IT Losing Steam?

Railroads in the 1860s and information technology in the 1990s: In their heydays, their growth fueled tremendous economic expansion. But by the end of their boom eras, both industries began crumbling under overinvestment and overcapacity.

Indeed, as a recent Harvard Business Review article by Editor at Large Nicholas Carr reports, due to technology commoditization, “IT doesnt matter” as a strategic advantage anymore.

“By now, the core functions of IT—data storage, data processing and data transport—have become available and affordable to all,” the report said, turning expenditures on such technologies into mere costs of doing business—an evolution similar to that of the steam engine, the telegraph, the telephone and the internal combustion engine.

Much of the premise makes sense to the enterprises that consume technology. Ed Benincasa, vice president of MIS at FN Manufacturing Inc., in Columbia, S.C., said that when he looks around at the companys accumulated technology, much of it has lost the luster of competitive edge, including PCs, printers, servers and storage.

“PCs, they used to be maybe considered a competitive edge,” said Benincasa, who is an eWEEK Corporate Partner. “You had it; somebody else didnt. Nowadays, its almost a mandatory tool, like a telephone. You cant survive without them.”

The scary question is whether “people have already bought most of the stuff they want to own,” according to Bill Joy, the chief scientist and co-founder of Sun Microsystems Inc., who was quoted in the HBR article. Vendors that are evolving to survive in this commoditized environment include Microsoft Corp., which turned its Office software suite into an annual subscription service—a “tacit acknowledgement that companies are losing their need—and their appetite—for constant upgrades,” the report said.

But when it comes to this type of utility, or on-demand, computing, users arent necessarily buying.

“Everybodys talking about utility computing now: Just call us, well bring it in, well support it, you just pay a monthly fee,” said Gary Bronson, director of IT enterprise operations at Washington Group International Inc., in Boise, Idaho, and an eWEEK Corporate Partner. “But for it to work, you have to utilize [an] off-the-shelf product that you dont make changes to. I dont see [IT] as a commodity now. Its not just the technology but how its used. If were all using it in the same way, then it becomes a commodity.”

Randy Wussler, executive vice president of Harte-Hanks Inc., said that penetration of many technologies is in fact low. Harte-Hanks databases track technology installations and business demographics at some 330,000 locations worldwide.

Examples of low-penetration technologies in use at sites with more than 500 employees include virtual private networks, at 25 percent; voice over IP, at 5 percent; wireless LANs, at 6 percent; or network-attached storage, at 21 percent, according to Wussler.

“The truth is it takes specific applications, it takes the right people and it takes some money” for companies to absorb many cutting-edge technologies, said Wussler, in San Diego. “In this marketplace, its not going to happen,” he said.

At the end of the day, the question is, What should enterprises do? The report had three pieces of enterprise IT spending advice. One: Spend less. Studies show that companies that spend the most on IT dont always post the best financial results. Two: Follow, dont lead. Waiting means an enterprise gets more for its money, according to Moores Law, and decreases the risk of buying buggy products. Three: Focus on vulnerabilities, not opportunities. Its hard to gain competitive advantage through use of mature technology, but its easy to lose money when systems go down.

Tom Pisello, president of Alinean LLC, a return-on-investment consultancy, who was quoted in the HBR article, said that this is grossly oversimplified. Looking at the relative success of 20,000 companies in 40 countries across 400 vertical industries that are either frugal or extravagant IT spenders taught Alinean one thing: “Theres no correlation on what companies are spending on or how much they spend. It is random,” said Pisello, in Orlando, Fla.