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The IT Productivity Paradox

Ethan Dreyfuss, Andrew Gadson, Tyler Riding, Arthur Wang

Carr's Controversial, Compelling Argument

In the May 2003 edition of the Harvard Business Review, then editor-at-large Nicholas Carr published an article that made a bold claim regarding the current state of IT: it doesn't matter. Carr bases his claim on IT's increasing ubiquity, and hence its reduced strategic importance, combining together to require a shift in management and investment practices. He builds his argument by looking at the trends laid out by old technologies. What investment patterns led to success? To failure? He also distinguishes between two types of technologies: the prioprietary, and the infrastructural. The former encompasses cutting edge practices that give businesses a competitive advantage or superior strategy, the latter is analogous to plumbing, a boring necessity to operations.

Proprietary 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."(Carr, 6)

Infrastructural Technologies

"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."(Carr, 6)


Of course, any infrastructural technology may begin as a proprietary one. Electricity, for example, was scarce during the construction of its first power sites in 1880. IT's initial enjoyment as a proprietary technology, Carr argues, is giving way towards the commodity status of a infrastructural technology, brought on by increasing standardization, as well as IT's near-infinite replicability and scalability. After all, "it is difficult to imagine a more perfect commodity than a byte of data - endlessly and perfectly reproducible at virtually no cost." The price of most essential IT services is dropping, the proliferation of the Internet in the developed world is nearly complete, and IT vendors are rushing to market themselves as providers of commodity services.

"From Offense to Defense

Given his views that IT is becoming increasingly commoditized, Carr advises companies to sit back and wait rather than jump on the latest cutting edge tech. Given the nature of the industry, these new developments will soon become available to all at reduced cost, and with the benefit of having been thoroughly field tested. Why shoulder the risk inherent in funding a venture technology? Furthermore Carr notes that IT's investment frenzy has died down, one of the first indicators that it is losing its strategic importance. By digging up nostalgia for the boom of the late 90's, Carr reminds us not merely where we once were, but also where we are now. The New Economy has certainly eluded us, or perhaps it simply isn't what we expected it to be.


Carr concludes on this point: "IT management should, frankly, become boring." While his claims are true that many applications are undergoing commoditization, that perhaps word processers and spreadsheets have reached their threshold of improvability, he leaves out the always-present possibility for innovation. To Carr, proprietary technology inevitably integrates itself as part of the plumbing. But so long as proprietary technology exists, through each business cycle's newfound innovations, IT will never be boring. At least, not completely.


View the vast number of responses written in response to his publication, managed by Carr himself: