrastructural technology, not a proprietary one.

To summarize, in Carr’s own words;

"Information technology is best understood as the latest in a series of broadly adopted technologies that have reshaped industry over the past two centuries - from the railroad to the telegraph to the electric generator. For a brief period, as they were being built into the infrastructure of commerce, all these technologies opened opportunities for forward-looking companies to gain real advantages. But as their availability increased and their cost decreased - as they became ubiquitous - they all became commodity inputs. From a strategic standpoint, they became invisible; they no longer mattered. That is exactly what is happening to information technology today, and the implications for corporate IT management are profound."

Writing in the Harvard Business Review, the publication of the flagship management institution, Carr’s audience was unmistakable; he was speaking directly to the CEO’s and managers of Corporate America. Perhaps he forgot that many of America’s largest and most successful companies were, and still are, technology companies; Microsoft, Intel, IBM, Hewlett Packard, Dell, Cisco, Google and Apple.  Still his message was clear.  Corporate America has to manage itself differently, with much less emphasis on expensive IT acquisition and development.  Carr offered some startling “new rules for IT management” which he summarized into three simple bullet points:  Spend less.  Follow, don’t lead.  Focus on vulnerabilities, not opportunities.  These clearly went against the conventional wisdom of the day, and yet Carr argued that they were supported by the historical evidence.

The biggest threat to a firms continuing competitive position was overspending on IT projects that failed to deliver the expected returns or make lasting contributions to a firm’s strategic position.  He pointed to studies which showed that “greater [IT] expenditures rarely translate into superior financial results” and that going forward wasteful spending would be penalized with falling profits.  The added expense would put those firms at a “cost disadvantage.”    He suggested that firms were wasteful in their use of the existing investments, such as storage or processing capacity and that stringently managing resources was better than trying to get the latest, fastest and best hardware and software.   

He supported this assertion by referring to Moore’s Law, (the law proposed by Gordon Moore of Intel, which states that IT capability doubles approximately every 18 months).  This trend has held for approximately 40 years and implies that delaying purchases of new IT will reduce costs and avoid the inevitable obsolescence that accompanies new products.  Lastly, Carr noted that “an IT disruption can paralyze a company’s ability to make products, deliver its services, and connect with its customers” and therefore managers should be much more focused on the vulnerabilities of their IT investments, (“the technical glitches, outages, and security breaches”) than with bold new opportunities.  In short, “IT management should, frankly, become boring.”  

Given the importance of Carr’s analysis and the radical nature of its implications, one has to ask does he make a convincing case or not?  Carly Fiorina, CEO of HP called him “dead wrong.”  Bill Gates of Microsoft assailed him in a speech in Redmond and a Microsoft official was quoted as saying “It's just silly to think that there's no competitive advantage to be made in IT. It's insanity.” Despite a flurry of responses, Carr himself noted that his article “just won’t stay debunked.”  One notable adversary was Don Tapscott, who penned an article called “IT: The Engine That Drives Success” at CIO.com, in which he offered a point by point critique of Carr's article and raised specific objections to his thesis.   Tapscott identifies three factors related to information technology that are critical for a firm’s competitive advantage; superior information, smart hardware and business model transformation. 

The first factor he called "superior information."  In responding to Carr's criticism of information technology, Tapscott takes issue with Carr's definition of IT itself.  While Carr initially includes data and information in his definition, he then extrapolates that data is simply a commodity, "endlessly and perfectly reproducible at virtually no cost."  Tapscott takes issue with this, noting that "nothing in this universe is as diverse as a byte of data, which can carry information ranging from baby pictures to a digitally signed million-dollar bank transfer. It’s like saying that Shakespeare’s works are a commodity because he uses the alphabet just like everybody else."  He differentiates between the medium and the message, from the content and its delivery mechanism.  He points out that not only is data not perfectly commoditized but rather that "nothing is more scarce that the right information at the right time."  Carr suggested that data itself was not a source of competitive advantage, but Tapscott was quick to point out that superior use of data is.  KFC's recipe or Coca-Cola’s secret formula or Google’s PageRank algorithm are examples of a non-commoditized piece of information giving a firm a competitive advantage that is not duplicable through the use of information technology.  Tapscott's assertion about the importance of superior information in driving competitive advantage can be summed up as follows:

"Superior IT enables superior information a resource that rivals superior talent in competitive differentiation. High-performing business models are also based on superior information."

