Nicholas Carr – The end of corporate computing, moving from assets to shared resources

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In this Thought Leaders podcast brought to you by SAVVIS, Nicholas Carr, acclaimed business technology writer and strategist, discusses the end of corporate computing brought on by the move from assets to shared resources. He also comments on the next generation of IT – the Utility Model – and what it means for businesses, in applications ranging from security services and Web hosting to IT services and networking.

Transcript:

Host: Jim Leach – PodTech

Guest: Nicholas Carr

Jim Leach – PodTech

Welcome to this edition of Thought Leaders, where we bring you candid conversations with the people whose research and writings are guiding the buyers and suppliers of Information Technology. I’m Jim Leach. Today, we’re delighted to welcome Nicholas Carr, acclaimed business technology writer and strategist. His writings include the article, ‘IT Doesn’t Matter’, published in the Harvard Business Review, the follow up book, ‘Does IT Matter?’, and his most recent paper called ‘The End of Corporate Computing’, published in the MIT Sloan Management Review. Thanks for being here Nick.

Nicholas Carr

Sure.

Jim Leach – PodTech

I guess it’s possible that someone involved in Corporate Computing has been on a remote island for the last three years and has not heard about your ideas regarding Information Technology and Competitive Advantage. Could you summarize for us your thesis?

Nicholas Carr

Sure. The basic thesis is that Information Technology is maturing like other technologies have in the past, and as it matures it becomes more commonplace, it becomes cheaper, more accessible, companies learn how to use it and share best practices. All of that tends to diminish its ability to set one company apart from other companies. So it neutralizes its ability to provide Competitive Advantage. It’s still essential, you can’t operate without it, but it’s harder and harder to get and sustain an advantage. Therefore, what I conclude is that companies need to shift the way they approach IT, in their investment in it, to looking at it more like a shared infrastructure, that you want to operate as efficiently as possible, but don’t think you’re going to innovate your way to a Competitive Advantage.

Jim Leach – PodTech

I guess the good news is that your ideas have encouraged a healthy dialogue between IT people and business leaders. I guess the bad news is sometimes that dialogue can get quite emotional. I’d imagine you’ve heard just about every kind of criticism there can be for your ideas. Can you tell us what some of the good ones are and how you’d respond?

Nicholas Carr

Most of the media criticism came more from the IT vendor world than from the user world. There have been interesting commentaries from both sides. I think there are two criticisms that I think are particularly interesting. One is that everything I say doesn’t apply to IT, because IT is so flexible and because it consists of software that you can program to do different things. So it’s very different from railroads, for instance, or the telephone network. I think that’s true to the extent that it accurately describes the flexibility of IT, but I think IT as its used by business is still subject to the same competitive and economic and technological forces that any other business resource is subject to, in that overtime IT behaves in the same way. It becomes harder and harder to get advantage.

The other criticism is that there are exceptions to my rule. I think that’s absolutely true and very important to recognize that there are some ways that some companies can apply IT, that they do get a Competitive Advantage, and really when you look at those, what you see is they tend to be very narrow, very specialized applications of IT, and very tightly tied to their own business processes. So, if you do something different from your competitors and can use IT in a way to make those things even more distinctive, then you can still get a Competitive Advantage, but it tends to be very, very, as I said, narrow, specialized things. The vast majority of your IT spending probably is not strategic.

Jim Leach – PodTech

In your most recent paper, ‘The End of Corporate Computing’, you suggest that IT is shifting from being an asset that companies own, to being a service that they purchase. Can you walk us through that idea?

Nicholas Carr

After writing ‘Does IT Matter?’, I started to think about, okay, given the fact that so much of IT is now infrastructural, that everybody has to buy it and use it, but they use it in very similar ways, what does that mean for the way its applied to companies? I think what we’re seeing is that it makes a lot of sense to begin to centralize and consolidate IT assets in utilities and provide those basic IT capabilities as services that many different companies can share.

What you get through that is you get much more efficient use of your assets, rather than every company having to go out and buy and maintain its own data center and all its own applications. You can consolidate all that, get it much more cheaply, much more efficiently, but also much more flexibly because you’re not locked in to whatever you happened to buy at any given moment.

Jim Leach – PodTech

That idea sounds compelling. Do you think it’s for real?

Nicholas Carr

Oh I do, I think one of the main reason’s its for real is that now we have the distribution capacity, the network, what was the electric grid before and its today the Internet. Particularly, the broadband Internet with all the fiber optic cable that’s been laid, that gives you the transport mechanism to supply lots of, even very sophisticated IT capabilities from a distance, from a centralized utility. I think we’re seeing companies moving that way, both on the hardware side and increasingly on the software side as well.

Jim Leach – PodTech

So let’s move now from the theoretical to the practical. If indeed IT does lend itself to commoditization, do you have any suggestions for the IT professional out there for how they can maximize the value they deliver to their business, their organization?

Nicholas Carr

I think the first thing you have to do is take a very skeptical look at your own IT operation and say, “Is this stuff that we’re investing in and innovating in, is it providing us a competitive advantage or is it something that all our competitors are doing either now or will soon do?” If its in the latter category, and I think most IT is now, I think you should look for how you can capitalize on commoditization and on the utility model by consolidating your assets, by standardizing them and by beginning to prune them. To move the assets out of your own control and your own ownership over to utility suppliers and begin to move to the model that says IT shouldn’t be an asset that you own, but should be a service that you can buy for a monthly fee, in essence.

Jim Leach – PodTech

Well, recently you’ve been writing about innovation. I was reading on your Blog about the conservative innovator and the prudent innovator. Innovation seems to be the next big buzzword in business today, can you tell us a little bit about your thoughts regarding innovation?

Nicholas Carr

Sure. First of all, innovation is absolutely critical to the vast majority of companies to gain a competitive advantage. The danger is that companies begin to see innovation as an end in itself and start to think we should innovate everywhere and every aspect of our business should be an innovator, and I think that’s a mistake. I think the prudent innovator looks at those particular areas where a competitive advantage might be gained and focuses their innovation in those particular areas, because the problem with innovation is that it tends to be expensive and risky. So to innovate everywhere is just a recipe for wasting a lot of money, but if you can target those few areas where you can gain an advantage, then it can pay off in space.

Jim Leach – PodTech

It’s been great spending time with you today, Nick. We really appreciate it. As a thought leader, your ideas are shaping business strategies, can you give us a little insight into what you see is the next big thing, what are you working on now?

Nicholas Carr

Well, I’m working on another book that will go into this utility model, and what it means when we start having the Internet as kind of the universal grid for computing and software capabilities. So, what I’m going to try to do is look at it, what it means, not only in business, in terms of utility suppliers there, but in terms of companies like Google, which are in many ways utilities now, that use the Internet to provide very sophisticated services. I think as this plays out, we’re going to see it have all sorts of economic and social effects, and my hope is to probe some of those in my next book.

Jim Leach – PodTech

Well, our thanks again to Nicholas Carr, a business strategist and writer, and thanks to you for joining us for this edition of Thought Leaders.

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