Enabling Success IT Doesn t Matter Carr HBS 2003

Enabling Success IT Doesn t Matter Carr HBS 2003 - Transcript

HBR AT LARGE

Doesn t Matter
by Nicholas C Carr As information technology s power and ubiquity have grown its strategic importance has diminished The way you approach IT investment and management will need to change dramatically

N 1968 ayoung Intel engineernamed Ted Hoff found a way to put the circuits necessary for computer processing onto a tiny piece of silicon His invention of the microprocessor spurred a series of technological breakthroughsdesktop computers local and wide area networks enterprise software and the Internet that have transformed the business world Today no one would dispute that information technology has become the backbone of commerce It underpins the operations of individual companies ties together far flung supply chains and increasingly links businesses to the customers they serve Hardly a dollar or a euro changes hands anymore without the aid of computer systems As IT S power and presence have expanded companies have come to view it as a resource ever more critical to their
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success a fact clearly reflected in their spending habits In 1965 according to a study by the U S Department of Commerce s Bureau of Economic Analysis less than 5 of the capital expenditures of American companies went to information technology After the introduction of the persona computer in the early 1980s that percentage rose to 15 By the early 1990s it had reached more than 30 and by the end of the decade it had hit nearly 50 Even with the recent sluggishness in technology spending businesses around the world continue to spend well over 2 trillion a year on IT But the veneration of IT goes much deeper than dollars It is evident as well in the shifting attitudes of top managers TXventy years ago most executives looked down on computers as proletarian tools glorified typewriters and 41

H BR AT LARGE IT Doesn t Matter

calculators best relegated to low level employees like secretaries analysts and technicians It was the rare executive who would let his fingers touch a keyboard much less incorporate information technology into his strategic thinking Today that has changed completely Chief executives now routinely talk aboutthe strategic value of information technology about how they can use IT to gain a competitive edge about the digitization of their business models Most have appointed chief information officers to their senior management teams and many bave hired strategy consulting firms to provide fresh ideas on how to leverage their IT investments for differentiation and advantage Behind the change in thinking lies a simple assumption that as lT s potency and ubiquity have increased so too has its strategic value It s a reasonable assumption even an intuitive one But it s mistaken What makes a resource truly strategic what gives it the capacity to be the basis for a sustained competitive advantage is not ubiquity but scarcity You only gain an edge over rivals by having or doing something that they can t bave or do By now tbe core functions of IT data storage data processing and data transport have become available and affordable to all Tbeir very power and presence have begun to transform them from potentially strategic resources into commodity factors of production They are becoming costs of doing business that must be paid by all but provide distinction to none IT is best seen as the latest in a series of broadly adopted technologies that have reshaped industry over the past two centuries from the steam engine and the railroad to the telegraph and the telephone to the electric generator and the internal combustion engine Eor a brief period as they were being built into the infrastructure of commerce all tbese technologies opened opportunities for forward looking com

panies to gain real advantages But as tbeir availability increased and their cost decreased as they became ubiquitous they became commodity inputs From a strategic standpoint they became invisible they no longer mattered Tbat is exactly what is happening to information technology today and the implications for corporate IT management are profound

Vanishing Advantage
Many commentators have drawn parallels between the expansion of IT particularly the Internet and the rollouts of earlier technologies Most of the comparisons though have focused on either the investment pattern associated with the technologies the boomto bust cycle or tbe tecbnologies roles in resbaping the operations of entire industries or even economies Little has

rights to a new packaging material that gives its product a longer shelf life than competing brands As long as they remain protected proprietary technologies can be the foundations for longterm strategic advantages enabling companies to reap higher profits than tbeir rivals InfrastiTJctural technologies in contrast offer far more value when shared than when used in isolation Imagine yourself in the early nineteenth century and suppose that one manufacturing company held the rights to all the technology required to create a railroad If it wanted to that company could just build proprietary lines between its suppliers its factories and its distributors and run its own locomotives and railcars on tbe tracks And it might well operate more efficientiy as a result But for tbe broader economy the value produced

