on the strategic importance of IT
writes that it is necessary to understand that investments in IT made by an
organisation are unconnected with its core competence
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
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.
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