Tuesday, September 27, 2005

Competitive Advantage and IT

In his latest Blog posting, Nick Carr points out some differences of opinion with Irving Wladawsky-Berger, IBM's technology strategist who has posted an article on standardization and commoditization leading to innovation.

I feel :

- Standardization of processes leads to a lot of Management Bandwidth being freed up for creative tasks and innovation, rather than conformance to standards to be able to communicate between vendors, suppliers, customers and your employees.

- At the same time, standardization doesnt give you any competitive advantage. If you use the same standard IT processes and systems everyone else does, what makes you unique? Nothing. Its here that you have to come in and innovate, add on top of what you already have in order to gain some advantage. And that I guess is what Wladawsky-Berger implies by innovation. And this is exactly what Carr means when he says "IT doesnt matter" (for standardized processes).

We can walk through history for an example to this. Take the case of a typical ERP/CRM implementation today. In the early days of IT and Internet, in the early 90s, most companies were hiring staff (or outsourcing) to build an IT infrastructure and processes that tailored to their "way" of doing things. Over a period of time, this IT infrastructure development and maintenance work got so standardized (and the ERP/CRM suites grew so rich in functionality, communication standards and "best practices") that most organizations found it more useful to simply customize the standard ERP/CRM suites. They even went ahead and started outsourcing the infrastructure related operations to vendors like IBM and Oracle OnDemand as they were not offering any competitive advantage to them. From being a fad that offered immediate results, ERP and CRM implementations have turned into long term commitments for continual improvement.

Thus implementing a standard IT offering doesnt make you competitive. Its how you add and innovate over it is what makes you stay ahead in the game. Dell is a classic example - it consistently sets the industry standards for the most efficient supply chain without having implemented any vendor's standard supply chain management suite.

- Finally Carr says that "...Wladawsky-Berger implies that standardization will only occur for those processes "where differentiation brings little or no incremental value," but that's hard to believe. Indeed, from an economics standpoint, the greatest value will come from standardizing processes where there are currently large discrepancies in performance.."
This point can be debated at length. I will personally back Wladawsky-Berger's point. Its not easy (or even possible?) for a vendor like IBM to continuously offer the best IT infrastructre, with a software that has the industry standard best practices and tailor it fast enough to meet the needs of a customer's specific businesses. I guess its all about speed and though the duration for a sustained comptetitive advantage will be reduced, it is still prudent to aim for it and achieve it by innovating. Comments are welcome.

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