The debate has always existed but was brought to the forefront by, now hugely controversial but very relevant, essay by Nicholas Carr in the May 2003 issue of Harvard Business Review. All of us, who have spent our careers in IT, have faced and will continue to face this question. So it is very important to understand the argument.
Carr says, "Technology’s potential for differentiating one company from the pack - its strategic potential - inexorably diminishes as it becomes accessible and affordable to all."
IT as a Commodity
It is incorrect to lump the whole of IT as ‘commodity’. Indeed, parts of IT infrastructure are fast becoming a commodity but the total software solutions that power today’s businesses are not.
The costs of computer hardware, storage, networking and the like are fast decreasing steadily, the speed has increased and the capacity doubled. Operating systems have become more capable and some of them are even available as open source. Similarly storage technologies increasingly support standards and it is possible to replace storage providers. All of the above are available to every business and may be classified as commodity.
Some of the software applications are standard - office productivity software like word processors and spreadsheets, web browsers, e-mail applications etc. However, the software that businesses developed like software used to sift and correlate the drug data to create new drugs or the software that helps in underwriting insurance are not a commodity.
IT as a Utility
Carr compares IT with electricity and states that IT is an utility. I would love to see that day but we are not quite there yet. Although the individual parts of the IT infrastructure are commodities, the skill to use them and create an efficient, scalable architecture is not. It is not trivial to build and manage today’s data centers. So businesses that realize this and out-source the IT infrastructure will benefit.
However, it is encouraging that utility computing is catching on. Sun Microsystems leases their Sun Grid at $1 per CPU-hour. Amazon provides storage with their S3 platform and charge 15 cents per GB-month of storage.
Software as a Service (SaaS) is also becoming commonplace. Firms like Salesforce make a software application available on utility pricing model.
The utility pricing of IT infrastructure and Software applications will further give a boost to businesses. The differentiator is not the infrastructure but the applications that run on the infrastructure. Electricity is a utility but the differentiator is how the various businesses use the electricity.
Innovation as a Strategic Differentiator
Everybody seems to agree that innovation is the key differentiator. Certain innovations would have impossible to implement without the improvements in IT. So businesses that use IT as an enabler of innovation succeed.
Before undertaking multi-million IT projects, businesses should have a long term vision and understand that IT is just an enabler to implement their business strategy and not the strategy itself. IT is a tool not a panacea. Just because the company implemented the latest ERP application all its problems will not be solved!