Analyze and summarize into eight paragraph

IT Doesnt Matter by Nicholas G. Carr From the Magazine (May 2003) In 1968, a young Intel engineer named Ted Hoff found a way to put the circuits necessary for computer processing onto a tiny piece of silicon. His invention of the microprocessor spurred a series of technological breakthroughsdesktop computers, local and wide area networks, enterprise software, and the Internet that have transformed the business world. Today, no one would dispute that information technology has become the backbone of commerce. It underpins the operations of individual companies, ties together far-flung supply chains, and, increasingly, links businesses to the customers they serve. Hardly a dollar or a euro changes hands anymore without the aid of computer systems. As ITs power and presence have expanded, companies have come to view it as a resource ever more critical to their success, a fact clearly reflected in their spending habits. In 1965, according to a study by the U.S. Department of Commerces Bureau of Economic Analysis, less than 5% of the capital expenditures of American companies went to information technology. After the introduction of the personal computer in the early 1980s, that percentage rose to 15%. By the early 1990s, it had reached more than 30%, and by the end of the decade it had hit nearly 50%. Even with the recent sluggishness in technology spending, businesses around the world continue to spend well over $2 trillion a year on IT. But the veneration of IT goes much deeper than dollars. It is evident as well in the shifting attitudes of top managers. Twenty years ago, most executives looked down on computers as proletarian toolsglorified typewriters and calculatorsbest relegated to low level employees like secretaries, analysts, and technicians. It was the rare executive who would let his fingers touch a keyboard, much less incorporate information technology into his strategic thinking. Today, that has changed completely. Chief executives now routinely talk about the strategic value of information technology, about how they can use IT to gain a competitive edge, about the digitization of their business models. Most have appointed chief information officers to their senior management teams, and many have hired strategy consulting firms to provide fresh ideas on how to leverage their IT investments for differentiation and advantage. Behind the change in thinking lies a simple assumption: that as ITs potency and ubiquity have increased, so too has its strategic value. Its a reasonable assumption, even an intuitive one. But its mistaken. What makes a resource truly strategicwhat gives it the capacity to be the basis for a sustained competitive advantage is not ubiquity but scarcity. You only gain an edge over rivals by having or doing something that they cant have or do. By now, the core functions of ITdata storage, data processing, and data transporthave become available and affordable to all. Their very power and presence have begun to transform them from potentially strategic resources into commodity factors of production. They are becoming costs of doing business that must be paid by all but provide distinction to none. IT is best seen as the latest in a series of broadly adopted technologies that have reshaped industry over the past two centuriesfrom the steam engine and the railroad to the telegraph and the telephone to the electric generator and the internal combustion engine. For a brief period, as they were being built into the infrastructure of commerce, all these technologies opened opportunities for forward-looking companies to gain real advantages. But as their availability increased and their cost decreasedas they became ubiquitousthey became commodity 1 inputs. From a strategic standpoint, they became invisible; they no longer mattered. That is exactly what is happening to information technology today, and the implications for corporate IT management are profound. Vanishing Advantage Many commentators have drawn parallels between the expansion of IT, particularly the Internet, and the rollouts of earlier technologies. Most of the comparisons, though, have focused on either the investment pattern associated with the technologies the boom-to-bust cycleor the technologies roles in reshaping the operations of entire industries or even economies. Little has been said about the way the technologies influence, or fail to influence, competition at the firm level. Yet it is here that history offers some of its most important lessons to managers. A distinction needs to be made 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 company that produces consumer goods may acquire exclusive rights to a new packaging material that gives its product a longer shelf life than competing brands. As long as they remain protected, proprietary technologies can be the foundations 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. Imagine yourself in the early nineteenth century, and suppose that one manufacturing company held the rights to all the technology required to create a railroad. If it wanted to, that company could just build proprietary lines between its suppliers, its factories, and its distributors and run its own locomotives and railcars 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 compared 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 or power generators, make it inevitable that they will be broadly sharedthat they will become part of the general business infrastructure. In the earliest phases of its buildout, however, an infrastructural technology can take the form of a proprietary technology. As long as access to the technology is restrictedthrough physical limitations, intellectual property rights, high costs, or a lack of standardsa company can use it to gain advantages over rivals. Consider the period between the construction of the first electric power stations, around 1880, and the wiring of the electric grid early in the twentieth century. Electricity remained a scarce resource during this time, and those manufacturers able to tap into itby, for example, building their plants near generating stationsoften gained an important edge. It was no coincidence that the largest U.S. manufacturer of nuts and bolts at the turn of the century, Plumb, Burdict, and Barnard, located its factory near Niagara Falls in New York, the site of one of the earliest largescale hydroelectric power plants. Companies can also steal a march on their competitors by having superior insight into the use of a new technology. The introduction of electric power again provides a good example. Until the end of the nineteenth century, most manufacturers relied on water pressure or steam to operate their machinery. Power in those days came from a single, fixed sourcea waterwheel at the side of a mill, for instanceand required an elaborate system of pulleys and gears to distribute it to individual workstations throughout the plant. When electric generators first became available, many manufacturers simply adopted them as a replacement single-point source, using them to power the existing system of pulleys and gears. Smart manufacturers, however, saw that one of the great advantages of electric power is that it is easily distributablethat it can be brought directly to workstations. By wiring their plants and installing electric motors in their machines, they were able to dispense with the cumbersome, inflexible, and costly gearing systems, gaining an important efficiency advantage over their slower-moving competitors. In addition to enabling new, more efficient operating methods, infrastructural technologies often lead to broader market changes. Here, too, a company that sees whats coming can gain a step on myopic rivals. In the mid-1800s, when America started to lay down rail lines in earnest, it was already possible to transport goods over long distanceshundreds of steamships plied the countrys rivers. Businessmen probably assumed that rail transport would essentially follow the steamship model, with some incremental enhancements. In fact, the greater speed, capacity, and reach of the railroads fundamentally changed the structure of American industry. It suddenly became economical to ship finished products, rather than just raw materials and industrial components, over great distances, and the mass consumer market came into being. Companies that were quick to recognize the broader opportunity rushed to build large-scale, mass-production factories. The resulting economies of scale allowed them to crush the small, local plants that until then had dominated manufacturing. The trap that executives often fall into, however, is assuming that opportunities for advantage will be available indefinitely. In actuality, the window for gaining advantage from an infrastructural technology is open only briefly. When the technologys commercial potential begins to be broadly appreciated, huge amounts of cash are inevitably invested in it, and its buildout proceeds with extreme speed. Railroad tracks, telegraph wires, power linesall were laid or strung in a frenzy of activity (a frenzy so intense in the case of rail lines that it cost hundreds of laborers their lives). In the 30 years between 1846 and 1876, reports Eric Hobsbawm in The Age of Capital, the worlds total rail trackage increased from 17,424 kilometers to 309,641 kilometers. During this same period, total steamship tonnage also exploded, from 139,973 to 3,293,072 tons. The telegraph system spread even more swiftly. In Continental Europe, there were just 2,000 miles of telegraph wires in 1849; 20 years later, there were 110,000. The pattern continued with electrical power. The number of central stations operated by utilities grew from 468 in 1889 to 4,364 in 1917, and the average capacity of each increased more than tenfold. (For a discussion of the dangers of overinvestment, see the sidebar Too Much of a Good Thing. )