The Next Big Thing
Posts about next generation technologies and their effect on business.

To Matter or Not to Matter

It's been five years since Nicholas Carr tossed his "IT Doesn't Matter" hand-grenade into the CIO's bunker. He followed it a year later with his book Does IT Matter? Information Technology and the Corrosion of Competitive Advantage. Carr argued that IT was no longer a source of differentiation because it was available to everyone. With no monopoly on IT, there could be no advantage from IT. The resulting furor was entertaining as CIOs defended their position, both themselves as individual CIOs and the CIO position itself as a legitimate executive role in business.

Since Carr's original May, 2003 article, CRM software vendor Salesforce.com has multiplied its revenue from $51 million (with 5,700 customers and 76,000 subscribers as of January 31, 2003) to $748.7 million (with 41,000 customers and 1,100,000 subscribers as of January, 31, 2008).

This example cuts two ways. It challenges Carr's argument in that Salesforce.com's unique IT assets, a CRM application and the infrastructure to deliver it as on-demand Software-as-a-Service (SaaS), and the growing number of customers and subscribers, have created a differentiated competitive advantage worth $8 billion in market value. For Salesforce.com, IT clearly matters, at least for their CRM service offering. IT underlies their very business. The same could be said of Google, or eBay, or dozens of other companies that wouldn't exist or have their market valuations without IT.

On the other hand, Salesforce.com doesn't need to have unique payroll or benefits administration IT systems or even the staff to perform these business functions. They would gain no shareholder value by performing these functions better than their competitors because they are not competing in the payroll or benefits administration services markets. So they should hire another service company, one who specializes in payroll and benefits administration, to perform these business functions for them. This service provider would bundle the IT assets with the staff needed to perform payroll and benefits administration.

The difference has to do with Geoffrey Moore's general business strategy concepts of "core" versus "context" from Living on the Fault Line, and their alignment with in-sourcing versus outsourcing, as I discussed in "Outsourcing and BATOG". CRM services are part of Salesforce.com's core, but payroll and benefits administration are part of their context. Salesforce.com has invested in its IT solution for CRM and has created significant shareholder value by doing so; on the other hand, it shouldn't be wasting its valuable IT resources on payroll and benefits administration, both context activities.

For each of Salesforce.com's customers, CRM applications and the infrastructure they run on are part of the customer's context; for these companies, there is no advantage to having their own custom CRM application, or their own dedicated IT infrastructure to run it on. By hiring Salesforce.com's CRM software-as-a-service solution, which has unique advantages in the CRM industry, these companies waste no IT investment or management budget on building custom CRM applications or infrastructure. They can focus their IT efforts on their core activities, which depend on the markets they are in and their individual competitive business strategies.

This discussion helps to resolve the conflict between Carr and his detractors. IT has to matter for a company's core activities, but IT shouldn't matter for a company's context activities. In fact, the company shouldn't have any IT for their context activities; they should outsource these functions, including the IT needed to perform them. Their own IT staff would then be free to focus on the company's core activities.

In summary, Carr and his opponents are both right (and both wrong if their conclusions are applied too broadly). On one hand, Carr's argument that differentiated IT cannot increase shareholder value is correct, as long as this principle is applied only to context activities. On the other hand, his opponents' argument that IT can provide significant business value is also correct, as long as it is applied only to core activities. The key is to keep IT strategy aligned with business strategy.

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About the Author(s)
  • Steve Simske is an HP Fellow and Director in the Printing and Content Delivery Lab in Hewlett-Packard Labs, and is the Director and Chief Technologist for the HP Labs Security Printing and Imaging program.
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