When a resource becomes essential to competition but inconsequential to strategy the risks it creates become more important than the advantages it provides
been said about the way the technologies influence or fail to influence competition at the firm level Yet it is here that history offers some of its most important lessons to managers A distinction needs to be made between proprietary technologies and what might be called infrastructural technologies Proprietary technologies can be owned actually or effectively by a single company A pbarmaceutical firm for example may hold a patent on a particular compound that serves as the basis for a family of drugs An industrial manufacturer may discover an innovative way to employ a process technology that competitors find hard to replicate A company tbat produces consumer goods may acquire exclusive by such an arrangement would be trivial compared with the value that would he produced by building an open rail network connecting many companies and many buyers The characteristics and economics of infrastructural technologies whether railroads or telegraph lines or power generators make it inevitable tbat they will be broadly sharedthat they will become part of the general business infrastructure

In the earliest phases of its buildout however an infrastructural technology can take the form of a proprietary technology As long as access to the technology is restricted through physical limitations intellectual property rights high costs or a lack of standards a company can use it to gain advantages over rivals Consider the period between the Nicholas G Carr is HBR s editor at large He edited T he Digital Enterprise a collec construction of the first electric power stations around 1880 and the wiring of tion of HBR articles published by Harvard Business School Press in 2001 and has written for the Einancial Times Business 2 0 and the Industry Standard in addition the electric grid early in the twentieth century Electricity remained a scarce to HBR He can be reached at ncarr hbsp harvard edu 42
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IT Doesn t Matter HBR AT LARGE

resource during this time and those manufacturers able to tap into it by for example building their plants near generating stations often gained an important edge It was no coincidence that the largest U S manufacturer of nuts and bolts at tbe turn of the century Plumb Burdict and Barnard located its factory near Niagara Falls in New York the site of one of the earliest large scale bydroelectiic power plants Companies can also steal a march on their competitors by baving superior insight into the use of a new technology The introduction of electric power again provides a good example Until the end of the nineteenth century most manufacturers relied on water pressure or steam to operate their machinery Power in those days came from a single fixed source a waterwheel at the side of a mill for instance and required an elaborate system of pulleys and gears to distribute it to individual workstations throughout the plant When electric generatorsfirstbecame available many manufacturers simply adopted them as a replacement single point source using them to power the existing system of pulleys and gears Smart manufacturers however saw that one of the great advantages of electiic power is that it is easily distributable tbat it can be brought directly to workstations By wiring tbeir plants and installing electric motors in tiieir machines they were able to dispense with tbe cumbersome inflexible and costly gearing systems gaining an important efficiency advantage over their slower moving competitors In addition to enabling new more efficient operating metbods infrastructural technologies often lead to broader market changes Here too a company that sees what s coming can gain a step on myopic rivals In the mid i8oos wben America started to lay down rail lines in earnest it was already possible to transport goods over long distances bundreds of steamships plied the country s rivers Businessmen probably assumed that rail transport would essentially follow the steamship model with some incremental enhancements In fact the greater speed capacity and reach of
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the railroads fundamentally changed the structure of American industry It suddenly became economical to ship finished products rather than just raw materials and industrial components over great distances and the mass consumer market came into being Companies that were quick to recognize the broader opportunity rushed to build large scale mass production factories Tbe resulting economies of scale allowed them to crush the small local plants that until tben had dominated manufacturing The trap tbat executives often fall into however is assuming that opportunities for advantage will be available indefinitely In actuality the window for gaining advantage from an infrastructural technology is open only briefly Wben the technology s commercial potential begins to be broadly appreciated huge amounts of cash are inevitably invested in it and its buildout proceeds witb extreme speed Railroad tracks telegraph wires power lines all were laid or strung in a frenzy of activity a frenzy so intense in the case of rail lines tbat it cost hundreds of laborers tbeir lives In the 30 years between 1846 and 1876 reports Eric Hobsbawm in The Age of Capital t he world s total rail trackage increased from 17 424 kilometers to 309 641 kilometers During tbis same period total steamship tonnage also exploded from139 973 to 3 293 072 tons The telegraph system spread even more swiftly In Continental Europe there were just 2 000 nules of telegraph wires in 1849 20 years later there were 110 000 The pattern continued witb electrical power The number of central stations operated by utilities grew from 468 in 1889 to 4 364 in 1917 and the average capacity of eacb increased more than tenfold Eor a discussion of the dangers of overinvestment see the sidebar Too Mucb of a Good Thing By tbe end of the buildout phase tbe opportunities for individual advantage are largely gone The rush to invest leads to more competition greater capacity and falling prices making the technology broadly accessible and affordable At the same time the buildout forces

