A Tool that Should be used Carefully - Research Paper Example

 Information Technology – A tool that should be used carefully Introduction Technology by far seems to have contributed in great deal to the development of human kind and it’s betterment in various fields like infrastructure, transport, communication and various businesses. Business organizations have gained a lot with invent of information technology enhancing their manufacturing and communication process. Bharadwaj, Bharadwaj, and Konsynski (1999) states that there has been growing recognition of the importance of assessing information technology assets in determining firm’s competitive health and capacity for future business performance. It is further reported that managers and consultants are considering companies IT resources and capabilities in determining its future viability. Though IT is an integral part of the decision making process, certain issues arise reporting mixed findings pertaining to the relationship between IT investments and firms profitability as mentioned in the much touted controversial article by Nicholas G. Carr in “IT Doesn’t Matter”. Carr (2003) mentions that companies that have led the technological innovation strategy made lesser profit that those counterparts who spent moderately on IT infrastructure. This paper attempts to make a presentation agreeing with the assumption of Nicholas G. Carr made in his article that the IT really doesn’t matter and that companies should spend less on IT and utilize only those IT solutions which would boost the company’s profit rather than exceed it. Whey there is need for high expenditure in IT Clay and Bassett (1999) mentioned that computers have played an important role in local government for many years and have helped to determine the way many businesses operate. It is further stated that the level of investments in IT has increased rapidly with the US Audit Commission estimating a 700% increase in IT expenditure. According to Carr (2003) the innovation in computer technology has led to a massive increase in spending on IT related infrastructure. It is further stated that computer’s which were previously limited to the use for top executives have been made available to the low level executives and IT is now part of the strategic discussion. Organizations need to move forward than the others do so that they earn a competitive edge in the market and produce products that are scarce and handsome profits. Khosrow–pour (2000) stated that new competitive and technological challenges faced by the companies have resulted in tremendous IT expenditures and increasing complexity in IT management. It is further reported that though CEOs and CIOs recognized the importance of IT to an organization but were unable to measure the governance and control of IT and its performance as per the study carried out by IT Governance Institute (ITGI) covering 335 CEOs and CIOs from 21 countries. According to Bharadwaj et al (2003), many researchers have argued that while IT investments have served to increase firms productivity and consumer value, they have also lowered entry barriers, eliminated market inefficiencies that enable a firm to maintain monopoly power and intensified market competition thereby failing to create any lasting return to the investing firm. In a recent study by the National Research Council, it showed that executives were increasingly focusing on factors such as risk avoidance, growth potential and strategic flexibility in evaluating IT projects. It is further stated that investments in IT can be made to avoid potential catastrophe losses resulting from liability suits such as fraudulent and careless security handling and other environmental disasters which may provide real gains to the company but not show up anywhere as real benefits in the accounting ratios. Shin (2003) mentions that many executives are concerned with the investment in information technology; strategic alignment or the alignment of information systems strategy with business strategy has emerged as one of the most important issues facing executives. As Carr (2003) states that IT’s potency and ubiquity has increased along with its strategic value and nowadays companies have to produce goods or services which their competitors could not provide giving rise to new generation of business involving IT not as the tool for doing business or gaining advantage over others but as costs for doing business. Negative Assumptions about IT O’Brien (2008) while criticizing the Carr’s opinion about IT stated that it is a sloppy mix of ersatz history, conventional wisdom, moderate insight and unsupportable assertions. Further reiterating the Carr’s statement, O’Brien (2008) ridicules the statement that IT is no more than a modern day infrastructure similar to railroads, electricity or the internal combustion engineering. O’Brien presents the views and opinion of top executives from General Electric, Dell, Intel and other companies about the information technology who duly support spending on IT related activities and infrastructure. It should be noted here that all the companies are service oriented companies and duly comply with Carr’s assumption that IT has now become the costs for conducting business activities because most of the departments in the above mentioned companies cannot function without the use of Information Technology. Brown and Hagel III in a letter to Harvard Business Review stated that businesses have overestimated the strategic value of IT and have significantly overspent on technology in the quest for business value (Stewart, 2003). Carr (2003) states that IT is highly replicable resulting in cheaper and cheaper products and with the arrival of internet, the commoditization of IT has accelerated by providing perfect platform to deliver generic applications. The McKinsey Global Institute in its report on “U.S. Productivity Growth, 1995-2000” mentioned that only six out of 59 industries had positive correlations between IT expenditure and productivity. The remaining 53 industries reported negligible productivity improvements as a result of their IT investments. Moreover the successful six companies were successful because they introduced significant innovations in business practices to leverage IT capabilities. Hittleman (Stewart, 2003) stated that competitive advantage should never be the sole objective of IT. In response to the Carr’s ‘IT Doesn’t Matter’, many CEOs agreed and disagreed while some stating the IT is necessary for the business organizations but it should be used strategically and not only for the sole purpose of achieving competitive advantage over the competitors. Varian (2004) while summarizing details from the new book of Nicholas G. Carr “Does IT Matter?” mentioned that companies that