IT: catch-up or competitive advantage?
“If every company uses the same commodity information tools, they will have commodity productivity levels.“ That’s a quote from Alan Kay, a leading pioneer of what might be called 4G computing - eg. networked personal computers and object-oriented programming. He was talking to John Sviokla, who has written a thought-provoking short article “Commoditized Technology and Commoditized Results.”
There is a real dilemma. Do I use these feature-rich off-the-shelf solutions, which may keep me on a par with my competitors, or do I build something unique (and by implication slower to implement, much more expensive, and more likely to fail)? IT’s reputation for cost-overruns, under-delivery, late delivery and failed projects) even with packaged solutions) has meant that many firms do not allow their IT organisations much influence on true business strategy and development. Many firms spend most or all of their IT money on running fast to stay still, and begrudge even that.
There is plenty of blame to share around. Many business executives do not understand the difference between competitive advantage and competitive necessity. Sviokla himself shows this confusion, despite his article’s title:
For example, I was talking with the CIO of a multi-billion dollar military contractor… He reported … that … the typical engineer spent 30% of their time looking for information, and that 30% of their expenses were engineering salaries, which meant that 9% of their entire cost base was spent searching for information. Putting Google in would not help this problem because the firm’s data is not made up of web pages and typical documents. Despite this huge cost, they did not have a single person dedicated to creating customized search tools to drive increased productivity of their engineers.
It sounds like a prima facie case to make an IT investment, but this is a common productivity problem, not a source of long term competitive advantage. If they invest, they may reduce their costs and/or increase their time to do other things, but then so can anyone else.
Long-term competitive advantage comes from doing things or having things that other people will find hard to replicate. That usually means hard-to-get know-how, hard-to-replicate processes, hard-to-subvert relationships (brands, sales, channels, supply channels, etc.) or hard-to-obtain scarce resources (minerals, access rights, networks). Even new-age weightless businesses which started out with bright product/service ideas like Google, Ebay and TradeMe now owe a lot of their competitive advantage from having built hard-to-subvert relationships.
Business executives need to ask themselves the hard questions. What strategic difference will this IT project really make, versus other uses of our business investment budget? Is it a source of genuine competitive advantage, or a productivity advantage which may be duplicated eventually, or just catch-up, or even (and this one is really scary) not actually necessary at all?
Just one word of warning. Don’t fool yourselves that your so-called hard-to-replicate processes, know-how, relationships, and resources are really long term competitive advantages. I know one large international firm which fell for its own hype. They bet their business (and nearly lost it) on building a unique solution to a common requirement. Some of their core business processes were revolutionary in the 80s, and needed a home-built system which had outlived any technology or skills to run or maintain it. However, the old guard believed (wrongly) that they couldn’t get similar functionality from standard packages today. They argued that these systems were so fundamental to the firm’s processes that a massive bespoke redevelopment was justified, despite several advisers telling them otherwise. They wasted 5 years, many millions of dollars, and hobbled their ability to undertake any acquisitions at a time when their industry was undergoing massive consolidation. The company finally scrapped the project, heads rolled, and the firm adopted a system from one of its few acquisitions.
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June 16th, 2008 at 10:34 pm
Technology-wise, I think that nothing today in the IT world that is hard to replicate. I believe that brand-wise is what’s hard to replicate, as the examples you cited Jim with Google, Ebay, TradeMe and the likes.
June 17th, 2008 at 10:28 am
Catch-up? Of course, every company with more than 40 people over 40 is trying hard to catch up with companies less than 2 years old with no one over 30 working for them. As we said many times, give me a bunch of new graduates who haven’t yet learned what they can’t do, and I’ll deliver anything you can imagine through the application of tecnology.
Competitive advantage? Aye, there’s the rub! You see, there are people out there doing their damndest to convince CEOs, and other spend decision makers, that their ‘package’ gives competitive advantage to those who use it (I think the word creatively follows but so quietly that I’n not sure I heard it!). As you so rightly imply Jim, innovation is the precursor of competitive advantage, but unfortunately most ’system’ innovation can be copied and any advantage thereby removed.
What can’t be duplicated is the drive to achieve that committed managers, leaders and staff have.
So whither now? Well, I still say that harnessing an innovative process to a committed workforce that is incented to overachieve every goal they set or have set for themselves will work. Unfortunately, from a Nation that KNEW it could achieve ANYTHING PHYSICAL with a bit of wood and a coil of number 8 wire, NZ has been turned into a Nation that knows it can’t!
Innovative minds have been outlawed, starting at schools and going right through the education system to tertiary level. When young, children are herded into the ‘local’ catchment area school, irrespective of their ability, and only those at the median ability point are sufficiently challenged to achieve their potential.
At teriary level, we have a population akin to a decent sized international city, and yet have universities competing for bums on seats as well as Polytechs moving into the geography of each other to try and achieve growth and financial stability. In both cases, to hell with the value of the qualification , get the headcount up so we can keep the institution going!
NZ is no longer innovative - I hope somewhere else is, otherwise it’s going to boring for the next decade or two!
June 18th, 2008 at 5:52 pm
Three weeks ago I had the privilege to sit with Allan Kay in Boston, as he demonstrated SCRATCH, a logo-programming tool running on the OLPC XO Low Cost Laptops.
What many of us have seen is Allan Kays passionate belief and commitment to bringing creativity and design back to the fore front of education, especially with children.
In a day where schools provide educational software, and preset software applications and couple this with out-of-the-box lesson plan’s, more often developed by those who sell the software applications, it is refreshing to see Allan and others champion the belief that perhaps Einstein had it right when he proposed that imagine had more value than knowledge or preset knowledge.
So to our country, we must embrace design and innovation and embody it both in the early education years right through to industry. New Zealand can no longer compete by replicating goods and services generated from out of the box solutions; cheaper labour markets are doing that at scales we cannot longer sustain. Our competitive advantage must take a leaf from Kay and look to design and innovation as the tool for growth.
We use SCRATCH with kids at the Computer Clubhouse in Otara, where kids give up their out of the box entertainment time in the form of XBOX and Spacies after school to design games and shootem up simulations starting from “scratch” to final working software solutions. These are kids from decile 1 schools where the presumption is that they will be the manual labour force of the future, the problem being is that NZ’s manual labour force doesn’t have a future and our schools, tertiary providers, and the ICT industry needs to invest into KAYS constructionist thinking, if we want to remain a competitive country.