HBR AT LARGE IT Doesn t Matter

users to adopt universal technical standards rendering proprietary systems obsolete Even the way tbe tecbnology is used begins to become standardized as best practices come to be widely understood and emulated Often in fact tbe best practices end up being built into the infrastructure itself afrer electrification for example all new factories were constructed witb many welldistributed power outlets Both tbe technology and its modes of use hecome in effect commoditized The only meaningful advantage most companies can hope to gain from an infrastructural tecbnology after its buildout is a cost advantage and even that tends to be very hard to sustain That s not to say that infrastructural tecbnologies don t continue to influence competition They do but their influence is felt at the macroeconomic level not at the level of the individual ccjmpany If a particular country for instance lags in installing the technology whether it s a national rail network a power grid or a communication infrastructure its domestic industries will suffer heavily Similarly if an industry lags in harnessing the power of the tecbnology it will be vulnerable to displacement As always a company s fate is tied to broader forces affecting its region and its industry The point is however that the technology s potential for differentiating one company from the pack its strategic potential inexorably declines as it becomes accessible and affordable to all

Too Much of a Good Thing
As many experts have pointed out the overinvestment in information technology in the 1990s echoes the overinvestment in railroads in the i86os In both cases companies and individuals dazzled by the seemingly unlimited commercial possibilities ofthe technologies threw large quantities of money away on half baked businesses and products Even worse the flood of capital led to enormous overcapacity devastating entire industries We can only hope that the analogy ends there The mid nineteenthcentury boom in railroads and the closely related technologies ofthe steam engine and the telegraph helped produce notonly widespread industrial overcapacity but a surge in productivity The combination set the stage for two solid decades of deflation Although worldwide economic production continued to grow strongly between the mid i87osandthe mid i89os prices collapsed in England tbe dominant economic power oftbe time price levels dropped 40 In t urn business profits evaporated Companies watched the value of tbeir products erode while tbey were in the very process of making them As the first worldwide depression took hold economic malaise covered much ofthe globe Optimism about a future of indefinite progress gave way to uncertainty and a sense of agony wrote historian D S Landes It s a very different world today of course and it would be dangerous to assume that history will repeat itself But with companies struggling to boost profits and the entire world economy flirting with deflation it would also be dangerous to assume it can t

The Commoditization of IT
Although more complex and malleable than its predecessors IT has all the hallmarks of an infrastructural technology In fact its mix of characteristics guarantees particularly rapid commoditization IT is first of all a transport mechanism it carries digital information just as railroads carry goods and power grids carry electricity And like any transport mechanism it is far more valuable when shared than when used in isolation The history of IT in business has been a history of increased interconnectivity and interoperability from mainframe time44

