“IT Doesn’t Matter” at 10

My article “IT Doesn’t Matter” came out in the Harvard Business Review ten years ago this month. At Network World, Ann Bednarz has a retrospective about the article and the reaction to it as well as an interview with me.

After the article appeared, I tracked some of the reactions to it here. Many of the links, alas, have gone dead over the last 10 years, but the rundown still provides a sense of where IT stood back then, between the dot-com bust and the arrival of the cloud.

4 thoughts on ““IT Doesn’t Matter” at 10

  1. Nick Gall

    I find your statement that the “article was really about the IT infrastructure, which is basically what IT departments were mainly concerned with 10, 11 years ago,” to be disingenuous. I think if your article had ONLY been about the commodification of servers, storage, and networks, it would not have provoked the controversy it did. What made your article provocative was your claims that “the opportunities for gaining IT-based advantages are already dwindling” and a “few companies may still be able to wrest advantages from highly specialized applications that don’t offer strong economic incentives for replication, but those firms will be the exceptions that prove the rule.”

    In other words, your article made claims not only about IT infrastructure, but more controversially, about IT applications. For example, this paragraph is ALL about IT “applications”, NOT IT infrastructure:

    “Myriad other companies have gained important advantages through the innovative deployment of IT. Some, like American Airlines with its Sabre reservation system. Federal Express with its package-tracking system, and Mobil Oil with its automated Speed pass 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 1970S financial information 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 advantages, such as scale economies and brand recognition, that have proved more durable than the original technological edge. Wal-Mart and Dell Computer are renowned examples of firms that have been able to turn temporary technological advantages into enduring positioning advantages.”

    Your article then went on to claim that the ability to generate new forms of competitive advantage by applying IT in innovative ways was declining:

    “But the opportunities for gaining IT-based advantages are already dwindling. … [H]istory shows that the power of an infrastructural technology to transform industries always diminishes as its build out nears completion. While no one can say precisely when the build out of an infrastructural technology has concluded, there are many signs that the IT build out is much closer to its end than its beginning. … A few companies may still be able to wrest advantages from highly specialized applications that don’t offer strong economic incentives for replication, but those firms will be the exceptions that prove the rule.”

    It is quite clear in retrospect that on this point, the article was wrong. Ten years later, in 2013, the innovative application of IT for competitive advantage is as frequent, and arguably more frequent, than it was in 2003. The iPhone, which has now almost destroyed the Blackberry, was not even introduced until 2007! Netflix didn’t start its streaming business until 2007, and is part of the disruption of the cable industry. High Frequency Trading didn’t get big until the mid-2000s, and now it dominates trading volumes. In 2010, Progressive introduced Snapshot, a pay-as-you-drive insurance product, disrupting auto insurance. The list goes on and on.

    Contrary to the main, and most controversial conclusion of the article, the opportunities for gaining IT-based advantages are growing and will continue to grow. Clearly, the _application of_ IT STILL MATTERS!

  2. Nick Post author

    Yes, you’re absolutely right that I include business software in my discussion of IT, particularly enterprise applications, which I consider to be every bit as “infrastructural” as servers and storage gear. This gets to my foundational distinction between “proprietary” and “infrastructural” technologies and the different roles they play in business strategy, which I introduce in the article and discuss in much greater depth in my subsequent book Does IT Matter? (2004).

    Here’s a brief excerpt from the book where I introduce the distinction:

    It’s important at the outset to draw a distinction between proprietary technologies and what might be called infrastructural technologies. Proprietary technologies can be owned, actually or effectively, by a single company. A pharmaceutical 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 consumer goods company may license exclusive rights to a new packaging material that gives its product a longer shelf life than other brands. As long as they remain protected from competitors, proprietary technologies can be the basis for long-term strategic advantages, enabling companies to reap higher profits than their rivals.

    Infrastructural technologies, in contrast, offer far more value when shared than when used in isolation. Think back, for a moment, to the [early days of the rail network], and imagine that one manufacturing company held ownership rights over all the technology required to create a railroad—the tracks and the switches, the locomotives and the railcars. If it wanted to, that company could just build proprietary lines between its suppliers, its factories, and its distributors and run its own trains on the tracks. And it might well operate more efficiently as a result. But, for the broader economy, the value produced by such an arrangement would be trivial in comparison with the value that would be 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, electric power plants or highways, make it inevitable that they be broadly shared—that they become part of the general business infrastructure.

    At times, however, the distinction between infrastructural and proprietary technologies can blur. In the early phases of its development, an infrastructural technology can, and often does, take the form of a proprietary technology. As long as access to the technology is restricted—through physical limitations, high costs, government regulations, or a lack of usage standards—individual companies often have opportunities to use it to gain advantages over rivals.

    The basic elements of corporate IT – both hardware and applications – are infrastructural technologies, I argued ten years ago, and are hence fated to be shared rather than owned as proprietary sources of advantages. I think what we’ve seen with the cloud, as well as the general commodification of IT components, indicates that my assessment was pretty much on the mark. Which is not to say that my foresight was 20-20.


  3. Nick Gall


    Thanks for responding.

    I think we’re both in agreement that your prediction that IT infrastructure would continue to commodify to the point that it would be shared in the cloud was spot on. I’m not sure from your response whether we agree on your prediction regarding the “proprietary” application of IT (especially in the form of innovative software applications).

    Firstly, do you agree that your article DID predict that the number of instances of proprietary applications of IT would decline? That’s how I read your article’s claim that ““[T]he opportunities for gaining IT-based advantages are already _dwindling_. … A few companies may still be able to wrest advantages from highly specialized applications that don’t offer strong economic incentives for replication, but those firms will be the exceptions that prove the rule.”

    If your article was NOT making any prediction regarding the proprietary application of IT, then I suggest a more accurate title would have been “IT Infrastructure Doesn’t Matter Anymore.”

    And secondly, if your article DID make a predication regarding proprietary applications of IT, then do you think it came true?

  4. Nick Post author

    if your article DID make a predication regarding proprietary applications of IT, then do you think it came true?

    Yes, of course, though it wasn’t so much a prediction as an observation. It was true in 2003, and it’s true in 2013.

    I think one of the sources of your confusion lies in the distinction between business inputs and business outputs. My article and book on the topic were about IT as an input (a resource), not IT as an output (a product). It’s the difference between, say, looking at railroads from the shipper’s perspective (input) or from the operator’s perspective (output). To the railroad operator, rail technology is strategic in a way that it is not to the company that simply ships its goods via rail. As an input, IT continues to be commodified, neutralized as a source of sustainable competitive advantage, and turned into a shared utility. There are exceptions, of course, but that’s the trend.

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