Is IT Still Strategic?
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They are the stuff of business school legend.
The supply chain management applications Wal-Mart Stores Inc. pioneered in the early 1980s propelled the discount store chain out of the back woods of Arkansas into the first $1 billion profit reported by the retailer in 1989. By 2002 it had risen to the top spot on the Fortune 500 list. The fabled package tracking system pioneered by FedEx Corp. in the mid-1980s helped build the then-upstart company into a $3 billion challenger to United Parcel Service Inc. and the U.S. Postal Service after only 15 years in business. Its technology leadership helps FedEx maintain its position as the world's largest cargo airline, with 2006 revenues topping $32 billion, and by some accounts it is gaining in its ground assault on package delivery leader ups. Citibank's bold 1977 move to blanket the Big Apple with its then-proprietary atms helped double its share of New York City deposits by 1981; today, it's the nation's largest financial institution, with 2006 revenues approaching $147 billion. And American Airlines' 1976 rollout of its pioneering SABRE computerized reservations system to travel agents helped catapult the airline to the status it still enjoys as the world's largest airline in total passenger miles flown and the largest U.S. airline, with nearly $22.6 billion in 2006 revenues.
Such massive IT projects once so celebrated are now few and far between. Conventional wisdom --even among many IT professionals--is that information technology is now standardized and ubiquitous, so it's no longer the source of strategic competitive advantage that it was just a decade ago. Thanks in no small part to the widely read and hotly debated 2003 Harvard Business Review article by Nicholas G. Carr, "IT Doesn't Matter," plus the collective technology hangover business suffered from the Internet boom and bust at the start of this decade, corporate IT is on the defensive. The lion's share of energy is focused on efforts to control costs while maintaining reliability and legal compliance. Fewer companies are wielding technology offensively to gain competitive advantage.
"Technology, which not so long ago provided companies with a competitive edge, has really been neutralized in a strategic sense," maintains Carr, whose 2004 book, Does IT Matter?, expanded on his controversial thesis. "It's still obviously essential, but it's very difficult to get a competitive advantage at any technological level with IT."
A central pillar of Carr's infamous argument is that IT's ubiquity, like that of previous industrial innovations such as railroads and electric utilities, has made it affordable and accessible to everyone a shared commodity with no strategic value. Years after his essay and book set off a firestorm in the IT community, Carr, the former executive editor of HBR, continues to advocate a defensive approach to IT management and warns against the "cult of innovation" that persists despite mounting evidence supporting his arguments.
Yet many CIOs aren't ready to give up on innovation or their strategic roles. And at visionary corporations ranging from century-old industrial and consumer products companies to entertainment and financial services enterprises to e-commerce operations, technology-driven innovation is still creating lasting competitive advantage. Not only has IT helped industry leaders like Wal-Mart and FedEx stay on top of their game, but it's helping other innovative challengers gain ground on industry frontrunners, like Harrah's Entertainment Inc., which is going after Marriott International Inc.'s hotel, resort and casino business.
Wal-Mart remains the best example of a company that uses IT strategically, not only to reach the top, but to stay there. The company, which topped $351 billion in revenues last year, collects massive amounts of data on sales and inventories and shares it with more than 17,000 suppliers in 80 countries via its Retail Link, which generates 21 million queries annually on daily sales, shipments, purchase orders, invoices, claims, returns, forecasts, rfid (radio-frequency identification) and more, according to Linda Dillman, Wal-Mart executive vice president of risk management and benefits administration and former CIO. Wal-Mart managers not only use its massive data warehouse to analyze and optimize routine product assortment and pricing, but they can now anticipate and prepare for demand spikes--stocking up on strawberry Pop-Tarts, top sellers among nonperishable foods, for instance, at stores in areas where hurricanes are forecast.