sharing to minicomputer based local area networks to broader Ethernet networks and on to the Internet Each stage in that progression has involved greater standardization of the technology and at least recently greater homogenization of its functionality Eor most business applications today the benefits of customization would be overwhelmed by tbe costs of isolation IT is also highly replicable Indeed it is hard to imagine a more perfect commodity than a byte of data endlessly and perfectly reproducible at virtually no cost The near infinite scalability of many IT functions when combined with technical standardization dooms mO5t proprietary applications to economic obsolescence Wby write your own application for word processing or e mail or for that matter supplychain management when you can buy a ready made state of the art applica

tion for a fraction of the cost But it s not just the software tbat is replicable Because most business activities and processes have come to he embedded in software they become replicable too When companies buy a generic application they buy a generic process as well Both the cost savings and the interoperability benefits make the sacrifice of distinctiveness unavoidable The arrival of the Internet has accelerated the commoditization of IT by providing a perfect delivery channel for generic applications More and more companies will fulfill their IT requirements simply by purchasing fee based Web services from third parties similar to the way they currently buy electric power or telecommunications services Most of the major businesstechnology vendors from Microsoft to IBM are trying to position themselves as IT utilities companies that will conHARVARD BUSINESS REVIEW

IT Doesn t Matter HBR AT LARGE

trol the provision of a diverse range of business applications over what is now called tellingly the grid Again the upshot is ever greater homogenization of IT capabilities as more companies replace customized applications with generic ones Eor more on the challenges facing IT companies see the sidebar What About the Vendors Finally and for all tbe reasons already discussed IT is subject to rapid price deflation Wben Gordon Moore made his famously prescient assertion that the density of circuits on a computer chip would double every two years he was mailing a prediction about the coming explosion in processing power But he was also making a prediction about the coming free fall in the price of computer functionality The cost of processing power has dropped relentlessly from 480 per million instructions per second MIPS in 1978 to 50 per MIPS in 1985 to 4 per MIPS in 1995 a trend tbat continues unabated Similar declines have occurred in the cost of data storage and transmission The rapidly increasing affordability of IT functionality has not only democratized the computer revolution it has destroyed one of the most important potential barriers to competitors Even the most cuttingedge IT capabilities quickly become available to all It s no surprise given these characteristics that IT S evolution has closely mirrored that of earlier infrastructural tecbnologies Its buildout has been every bit as breathtaking as tbat of the railroads albeit with considerably fewer fatalities Consider some statistics During the last quarter of the twentieth century the computational power of a microprocessor increased by a factor of 66 000 In the dozen years from 1989 to 2001 the number of host computers connected to the Internet grew from 80 000 to more than 125 million Over the last ten years the number of sites on the World Wide Web bas grown from zero to nearly 40 million And since the 1980s more than 280 million miles of fiber optic cable bave been installed enough as BusinessWeek recently noted to circle the earth 11 320
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times See the exhibit The Sprint to Commoditization As with earlier infrastructural tecbnologies IT provided forward looking companies many opportunities for competitive advantage early in its buildout when it could still be owned like a proprietary technology A classic example is American Hospital Supply A leading distributor of medical supplies AHS

introduced in 1976 an innovative system called Analytic Systems Automated Purcbasing or ASAP that enabled hospitals to order goods electronically Developed in house the innovative system used proprietary software running on a mainframe computer and hospital purchasing agents accessed it through terminals at their sites Because more efficient ordering enabled hospitals to

