Firms adapt to new IT philosophy
(CNN) -- Companies are waking to a new philosophy that says throwing money at the latest technology is not a panacea for gaining competitive advantage in the marketplace.
Some ITOs have seen their budgets rise from about five percent of a company's overall capital expenditure to more than 50 percent during the past 40 years. Total industry expenditure has risen to $2.5 trillion a year.
But now, the economic downturn has stifled this expenditure. IT departments are having to evaluate their spending.
And a new philosophy is influencing company IT thinking -- that the software and hardware industry, just like other industries in the past, has reached saturation point.
Companies investing huge sums on IT are no longer gaining market advantage because their competitors have the same or similar systems, critics say.
Instead of opening opportunities for forward-looking companies to gain real advantages businesses have reached the point where IT has become accepted as a ubiquitous commodity.
Nicholas Carr, writing an editorial in May's edition of the Harvard Business Review, said: "IT is best seen as the latest in a series of broadly adopted technologies that have reshaped industry over the past two centuries -- from the steam engine and the railroad to the telegraph and the telephone to the electric generator and the internal combustion engine.
"As their availability increased -- as they became ubiquitous -- they became commodity inputs."
Those who gain most from saturation are customers, who benefit from lower prices and better services.
Carr added: "Overall industry productivity goes up but because all companies are doing more or less the same thing those productivity gains end up in the hands of the customers.
"A lot of their investments in it aren't in the end going to bring a strategic benefit, they're just going to bring them up to competitive parity with the rest of that industry."
Carr asks: "I'm looking at IT from a strategic standpoint. So does IT set apart one company from another, can it be used for competitive advantage?"
'We have gorged on IT'
One IT business chief who believes we may have reached saturation point is John Schwartz, of Sun Microsystems.
He tells CNN: "We have in fact gorged, you know as an economy on IT assuming that it will solve some problems. Well, in itself it doesn't."
"But we've just become so accustomed to paying a $1,000 a desktop or $20,000 a CPU that it's very difficult to take a step back and say -- hold on, if we're paying more than $50 a desktop or a $100 per employee, then may be we are paying too much."
British Airways is one company that has woken up to the warning. It gained an industry advantage with its online booking system, but soon found its competitors catching up by deploying similar mechanisms.
Now it is looking at other ways to gain advantage. One way is to buy basic IT packages and develop and adapt them in-house with the help of their own staff.
Paul Coby, CIO at British Airways, said: "The dumbest measure of the success of it is how much you spend.
"It's what you achieve and it's what work you do with the business that matters.
"So I am reducing the amount I spend on IT but I am increasing the benefits. So spend less, get more."
Tony Comper, CEO at Bank of Montreal, agreed. He said: "I don't think you have to be too overly concerned with falling behind the competition.
"We only use perhaps 20 percent of the functionality we have delivered so let's get more out of what we already invested as opposed to adding incremental investment at the margin."
Industry analyst Andy Kyte Gartner told CNN that the future lies in the "collaborative system" that allows designers to form virtual teams between constructor and sub-contractors.
But Craig Barrett, CEO of Intel, defended IT expenditure. He said: "The latest IT infrastructure makes you more competitive. If you stay behind you lose, you're dead.
"If we were moving towards commodity products or being a commodity supplier I doubt we would be spending over $4 billion a year on research and development."
-- CNN's Andrew Carey contributed to this report