Carr wrote the book “Does IT Matter? Information Technology and the Corrosion of Competitive Advantage”. His latest book is called “The Big Switch: Rewiring the World From Edison to Google”.

Can IT Be a Utility?

I listened to Carr talk about the concept of IT moving toward a more “utility approach” for service (like electricity). While his argument is weak since electricity is a commodity, an organization’s IT has a lot of embedded intellectual property in it that is unique and critical.

That can’t be commoditized or entrusted to a third-party service offering. Though there certainly are some non-essential applications that could be outsourced from a corporation, the point that Carr makes is that IT is not part of the core business. I disagree.

Has Carr ever been involved in large-scale systems and application integration within a competitive environment let alone mission-critical systems where the life and death of the whole organization and/or its customers is balanced on real-time capabilities?

Carr cited the explosion of more companies utilizing computers over the last 30 years and tried to make the case that IT would eventually parallel the evolution of electricity. The market would pursue giving up the IT department to turn to an outside, utility-provided IT service.

What he didn’t observe is that IT is no longer a competitive advantage. Instead, it’s a competitive necessity if you want to compete today. That’s why there has been such an explosion of implementing computers.

Everyone is trying to contend with others with sophisticated warehousing programs, computer-aided manufacturing and other specialized applications and customer service databases. Computers and all the related software applications are what you need to be a player in just about any industry.

No Universal Solution

We were very fortunate to have some discourse in the question-and-answer period after his presentation. I pointed out that all these “universal solutions” to organizational issues never turn out to be universally accepted let alone universally implemented.

Whatever your core business, the fact is it’s intertwined with your information technology networks. It can’t easily be outsourced without a loss of security as well as management control. Can’t think of an example? Let me give you the one I gave Carr.

The Chicago Mercantile Exchange (CME) has a proprietary electronic trading platform that it built in order to compete with other exchanges. The CME didn’t outsource this strategic application. The CME also wouldn’t entrust a third party to run systems that have hundreds of trillions of dollars worth of transactions running on them.

This capability has made the CME the leader in that industry and has given them a competitive advantage over other exchanges from the intellectual property they developed. The electronic trading platform is part of their core business.

If you have driven your systems to a point where you have some type of competitive advantage over the rest of the market (like the CME), would you entrust a third party to maintain that advantage for you? I would never advise my clients to do that.

Carr’s response was that it will take 10 to 25 years for organizations to accept the “utility” concept. He made the reference that people didn’t trust banks at first and then entrusted them with their money.

I pointed out that banks are not infallible. Just look at the $200 billion bailout of Fannie Mae and Freddie Mac. I didn’t mention the spinout of others like Citibank, Washington Mutual and IndyMac Bank. In light of the financial implosion on Wall Street, it was a poor analogy for him to use.

IT is a Strategic Direction

If you’re not using IT strategically, then maybe you should step down as a CEO because you’re still living in a 1950s framework of corporate strategy.

If your CIO or CTO isn’t focused on harnessing new capabilities to expand and create new markets using IT networks and if instead they’re just trying to reduce IT budgets to get a yearly bonus, it’s time to replace them.

Universal cost cutting is not an executive skill. It also shouldn’t be “incented” in executive pay packages. Executives should be focused on expanding markets. They shouldn’t focus on low-level cost cutting that at best is a clerk- or analyst-level job.

Hire someone who understands how to apply technology to the core business.

Not everything is focused on cost cutting. You have to spend money to make money. Some CEOs, CIOs and CTOs think they can outsource their company’s applications without sacrificing control and ownership. Are there executives like that still out there? Yes.

Successful corporations have had second thoughts about outsourcing critical applications. You don’t give away intellectual property or entrust a third party with that intellectual property if you think it’s vital to your business.

Do you think a casino that manages a very complex database of gamblers (including what they spend when they come to Las Vegas) would entrust that database to a third party that could potentially be hacked into?

What about all the databases of supposedly secure companies that have been hacked into for people’s credit card numbers? Do you think a third party would do a better job? That is Carr’s premise.

What if they don’t? What should the damages be? Would the third party be indemnified to not being liable for economic damages? If that were the case, why would anyone in the world give away the strategic intelligence of their business to a third party that wouldn’t be held economically responsible if that information was corrupted or stolen?

Not Everyone Drank the Kool-Aid

While I commend Carr for writing the book to stimulate discourse on this topic, I don’t agree with his premise.

You can’t commoditize intellectual property that is unique, strategic and critical to one organization and put it out to a “utility” that may or may not be able to protect or enhance it. If a CEO thinks this is the way to go, then he or she should go the way of the CEOs of Fannie Mae and Freddie Mac (and without any severance package).

Is there a market for a “utility” type of capability for certain applications? Of course, but it’s far from being a universal solution. Any organization that has built a sophisticated platform of mission-critical applications should understand what they have and should be very cautious to even consider handing that off to any third-party service provider.

As I was walking out of the seminar, a president of a local software company rode down the elevator with me. He said: “It’s nice to see that not everyone drank the Kool-Aid.”

Carlinism: The further away someone is from working on actual implementations, the more easy it is for them to suggest solutions that don’t work.