What About the Vendors
Just a few months ago at the 2003 World Economic Forum in Davos Swiuerland Bill Joy t he chief scientist and cofounder of Sun Microsystems posed what for him must have been a painful question What if the reality is that people have already bought most ofthe stuff they want to own The people he was talking about are of course businesspeople and the stuffis information technology With the end ofthe great buildout ofthe commercial IT infrastructure apparently at hand Joy s question is one that all IT vendors should be asking themselves There is good reason to believe that companies existing IT capabilities are largely sufficient for their needs and hence that the recent and widespread sluggishness in IT demand is as much a structural as a cyclical phenomenon Even if that s true the picture may not be as bleak as it seems for vendors at least those with the foresight and skill to adapt to the new environment The importanceof infrastructural technologies to the day to day operations of business means that they continue to absorb large amounts of corporate cash long after they have become commodities indefinitely in many cases Virtually all companies today continue to spend heavily on electricity and phone service for example and many manufacturers continue to spend a lot on rail transport Moreover the standardized natureof infrastructural technologies often leads to the establishment of lucrative monopolies and oligopolies Many technology vendors are already repositioning themselves and their products in response to the changes in the market Microsoft s push to turn its Office software suite from a packaged good into an annual subscription service is a tacit acknowledgment that companies are losing their need and their appetite for constant upgrades Dell has succeeded by exploiting the commoditization ofthe PC market and is now extending that strategy to servers storage and even services Michael Dell s essential genius has always been his unsentimental trust in the commoditization of information technology And many ofthe major suppliers of corporate IT including Microsoft IBM Sun and Oracle are battling to position themselves as dominant suppliers of Web services to turn themselves in effect into utilities This war for scale combined with the continuing transformation of IT into a commodity will lead to the further consolidation of many sectors ofthe IT industry The winners will do very well t he losers will be gone

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H BR AT LARGE IT Doesn t Matter

reduce tbeir inventories and thus their costs customers were quick to embrace the system And because it was proprietary to AHS it effectively locked out competitors Eor several years in fact AHS was tbe only distributor offering electronic ordering a competitive advantage that led to years of superior financial results Erom 1978 to 1983 AHS s sales and profits rose at annual rates of 13 and 18 respectively well above industry averages AHS gained a true competitive advantage by capitalizing on cbaracteristics of infrastructural tecbnologies that are common in tbe early stages of their buildouts in particular their high cost and lack of standardization Within a decade however those barriers to competition were crumbling The arrival of personal computers and packaged software together with the emergence of networking standards was rendering proprietary communication systems unattractive to tbeir users and uneconomical to their owners Indeed in an ironic if predictable twist tbe closed nature and outdated technology of AHS s system tumed it from an asset to a liabiiity By the dawn oftbe 1990s after AHS had merged with Baxter Travenol to form Baxter International the company s senior executives had come to view ASAP as a millstone around their necks according to a Harvard Business School case study Myriad other companies bave gained important advantages through the innovative deployment of IT Some like American Airlines with its Sabre reservation system Eederal Express with its package tracking system and Mobil Oil with its automated Speedpass payment system used IT to gain particular operating or marketing advantages to leapfrog the competition in one process or activity Others like Reuters with its 1970Sfinancialinformation network or more recently eBay with its Internet auctions had superior insight into the way IT would fundamentally change an industry and were able to stake out commanding positions In a few cases the dominance companies gained through IT innovation conferred additional ad

The Sprint to Commoditization
One ofthe most saiient characteristics of infrastructural technologies is the rapidity of their installation Spurred by massive investment capacity soon skyrockets leading to falling prices and quickly commoditization

350 300 250 Railroad track worldwide in thousands of kilometers 200 150 100 50 0 1841 1846 1851 1856 1861 1866 1871 1876 Railv ays

15 000 12 000

Electric Power

U S electric u tility generating capacity in megawatts

6 000 3 000 0 1889 18991902 1907 1912 1917 1920

200

Infornnation Technology
Number of host computers on the Internet in millions 150

100

1990

1992 1994 1996 1998 2000

2002

Sources railway Eric Hobsbawm Tfte lgeo Copto Vintage 1996 electric power Richard B Dubofij Electric Power in Manufacturing 1889 1958 Amo 97g I nternet hosts Robert H Zakon Hodbei Internet Timeline www zakon org robert internet timeline

