FSN: Microsoft re-ignites “IT Doesn’t Matter” debate in mid-market

Microsoft re-ignites “IT Doesn't Matter” debate in mid-market

23rd October 2006
New evidence from researchers at Durham Business School suggesting that IT does matter to business success and that addressing the IT needs of medium sized businesses has a positive impact on their growth and the future development has re-fuelled the debate around Nicholas Carr's seminal Harvard Business Review article in 2003, where he argued that IT doesn't matter. Talking to FSN, Paul White, head of the Microsoft Dynamics business in the UK said, “Microsoft has arguably commoditised some technology, but other parts of it are far from commoditised and it is people who are the key to unlocking sustainable business advantage.”

The original Nicholas Carr paper, thought to be the most widely read article in the IT industry suggests that that competitive advantage and gains from the implementation of IT in companies are temporary and that technology does not operate as a competitive differentiator for individual businesses. As a result, Carr believes that companies spend too much money on IT infrastructure and fail to align resources strategically.

Initially, Carr's comments drew significant flak from the IT industry, but three years on, there is a more conciliatory tone in the air. Paul white told FSN, “Every product has a natural lifecycle. It often starts as something special, then is taken up by early adopters and eventually becomes something that everyone can come to terms with. Microsoft has made complex technology available to the masses and we don't see why technology should be the preserve of a limited number of people who are well trained and have skilled resources. Our mission is to make the software easy to use but also make it flexible so that people can drive changes in processes very quickly and find new ways of competing.”

In response to Carr's work, Microsoft commissioned a research project conducted by Keystone Strategies to investigate the correlation between IT capability and revenue growth using data from Brazil , Germany , UK and US companies. A link was evident for the US , Brazil and Germany but the results were inconclusive for the UK .

Durham Business School were then appointed by Microsoft Dynamics and the Microsoft Mid-market division in the UK to look at the Keystone data and start to assess the importance of IT in driving competitive advantage in medium-sized UK business. The initial findings from this research suggest that the historical debate over whether IT matters is too focused on large companies and ignores medium-sized organisations.

“The mid-market is interesting because of its importance to GDP. It generates more GDP per employee than any other segment of the economy so maximising the effectiveness of IT in this sector can do more for the broader economy,” adds White.

“Some components of every business solution – for example PC's and network infrastructure – have arguably become commoditised as Nicholas Carr suggests. However, other components, like ERP and CRM applications have not. If they are flexible and easy to use, they offer organisations sustainable competitive advantage. Not in and of themselves – but in the way that they help employees focus on adding value to a business and the systems ability to support regular, sometimes perpetual change in business processes,” he adds.

Interestingly, the Durham research shows that it is people who are key to translating technology from a commodity to a tool for competitive advantage. This is strongly exhibited in medium-sized businesses where senior management attitudes to IT and involvement in the implementation of technology are key factors in generating business success. Paul White agrees that it is one of the reasons that Microsoft is putting so much energy into making the Microsoft Dynamics line of business application easier to use by, for example, adopting a roles based processing model and placing the familiar Microsoft Outlook at the centre of the user interface.

Frank Buytendijk, Hyperion's European strategist agrees that people are central to success. He told FSN, “IT matters like manufacturing machines do, or capital does, or employees. If you attract capital (which can be a true commodity), the capital itself doesn't do anything by itself, it's how smart you are at deploying it that counts. . If you hire people, it is how smart a team you make them. If you buy machines, it's about how you build a production platform with them.”

Coincidentally, the improved affordability of IT means that it has never been a better time for mid-market businesses to take advantage of it. Gadi Shamia, SVP Small Business Solutions at SAP told FSN, "IT matters to SMEs more than ever. Now that many tools have become affordable to SMEs , they can make more money without growing in size and cost. The most obvious trait of SMEs is their flexibility: unlike large, distributed conglomerates, they can change and adapt in days and not years. Now when advanced and modern IT solutions are more affordable and easier than ever, they can make a strategic decision and execute on it in weeks.”

“A great example is selling online. A small business director, using SAP Business One can decide on January 1 st that the best way to expand his London retail business is selling using discounted prices online, then, 2-3 weeks later and with £15,000 investment, the online store can be up and running, offering similar features to a fully fledged system costing ten times that much. If the same merchant wanted to use an alternative growth option, like opening a discounted store, it would have cost 10 to 20 times more, and would have taken 3-6 months. "

Stuart Spink, MD of Spearmark International, a successful medium-sized manufacturer, agrees. He said, “The new research from Durham business school struck many chords with me as a leader of a medium sized enterprise. For me, the response to the question "Does IT matter?" is a resounding, "for sure IT matters". As the technology becomes increasingly affordable, the cost benefit equation for the use of new IT solutions is ever expanding and giving access to what were (until very recently) prohibitively expensive tools for the SME to use. A good example is the Extranet we have developed. In the last twelve months we have opened up over 110 new customer accounts that would not have been cost effective to service by traditional methods.”

Hyperion's Buytendijk adds, “IT keeps innovating and for many years there have been Type A, Type B and Type C organisations. Some organisations continuously pick up on innovations and get competitive edge. Others use the technology when it is commoditised and don't get a competitive edge. In the meantime, the Type A organisation is two steps ahead already. If your IT strategy is about embracing innovation and getting it to work, IT will always be competitive.”

But according to Bob McDowell, Vice President of Information Worker Business Value at Microsoft, the unwillingness of business to confront outdated business practices and processes is acting as a brake on progress. He believes that government in the US is complicit in this, hanging on to old practices in the property, education and motor industry for fear that massive change made possible by technology may be unpopular with voters. “Why is it that individuals in the UK and the US are not able to but motor cars directly from the manufacturer over the internet? It's not because of the technology!”

Frank Pizzolato, CEO Clarity Systems a BPM provider, summed it up for FSN, “If you believe business opportunities present themselves to organisations on a regular basis and business must be selective of opportunities they pursue then IT does contribute to competitive advantage. You would be hard pressed to find a growing business that is not pursuing new markets, exploring new product lines or streamlining their operations. “Change” has become normal course of business for most companies and there are many examples of large and small companies whose business operations today are dramatically different than they were three, five and ten years ago. Some of today's most successful companies are those that effectively identify and execute on opportunities brought about by the changing world we live in. IT alone is not a competitive advantage, however, IT does deliver competitive advantage when IT enables a company to effectively execute on its business opportunities.”

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