17 Sep IT book review: Big Switch, little experience
Last week, I had the opportunity to sit in on the traveling book presentation of Nicholas Carr, former Harvard Business Review editor who wrote Does IT Matter? and his latest book the Big Switch.
I listened to Carr talk about the concept of IT to move toward a more “utility approach” for service, like electricity. His argument is weak since electricity is a commodity, but an organization’s IT has a lot of embedded intellectual property in it that is unique as well as critical which cannot be commoditized, nor entrusted to a third-party service offering.
Granted, there are some non-essential applications that could be outsourced from a corporation, but the point that Carr makes is that IT is not part of the core business. I disagree.
Has Carr ever been involved in large scale systems and application integration within a competitive environment, let alone mission critical systems where the life and death of the whole organization and/or its customers is balanced on real-time capabilities?
Carr cited the explosion of more companies utilizing computers over the last 30 years and tried to make the case that IT would eventually parallel the evolution of electricity. The market would pursue giving up the IT department to turn to an outside utility-provided IT service.
What he did not observe is that IT is not a competitive advantage anymore, but a competitive necessity if you want to compete today. That is why there has been such an explosion of implementing computers.
Everyone is trying to contend with others who have sophisticated warehousing programs, computer-added manufacturing, and other specialized applications and customer service data bases. Computers and all the related software applications are what you need to have to be a player in just about any industry.
No universal solution
We were very fortunate to have some discourse in the question and answer period after his presentation where I pointed out that all these “universal solutions” to organizational issues never turn out to be universally accepted, let alone universally implemented.
The fact is, whatever your core business, it is intertwined with your information technology networks and cannot be easily outsourced without a loss of security as well as management control. Cannot think of an example? Let me give you the one I gave Mr. Carr.
The Chicago Mercantile Exchange has a proprietary electronic trading platform that they built in order to compete with other exchanges. They did not outsource this strategic application nor would they entrust a third party to run systems that have hundreds of trillions of dollars worth of transactions running on them. This capability has made them the leader in their industry and has given them a competitive advantage over other exchanges from intellectual property that they developed. The electronic trading platform is part of their core business.
If you have driven your systems to a point where you have some type of competitive advantage over the rest of the market like the CME, would you entrust a third party to maintain that advantage for you? I would never advise my clients to do that.
Mr. Carr’s response was that it will take ten or twenty years for organizations to accept the “utility” concept and he made the reference that people did not trust banks at first, but then entrusted them with their money.
I pointed out that banks are not infallible, just look at the $200 billion bailout of the Fannie Mae and Freddie Mac. I did not mention the spin out of others like Citibank, Washington Mutual, and Indy Mac. In light of the financial implosion on Wall Street, it was a poor analogy for him to use.
IT is a strategic weapon
If you are not using IT strategically, then maybe you should step down as a CEO because you are still living in a 1950s framework of corporate strategy.
If your CIO or CTO are not focused on harnessing new capabilities to expand and create new markets using information technology networks and instead, are just looking at how he or she can reduce IT budgets to get their yearly bonus, it is time to replace them.
Universal cost-cutting is not an executive skill, nor should it be “incented” in executive pay packages. Executives should be focused on expanding markets, not low-level cost-cutting which at best is a clerk or analyst-level job.
Hire someone who understands how to apply technology to the core business. Not everything is focused on cost-cutting. You have to spend money to make money. Some CEOs, CIOs and CTOs think they can outsource their company’s applications without sacrificing control and ownership. Are there executives like that still out there? Yes.
Successful corporations have had second thoughts about outsourcing critical applications as you do not give away intellectual property or entrust a third party with that intellectual property if you think that it is vital to your business.
Do you think that a casino that manages a very complex data base of gamblers and what they spend when they come to Las Vegas would entrust that database to a third party that could be hacked into?
What about all the data bases of supposedly secure companies that have been hacked into for people’s credit card numbers? Do you think a third party would do a better job? That is the premise of Carr.
What if they do not? What should the damages be? Would the third party be indemnified to not being liable for economic damages? If that were the case, why would anyone in the world give away the strategic intelligence of their business to a third party that would not be held economically responsible if that information was corrupted or stolen.
Not everyone drank the Kool-aid
I commend Mr. Carr for writing the book to stimulate discourse on this topic, but I do not agree with his premise. You cannot commoditize intellectual property that is unique, strategic, and critical to one organization and put it out to a “utility” that may or may not be able to protect or enhance it. If a CEO thinks that this is the way to go, then he or she should go the way of the CEOs of Fannie Mae and Freddie Mac – and without any severance package.
Is there a market for a “utility” type of capability for certain applications? Of course, but it is far from being a universal solution and again, any organization that has built a sophisticated platform of mission critical applications should understand what they have and be very cautious to even consider handing that off to any third party service provider.
As I was walking out of the seminar, a president of a local software company rode down the elevator with me and said, “It is nice to see that not everyone drank the Kool-Aid.”
CARLINI-ISM : The further away someone is from working on actual implementations, the easier it is for them to suggest solutions that do not work.
This article previously appeared in MidwestBusiness.com, and was reprinted with its permission.
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