lacked the skills of managing information technology effectively suffered heavily as compared to those companies who know the skills of IT management. It is further mentioned that information technology has become cheaper as contended by Carr in his article “IT Doesn’t Matter” and setting up a Web server or an accounting or an inventory management system is lot easier and can be executed by anybody. Carr (2003) mentioned that information technology has overpowered railways and electric power in terms of commoditization by taking only 12 years to reach nearly 200 million host computers on internet. It is further stated that data storage accounts to more than half of the companies IT expenditures and most of the data stored on computer networks has little to do with the companies production and serving customers which might not be true though as data archives help in serving the customers with whom the company has a long lasting relationship. Investments in IT is an important area for an organization and Carr has made the executives conscious about the skyrocketing expenses in IT and that every IT investments should not be automatically green lighted. A study by Forrester Research revealed that most lavish spenders on IT did not recorded the best results as compared to those companies who spent less on IT infrastructure. Most of the companies allot specified budget on IT related infrastructure which include removal of old infrastructure and upgrading the software in all the systems which really is a waste of money. Why the need for upgraded software when the same work could be executed in the older version with same effort. Computerworld (Carr, 2003) estimated that as much as 70% of the storage capacity of typical windows network is wasted in form of useless emails, songs and other weird stuff resulting in an enormous waste of money. Dwivedi (2004) mentioned that venture capitalists are no longer investing in IT related ventures and their focus is shifting to life sciences and other areas and states that IT is utility on the basis of research conducted by Saugatuck Technology and CFO Research Services where it was found that nearly 20% of the companies in their survey had implemented Pay-as-you-go programs believing IT service as an utility. Moreover, most of the companies investing in technology don’t even beat S&P 500 on Wall Street. Champy (2003) agrees with the Carr’s statement with regard to huge investments made in IT. It is further stated that the companies in United States had investment almost 50% of their capital spending on IT with many pouring millions of dollars on IT projects with zero value to show in the books of accounts. Bruce Skaistis (Stewart, 2003) opines with the Carr’s thesis that companies are spending lot of money of IT without reaping actual benefits and most of the investments in which companies investment were left incomplete. The thesis supported by Nicholas G. Carr in his article “IT Doesn’t Matter” is that IT’s core function i.e data processing, data storage and transmission have become cheaper, more standardized and more easily replicable and their basis to server as competitive advantage has completely diminished (Carr in Stewart, 2003). Rightly so, because, nowadays there are millions of websites coming up every day which makes it impossible for any website owner to have a unique database from others as it can be replicated immediately. Article directory, for example, were previously designed to provide a platform to the writers from all over the world to publish their articles on varied topics, products and business and subsequently get noticed. Nowadays, creating a article directory is not a big task because simple know how of WordPress and advertising it among the writers is sufficient to jet start an article directory. Carr (2003) in his article provides example of EBay that pioneered the e-commerce website allowing its users to sell and buy products online, has now become possible for any knowledgeable to person to build an ecommerce website with little effort. Nicholas G. Carr in his article suggests top executives to spend less on IT, follow-don’t lead and focus on vulnerabilities; not opportunities. Conclusion Though article “IT Doesn’t Matter” by Nicholas G. Carr received numerous responses; some agreeing others disagreeing; but most of them echoed the notion that companies should invest in IT carefully with effective strategy. It is necessary to understand the only “IT Doesn’t Matter” but how you effectively use it in your business is what really matters. Carr received letters from various CEOs, consultants and other top executives with mixed reactions but all of them stressed the importance on managing the information technology and investing wisely. With the advent of advanced technologies in the field of information systems, it is necessary that companies use the IT tool carefully and effectively. If the tool is not used carefully and company does not achieve optimum output through the investment made in IT, then IT really doesn’t matter to that organization. Therefore Nicholas G. Carr’s thesis is correct that companies should spend less, follow the results achieved by the companies after their investment in innovative technologies and should focus on vulnerabilities on the business after investing in IT related infrastructure. References 1. Bharadwaj, A.S.; Bharadwaj, S.G. and Konsynski B.R. (1999) Information Technology effects on firm performance as Measured by Tobin’s, Management Science, ABI/INFORM, pp.1008-1024 2. Carr, N.G (2003) IT Doesn’t Matter, Harvard Business Review, EBESCO Publishing. 41-49 3. Clay H.H and Bassett, W.H. (1999) Clays Handbook on Environmental Health, E&FN SPON, United States.1-3 4. Shin, Namchul (2003) Creating Business Value with Information Technology: Challenges and Solutions, IRM Press, Integrated Book Technology, UK. 10-15 5. O’Brien (2008) Introduction to Information Systems, 12th Ed. Tata = McGraw Hills, India 6. Stewart, T (2003) Does IT Matter? An HRB Debate, Letters to the Editor, JohnSeelyBrown.com, 1-17 . http://www.johnseelybrown.com/Web_Letters.pdf 7. Dwivedi, J (2004) Does IT matter? The death of Information Technology and its implication on business, iProceed, http://www.iproceed.com/technology/does-it-matter.htm 8. Champy, J (2003) Technology Doesn’t Matter – but only at Harvard, Does IT Matter anymore? When it comes to innovation, its more relevant than ever, Fast Company, http://www.washingtonspeakers.com 9. Varian, R. H (2004) How much does information technology matter? Economic Scene, The New York Times, http://www.nytimes.com/2004/05/06/business/06scene.html?pagewanted=1 10. KhosrowPour, Mehdi, (2006) Emerging Trends and Challenges in Information Technology Management, Idea Group Inc (IGI), United States Read More