GE, Dell, Intel, GM, and Others: The Competitive Advantage of Information Technology

There’s nothing like a punchy headline to get an article some attention. A piece in the Harvard Business Review (May 2003), shockingly labeled “IT Doesn’t Matter,” garnered the magazine more buzz than at any time since the Jack Welch affair. The article was approvingly cited in The New York Times, analyzed in Wall Street reports, and e-mailed around the world. But without such a dramatic and reckless title, the article probably would have received little notice. It’s a sloppy mix of ersatz history, conventional wisdom, moderate insight, and unsupportable assertions. And it is dangerously wrong.

Author Nicholas Carr’s main point is that information technology is nothing more than the infrastructure of modern business, similar to railroads, electricity, or the internal combustion engineering advances that have become too commonplace for any company to wangle a strategic advantage from them. Once-innovative applications of information technology have now become merely a necessary cost. Thus, Carr thinks today’s main risk is not underusing IT but overspending on it.

But before we get any further, let’s have a reality check. First, let’s ask Jeff Immelt, the CEO of General Electric Co., one of the premier business corporations in the world, “How important is information technology to GE?” Immelt’s answer: “It’s a business imperative. We’re primarily a serviceoriented company, and the lifeblood for productivity is more about tech than it is about investing in plants and equipment. We tend to get a 20 percent return on tech investments, and we tend to invest about $2.5 billion to $3 billion a year.”

Then let’s ask Dell Corp. CEO Michael Dell, “What’s your take on Nick Carr’s thesis that technology no longer FIGURE 2.1

gives corporate buyers a competitive advantage?” His answer: “Just about anything in business can be either a sinkhole or a competitive advantage if you do it really, really bad or you do it really, really well. And information technology is an often misunderstood field. You’ve got a lot of people who don’t know what they’re doing and don’t do it very well. For us, IT is a huge advantage. For Wal-Mart, GE, and many other companies, technology is a huge advantage and will continue to be. Does that mean that you just pour money in and gold comes out? No, you can screw it up really bad.”

Finally, let’s ask Andy Grove, former CEO and now chairman of Intel Corp., “Nicholas Carr’s recent Harvard Business Review article says: ‘IT Doesn’t Matter.’ Is information technology so pervasive that it no longer offers companies a competitive advantage?” Grove says: “In any field, you can find segments that are close to maturation and draw a conclusion that the field is homogeneous.

Carr is saying commercialtransaction processing in the United States and some parts of Europe has reached the top parts of an S-curve. But instead of talking about that segment, he put a provocative spin on it—that information technology doesn’t matter—and suddenly the statement is grossly wrong. It couldn’t be further from the truth. It’s like saying: I have an old three-speed bike, and Lance Armstrong has a bike. So why should he have a competitive advantage?”

So, basically, Carr misunderstands what information technology is. He thinks it’s merely a bunch of networks and computers. He notes, properly, that the price of those has plummeted and that companies bought way too much in recent years. He’s also right that the hardware infrastructure of business is rapidly becoming commoditized and, even more important, standardized.

Computers and networks per se are just infrastructure. However, one of the article’s most glaring flaws is its complete disregard for the centrality of software and the fact that human knowledge or information can be mediated and managed by software. Charles Fitzgerald, Microsoft’s general manager for platform strategy, says that Carr doesn’t put enough emphasis on the I in IT. “The source of competitive advantage in business is what you do with the information that technology gives you access to. How do you apply that to some particular business problem? To say IT doesn’t matter is tantamount to saying that companies have enough information about their operations, customers, and employees.

I have never heard a company make such a claim.” Paul Strassman, who has spent 42 years as a CIO—at General Foods, Xerox, the Pentagon, and most recently NASA—was more emphatic. “The hardware—the stuff everybody’s fascinated with—isn’t worth a damn,” he says. “It’s just disposable. Information technology today is a knowledge-capital issue. It’s basically a huge amount of labor and software.” Says he: “Look at the business powers—most GE, Dell, Intel, GM, and Others: The Competitive Advantage of Information Technology Modern global organizations know that skillful management and use of their investments in information technology give them a competitive advantage.

Source: Justin Sullivan/Getty Images Chapter 2 / Competing with Information Technology ● 45 obr11544_ch02_043-071 8/7/06 15:45 Page 45 of all Wal-Mart, but also companies like Pfizer or FedEx. They’re all waging information warfare.” But one person with a truly unique set of qualifications with which to assess the article is Ralph Szygenda, CIO of General Motors. “Nicholas Carr may ultimately be correct when he says IT doesn’t matter,” Szygenda says. “Businessprocess improvement, competitive advantage, optimization, and business success do matter and they aren’t commodities.

To facilitate these business changes, IT can be considered a differentiator or a necessary evil. But today, it’s a must in a real-time corporation.” Szygenda did concur with one of Carr’s corollary recommendations: spend less. In the HBR article, Carr stated, “It’s getting much harder to achieve a competitive advantage through an IT investment, but it is getting much easier to put your business at a cost disadvantage.” Szygenda’s reaction: “I also agree on spending the minimum on IT to reach desired business results.

Precision investment on core infrastructure and process-differentiation IT systems is called for in today’s intensely cost-conscious business versus the shotgun approach sometimes used in the past.” The real message: Spend what is required but no more to achieve essential differentiation via business processes and the IT systems that support them. The CIO of GM continues with another agreement, although one with a significant qualification: “Yes, IT has aspects of commoditization.

PCs, telecommunications, software components such as payroll, benefit programs, businessprocess outsourcing, and maybe even operating systems and database-management systems are examples. But the application of information systems in a corporation’s product design, development, distribution, customer understanding, and costeffective Internet services is probably at the fifth-grade level.” And, in conclusion, Szygenda’s thoughts on the commodity claim: “After being a part of the IT industry for 35 years, I have heard similar pronouncements during the introduction of the integrated circuit, microprocessor, PCs, office systems, ERP systems, and the Internet. Nicholas Carr and others need to be careful not to overstate the speed of the information-management journey or they may make the same mistake that Charles H. Duell, the director of the U.S. Patent Office, did in 1899 when he said, ‘Everything that can be invented has been invented.’”

Source: Adapted from David Kirkpatrick, “Stupid-Journal Alert: Why HBR’s View of Tech Is Dangerous,” Fortune, June 9, 2003, p. 190; Robert Hoff, “Andy Grove: We Can’t Even Glimpse the Potential,” BusinessWeek, August 25, 2003, pp. 86–88; “Speaking Out: View from the Top,” BusinessWeek, August 25, 2003, pp. 108–13; and Bob Evans, “Business Technology: IT is a Must, No Matter How You View It,” InformationWeek, May 19, 2003. 46 ● Module I / Foundation Concepts

1. Do you agree with the argument made by Nicholas Carr to support his position that IT no longer gives companies a competitive advantage? Why or why not? 2. Do you agree with the argument made by the business leaders in this case in support of the competitive advantage that IT can provide to a business? Why or why not? 3. What are several ways that IT could provide a competitive advantage to a business? Use some of the companies mentioned in this case as examples. Visit their websites to gather more information to help you answer.

1. Nicholas Carr’s article created a storm of debate that is still raging. Using the Internet, see if you can find Carr’s original article. Also, try to find some more opinions for and against Carr’s arguments beyond those provided in the case.

2. The core of Carr’s arguments has some significant implications for businesses. Break into small groups with your classmates and discuss your opinion of Carr’s arguments. What are some of the implications of the argument that come to mind? How might they serve to change the way we use computers to support corporate strategy?