|
|
|
Newsletter and Mailing List >
Can You Compete On IT Infrastructure?
June 19, 2005
Is enterprise computing becoming a commodity, or is it an
essential piece of competitive advantage in increasingly
information based markets? The answer depends on how it is
applied?
One Size Fits All?
-------------------
Former Harvard Business Review editor Nicholas Carr made
quite a few waves last year with his article does "IT
Doesn't Matter," and follow on book "Does IT Matter?" He
essentially argued that while, once upon a time, firms
could compete on infrastructure, the ubiquitous and
increasingly standardized nature of basic enterprise
software applications has rendered them commodities in the
21st century. High profile software industry veterans from
Intel's Craig Barrett to General Motors CIO Ralph Szygenda
were chagrined enough by this assertion to publish
rebuttals to Carr's original essay.
In a recent follow up article, Carr follows the path of his
argument to its natural conclusion: If IT infrastructure is
a commodity, then the optimal solution for many firms is
utility based computing - since a centralized
infrastructure supplier will have large economies of scale
and expertise which outstrip the capabilities of most
individual firms.
This notion reminded me of an activity at a team building
offsite I once attended, where each of several groups was
given an identical bag of random materials, and had to work
together to construct a small boat that would float. The
variation in solutions using the same bag of parts was
astounding, and some of the groups produced rather
unimpressive and unseaworthy crafts. This model of
redundant development is analogous to the traditional view
of enterprise computing, where each team essentially builds
their own IT boat.
Carr would probably point out that the logical best
solution would be to have one central boat-maker supplying
all of the teams, since each, after all, has access to the
same set of tools and materials. This would certainly suit
the average boat-makers, just as less-IT capable firms are
probably more attracted to the centralized software rental
model. Similarly, firms whose business or skill sets lie
far outside of the information arena may find that building
internal capabilities is neither the best use of resources
or focus, when satisfactory outside options are available.
Not all firms are equally endowed, however, and the best
boat makers (as well the firms with the most advantageous
business ecosystems and resources) are right to believe
that they can do better.
Different Strokes for Different Folks
----------------------------------------
In a conversation with Michael Schrage, he was quick to
point out that the idea that one SAP implementation is the
same as another is simply ridiculous, and the quality of
the processes and people often dictate the return and
competitive benefits. Additionally, ERP applications are
far from generic, requiring significant customization for
the implementing firm to maximize the benefit. As Schrage
would say, "Sumo wrestlers can't be pole vaulters." By
extension, one size fits all poles do not benefit the most
capable track athletes, and one size fits all
implementations do not benefit the firms with the most to
gain from customization.
The issue with this counter-argument is that many firms
over-customize to meet business process requirements that
simply don't yield any advantage. 'Vanilla' software
implementations can, in effect, drive a level of business
process optimization, simply by forcing better processes on
the implementing firm.
Can both Schrage and Carr be right? Their viewpoints both
actually point towards the same solution, which is to focus
differentiation in a few critical areas, make sure that the
firm's processes, people, skills, and strategy match these
areas, and to be content to stay within the status quo
everywhere else.
Making IT Matter
-------------------
True competitive advantage lies in the ability of a firm to
develop sustainable and unique capabilities and barriers
that allow the firm to outperform other firms, or insulate
itself from competition. So, can you compete on IT
infrastructure? The solution to this puzzle for most IT
professionals is clear:
o Understand that most of the tools themselves are readily
available, and seek out unique application of the tools.
Leveraging the data integration capabilities of NetWeaver,
for example, can help a manufacturer such as Goodyear match
their large dealer network with real time reporting to
fleet managers. This combination of integrated data
availability and unique retail distribution network creates
a significant advantage in this segment over smaller
regional competitors.
o Avoid simply codifying non-advantageous processes as an
excuse for complex implementations and generating
infrastructure uniqueness. Many of the grassroots level
complaints I hear about new SAP and other enterprise
software implementations typically boil down to frustration
over the loss of an old business process. Often times,
these lost processes have little to do with helping the
business, but much to do with maintaining business as
usual. Determining what combination of process change and
software customization is most appropriate is a key to both
optimizing ROI and achieving competitive leverage.
o Identify and focus on supporting the firm's basis of
competitive differentiation. Just as SAP has pursued a
path of information integration expertise over the past two
decades that makes them a leader in the IT infrastructure
space, many SAP users have pursued their own vectors of
expertise in purchasing, manufacturing, R & D, sales, or
other areas that make them unassailable. If customized IT
infrastructure is part of the solution to maintaining and
building on a vector of competitive differentiation, than a
commoditized approach isn't enough. If the flexibility to
quickly integrate with new customer systems supports a
firm's strong sales channels, for example, then seek out
investments that keep the firm ahead of the pack in this
area.
o Focus on how tools can be applied to further firm
strategy, or whether IT infrastructure is not a requisite
for achieving or maintaining the firm's valuable and unique
capabilities. While resources are the source of firm's
capabilities, capabilities are the main source of its
competitive advantage. In other words, if new systems and
information capabilities can help foster a firm's innate
heterogeneous competitive capabilities (whether it is
adeptness at finding oil reserves, effective direct
mailing, or running a lean supply chain, etc.) then IT
infrastructure can potentially help the firm maintain a
competitive advantage. Investment in these types of
infrastructure projects have much more strategic impact
than those that fail to live up to this challenge.
|
|