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vantages such as scale economies and brand recognition that have proved more durable than tbe original technological edge Wal Mart and E ell Computer are renowned examples of firms that have been able to turn temporary technological advantages into enduring positioning advantages But the opportunities for gaining ITbased advantages are already dwindling Best practices are now quickly built into software or otherwise replicated And as for IT spurred industry transformations most of the ones that are going to happen have likely already happened or are in the process of happening Industries and markets will continue to evolve of course and some will undergo fundamental changes the future ofthe music business for example conrinues to be In doubt But bistory shows that tbe power of an infrastructural technology to transform industries always diminishes as its buildout nears completion While no one can say precisely wben the buildout of an infrastructural technology has concluded there are many signs that the IT buiidout is much closer to its end than its beginning Eirst IT s power is outstripping most of tbe business needs it fulfills Second the price of essential IT functionality has dropped to the point where it is more or less affordable to all Third the capacity of the universal distribution network the Internet has caught up with demandindeed we already have considerably morefiber opticcapacity than we need Fourth IT vendors are rushing to position themselves as commodity suppliers or even as utilities Finally and most definitively the investment bubble bas burst wbicb historically bas been a clear indication tbat an infrastructural technology is reacbing the end of its buildout A few companies may still be able to wrest advantages from bighly specialized applications that don t offer strong economic incentives for replication but those firms will be the exceptions that prove the rule At the close oftbe 1990s when Internet hype was at full boil technologists offered grand visions of an emerging

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New Rules for IT Management
With the opportunities for gaining strategic advantage from information technology rapidlydisappearing nnany companies will want to take a hard look at how they invest in IT and manage their systems Asa starting point here are three guidelines for the future Spend Ie5s Studies show that the companies with the biggest IT investments rarely post the best financial results As the commoditization of IT continues the penalties for wasteful spending will only grow larger It is getting much harder to achieve a competitive advantage through an IT investment but it is getting much easierto put your business at a cost disadvantage Follow don t lead Moore s Law guarantees that the longer you wait to make an IT purchase t he more you ll get for your money And waiting will decrease your risk of buying something technologically fiawed or doomed to rapid obsolescence In some cases being on the cutting edge makes sense But those cases are becoming rarer and rarer as IT capabilities become more homogenized Focus on vulnerabilities not opportunities It s unusual for a company to gain a competitive advantage through the distinctive use of a mature infrastructural technology but even a brief disruption in the availability of the technology can be devastating As corporations continue to cede control over their IT applications and networks to vendors and other third parties the threats they face will proliferate They need to prepare themselves for technical glitches outages and security breaches shifting their attention from opportunities to vulnerabilities

overspending IT may be a commodity and its costs may fall rapidly enough to ensure that any new capabilities are quickly shared but the very fact that it is entwined with so many business functions means that it will continue to consume a large portion of corporate spending For most companies just staying in business will require big outlays for IT Wbat s important and this holds tme for any commodity input is to be able to separate essential investments from ones tbat are discretionary unnecessary or even counterproductive At a high level stronger cost management requires more rigor in evaluating expected returns from systems investments more creativity in exploring simpler and cheaper altematives and a greater openness to outsourcing and other partnerships But most companies can also reap significant savings by simply cutting out waste Personal computers are a good example Every year businesses purchase more than lOO million PCs most of which replace older models Yet tbe vast majority of workers who use PCs rely on only a few simple applications word processing spreadsheets e mail and Web browsing These applications have been technologically mature for years they require only a fraction of the computing power provided by today s microprocessors Nevertheless companies continue to roll out across the board hardware and software upgrades Much of tbat spending if truth be told is driven by vendors strategies Big hardware and software suppliers have become very good at parceling out new features and capabilities in ways that force companies into buying new computers applications and networking equipment much more frequently than they need to The time has come for IT buyers to throw their weight around to negotiate contracts that ensure tbe longterm usefulness of their PC investments and impose hard limits on upgrade costs And if vendors balk companies should be willing to explore cheaper solutions including open source applications and bare bones network PCs even if it means sacrificing features If a comHARVARD BUSINESS REVIEW

digital ftiture It may well be that in terms of business strategy at least the future has already arrived