The second factor is what Tapscott calls "smart hardware," or "the growing technology embedded in consumer products."  Tapscott notes that "the physical world is becoming smart and networked" through "ubiquitous broadband and services-based computing."  Some have referred to this trend, which began with the use of RFID chips to manage supply chains, and extends to sensors in everything from "automobiles, [to] doors, clothing and coffee cups" as "the internet of things."  By taking advantage of this "historic opportunity to integrate IT-enabled services into its products," a company can "differentiat[e] otherwise commodity products to lock out competitors."   Carr took technology to be ubiquitous and standardized, but Tapscott pointed at smart hardware as a direct refutation of the generalizations that Carr was making and suggested that our concept of what IT is (ie. hardware) is changing rapidly.

Perhaps the most important determinant of corporate competitive advantage that Tapscott identifies is "the role of IT in the new business designs that enable competitive advantage."  While Carr accepts that "effective business models can be the basis for competitiveness," he rejects "the role IT plays in creating these new models."  Tapscott calls this into question, saying, "IT and business models are not discrete factors in strategy; increasingly, they are inseparable."  This is what Valacich and Schneider refer to as "technology/strategy fit."  Pearlson and Saunders regard it as one leg of the Information Systems Strategy Triangle.  Luftman and Kempaiah call it "business/IT alignment."  This fit or alignment is the principal concern of business process management.  While business strategy should drive IT strategy, increasingly "IT is leading to profound changes in business design not just to new business processes but to the deep structures of the corporation."  This is the essential driver of a company's competitive advantage, "focusing on their core cluster of activities where they have unique capabilities and where they create true barriers to replication."  The companies that do so "tend to have better products, lower cost structures and better profitability than their vertically integrated counterparts."  By using this IT-enabled business process change, a company creates a challenge for its competitors, to duplicate the business model change not just the technology.  Tapscott concludes that "companies that successfully alter their business around IT can achieve a significant window of competitive advantage."  (Luftmann and Kempaiah offer a slight twist on this by saying that "organizations need to recognize that it is not how IT is aligned with the business; it is how IT and business are aligned with each other.")

Carr’s writing has had a profound impact and led to a heated debate that continues to this day.  Carr wrote a follow-up book a year later entitled “Does IT Matter?” Perhaps the change in the title from a definitive statement to a question at least opens the possibility that there is a debate to be had on the subject.  In order to solidify his position, Carr would have to nail down exactly what he means by the “fuzzy term” - information technology and differentiate which parts of it he thinks are infrastructural commodities and which parts are necessary to a firm’s competitive advantage.  In a footnote in the original article, Carr states “Information technology is a fuzzy term.  In this article, it is … denoting the technologies used for processing, storing, and transporting information in digital form.”  It is not possible to characterize IT by this definition alone.   He would also have to address Tapscott’s critiques about the uses of superior information, smart hardware and IT-enabled business process change in order to create a more compelling narrative.

Works Cited

Carr, N. (2003, May 1). “IT Doesn't Matter.” Harvard Business Review. pp. 5-12.

Luftman, J. and Kempaiah, R. (September 2007). An Update on Business-IT Alignment: ‘A Line’ 

Has Been Drawn. MIS Quarterly Executive (6:3).

Pearlson, K., & Saunders, C. (2009). Managing and Using Information Systems: A Strategic 

Approach. Hoboken, NJ: John Wiley & Sons, Inc. 97.

Tapscott, D. (2004, May 1). “IT: The Engine That Drives Success.” CIO Magazine , pp. 1-6.

Valacich, J. & Schneider, C. (2012). Information Systems Today, Managing in the Digital World. Upper Saddle River, New Jersey: Prentice Hall.

Some quotes obtained from Nicholas Carr’s blog, Rough Type at http://www.roughtype.com