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Article by Mohan Babu

Debate on the strategic importance of IT

MOHAN BABU writes that it is necessary to understand that investments in IT made by an organisation are unconnected with its core competence

An interesting debate over the strategic relevance of newer IT systems is ongoing in business and technology management circles. While IT executives and CIOs continue to stress on the relevance of incremental changes and innovations in the field, other business executives, CEOs and downwards—people who define and articulate organisational strategies, are divided in their opinion of the strategic relevance of IT systems. Adding to this state of flux is the increase in the number of articles in the business press, like Nicholas G Carr’s controversial argument in last month’s Harvard Business Review that the pervasiveness of IT will soon make it strategically irrelevant. The article titled “IT Doesn’t Matter” which appeared in the May issue is already generating comments from leaders in business and academia.

Before we get into further details, what exactly do we mean by “strategic relevance” of IT? Most of us in the field of software and technology instinctively relate to the “importance” of various tools, technologies and systems. A DBA will swear by the customising or tuning tools at his disposal, an EAI architect will likewise wax eloquent over the need for integration, and a CTO or CIO will focus on generating a better RoI (Return on Investment) for all the IT systems at their disposal.

However, if one were to take a step back and look at the “big picture”, it would become clear that even all the investment in IT systems at the disposal of a company—say Boeing, Cigna or Timken—would not come close to the “core competence” of such companies. For instance, for Boeing, designing, marketing and servicing aircrafts, spares and high-tech aviation systems is the core competence. For Cigna, dealing with millions of insurance clients, corporate users and others, insuring their needs and servicing them when needed is the main area of focus. For Timken, design, manufacture, marketing and servicing ball bearings is the mainstay. In the case of these companies, even though IT systems are an integral part of their operations, touching almost every employee and customer, they (the software systems) are NOT what keeps the top management awake at night.

Executives at Boeing focus on outbidding Airbus and other aviation companies and dream of increasing market share. Timken is neck-to-neck in competition with SKF for every single account. Complex IT systems help engineers at Timken design, test and manufacture bearings, help marketing teams analyse the market and service customers, financial experts keep track of revenues and reconcile the books. Systems may also aid HR, calls, e-mails and what have you, but bearings still remain the lifeblood of the company.

Such lists could go on endlessly, but the point is that these multi-billion dollar companies, which incidentally also spend billions of dollars in managing state-of-the-art IT systems, do so because they have no other choice. If Boeing does not employ a similar or better supply-chain management system than the one at Airbus, it will immediately reflect in the bottomline. If the management of Airbus finds that Boeing is able to handle customers better by using Siebel’s CRM software, it will not balk at buying and customising such systems. And if both the companies have similarly competent systems, what differentiates them? Answer: The “corporate strategy.” To define a strategy would require a book or a course in management but in simple terms, it is the way in which management uses all the resources and techniques at their disposal to respond to market changes.

There was a time when the IT systems were extremely complex and customised. At that time, systems designed by one company would be radically different from that of the competitors. Case in point: when American Airlines designed the Sabre airline reservation system, there were no other competitors in the marketplace and Sabre provided an unquestionable edge to American Air. One could have argued then that Sabre was a part of American Air’s core business strategy. However, with Sabre itself becoming a separate company and Sabre-like systems being easily accessible to other airlines, one can argue that its strategic significance to American Airlines has diminished considerably.

The seventies and eighties saw a prevalence of such proprietary systems, but the nineties saw a shift in the paradigm, with the emergence of large-scale packaged software, especially in ERP, CRM, HRMS, financials and other areas. Customising such off-the-shelf systems became the mantra, rather than building them from scratch.

Given this shift towards a non-proprietary model, the argument made by management gurus like Nicholas Carr and others starts making more sense. Now that we have got IT and its strategic significance out of the way, what does it really mean to you and me, core IT professionals?

A topic for my next column.





About the Author

  • A Bio and profile of the author, Mohan Babu, can be found at his homepage
  • Mohan has authored a book on Offshoring and Outsourcing (Publisher McGraw Hill, India), a link to which can be found here
  • Mohan has also authored an Online book on "Life in the US," available for free download.
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    ©Mohan Babu: All Rights Reserved 2005

    Mohan Babu is an international consultant trying to find the ‘sweet spot’ where IT meets business. E-mail: mohan He is also the author of a recent book on "Offshoring IT Services"

    All rights are reserved. Mohan Babu ("Author") hereby grants permission to use, copy and distribute this document for any NON-PROFIT purpose, provided that the article is used in its complete, UNMODIFIED form including both the above Copyright notice and this permission notice. Reproducing this article by any means, including (but not limited to) printing, copying existing prints, or publishing by electronic or other means, implies full agreement to the above non-profit-use clause. Exceptions to the above, such as including the article in a compendium to be sold for profit, are permitted only by EXPLICIT PRIOR WRITTEN CONSENT of Mohan Babu. 

    Disclaimer: This document represents the personal opinions of the Author, and does not necessarily represent the opinion of the Author's employer, nor anyone other than the Author. This Article was originally published in Express Computers


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