From Offense to Defense
So what sbould companies do From a practical standpoint the most important lesson to be leamed from earlier infrastructural technologies may be this When a resource becomes essential to competition but inconsequential to strategy tbe risks it creates become more important than the advantages it provides Think of electricity Today no company builds its business strategy around its electricity usage but even a brief lapse in supply can be devastating as some Califomia businesses discovered during the energy crisis of 2000 The operational risks associated with n are many technical glitches obso

lescence service outages unreliable vendors or partners security breacbes even terrorism and some have become magnified as companies bave moved from tightly controlled proprietary systems to open shared ones Today an IT disruption can paralyze a company s ability to make its products deliver its services and connect with its customers not to mention foul its reputation Yet few companies have done a thorough job of identifying and tempering their vulnerabilities Worrying about what might go wrong may not be as glamorous a job as speculating about the future but it is a more essential job right now See the sidebar New Rules for IT Management In tbe long run tbough the greatest IT risk facing most companies is more prosaic than a catastrophe It is simply

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pany needs evidence of the kind of money that might be saved it need only look at Microsoft s profit margin In addition to being passive in tbeir purcbasing companies bave been sloppy in their use of IT Tbat s particularly tme witb data storage which has come to account for more than half of many companies IT expenditures The bulk of wbat s being stored on corporate networks has little to do witb making products or serving customers it consists of employees saved e mails and files

Some managers may worry that being stingy witb IT dollars will damage tbeir competitive positions But studies of corporate IT spending consistently show that greater expenditures rarely translate into superior financial results In fact tbe opposite is usually tme In 2002 tbe consulting firm Alinean compared the IT expenditures and the financial results of 7 500 large U S companies and discovered that the top performers tended to be among tbe most tightfisted The 25 companies that

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Studies of corporate IT spending consistently show that greater expenditures rarely translate into superior financial results In fact the opposite is usually true
including terabytes of spam MP3s and video clips Computerworld estimates that as mucb as 70 of tbe storage capacity of a typical Windows network is wasted an enormous unnecessary expense Restricting employees ability to save files indiscriminately and indefinitely may seem distasteful to many managers but it can bave a real impact on tbe bottom Une Now tbat IT bas become the dominant capital expense for most businesses there s no excuse for waste and sloppiness Given the rapid pace of technology s advance delaying IT investments can be another powerful way to cut costs while also reducing a firm s chance of being saddled witb buggy or soon tobe obsolete tecbnology Many companies particularly during tbe 1990s mshed their IT investments either because tbey hoped to capture a firstmover advantage or because tbey feared being left bebind Except in very rare cases both the hope and the fear were unwarranted The smartest users of technology here again Dell and WalMart stand out stay well back from tbe cutting edge waiting to make purchases until standards and best practices solidify Tbey let their impatient competitors shoulder the bigh costs of experimentation and then tbey sweep past them spending less and getting more
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delivered the highest economic retums for example spent on average just 0 8 of their revenues on IT while the typical company spent 3 7 A recent study by Forrester Researcb showed similarly tbat the most lavish spenders on IT rarely post the best results Even Oracle s Larry Ellison one of tbe great technology salesmen admitted in a recent interview that most companies spend too much on IT and get very little in retum As the opportunities for IT based advantage continue to narrow the penalties for overspending will only grow IT management sbould frankly become boring Tbe key t o success for the vast majority of companies is no longer to seek advantage aggressively but to manage costs and risks meticulously If like many executives you ve begun to take a more defensive posture toward IT in the last two years spending more frugally and thinking more pragmatically you re already on the right course The challenge will be to maintain that discipline when the business cycle strengthens and the choms of hype about IT s strategic value rises anew
1 Information technology is a fuzzy term In this article it is used in its common current sense as denoting the technologies used for processing storing and transporting information in digital form

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