The recent article written by Nicholas Carr in Harvard Business Review, “IT Doesn’t Matter,” spurred a huge debate in the press, with analysts, and particularly in budget planning meetings between the CIO and CXO-level executives. In this article, Mr. Carr asserts that IT is a commodity and as such offers little competitive distinction and therefore no competitive advantage. As a result, Mr. Carr suggests that IT investments be curtailed based on the lack of bottom-line impact which can ultimately be derived from such spending.

Indeed, if one examines basic IT infrastructure, it has become a commodity with uniform products and little pricing power. It is certainly true that Wintel Desktops and IP networks have rapidly evolved into widespread use – clearly resembling a commodity. As well, personal productivity applications such as word processing, e-mail and messaging could be considered commodities. Network servers, storage and printers have moved towards commoditization as well. As such, because IT is a commodity, it does not matter as much to competitive advantage and bottom-line impact, right?

Not exactly. As computing infrastructure has moved towards commoditization, clearly not all of the IT marketplace has commoditized. IT solutions are clearly evolving from basic infrastructure, through business process optimization and information management. When we examined this progression, a model emerged that likened the IT marketplace to Maslow’s hierarchy of needs.

The well traveled theory by Abraham Maslow asserts that people are motivated by unsatisfied needs, and that certain lower needs are the initial focus and require satisfaction before higher needs are addressed. Lower needs include physiological such as air, water, food, and sleep, and safety includes needs such as security of a home and family. Higher needs include, in order, Love, Self Esteem and Self Actualization. When each of these needs in turn is satisfied, from lower to higher, new (and still higher) needs emerge, and so on.

The theory has been extended from human behavior to economics, whereby marketplaces need to have lower needs met before demand for higher needs arise. For example, a third world economy focuses on the lowest needs first – basic human survival. Until this can be resolved, whereby people have the water and food they need, the next highest need, the safety of home and family, is not an issue. For first world countries, the lower needs are viewed as commonplace commodities, while the focus moves towards meeting higher end needs of home, transportation, careers, vacations, hobbies and spiritual fulfillment.

If we match IT investments with Maslow’s hierarchy of needs, a new understanding can be developed which proves Nicholas Carr right – basic levels of IT have been met, and indeed have commoditized. However, the hierarchy clearly proves him wrong, that we have moved the playing field to a higher plane where the investments are substantial, innovative, and crucial for competitive corporate success.

Figure 2: Alinean IT Hierarchy of Needs for corporate computer investing, to highlight the progression of focus from the acquisition of computing assets through knowledge capital management and beyond.

To model this evolution, we have created the IT hierarchy of needs, a four level investment and marketplace progression. This hierarchy helps to illustrate that as each successive capability is met, the competitive advantage progresses from those who know how to implement the technology, to those who know how to apply technology to improve business processes, to those who know how to use it to share, manage and grow knowledge.

Level 1 - Computing Infrastructure: The prior era of IT has been focused on fulfilling the basic lower end needs – the quick deployment of the assets and infrastructure needed for computerization. Investments were implemented to deliver individual and corporate productivity, helping users get their work done more efficiently, and helping to reduce overhead. This included trillions of dollars of investments to implement data centers, networks, personal computers and personal / business applications. With this infrastructure in place, the corporation was free to move to a higher need, and as a result, the marketplace now views these assets as commodities.

Level 2 - The Internet and Enterprise Software: With the advent of the Internet and enterprise software, the battlefield moved upstream – delivering productivity improvements beyond the corporation and to the entire value-chain. These investments allowed customers and the supply chain to effectively integrate into corporate computerization, and helped to improve the efficiency and effectiveness of these relationships through business process optimization. Again, with these needs being met as companies implement process by process improvements, efforts are being applied upwards to even loftier needs within the hierarchy. As a result, although the need is not yet completely fulfilled, markets have begun to commoditize, evidenced by the recent consolidations in the ERP space.

Level 3 - Knowledge Capital Management: The newest battleground focuses on the “I” in IT – the information, not the technology. IT innovation is soon to be focused more on providing the primary means for maintaining and extending the value of a firm’s “Knowledge Capital”. These investments are migrating from basic infrastructure and transaction optimization, to being primarily focused on managing the rapidly exploding accumulation of scientific, research, customer, engineering, property and intellectual assets. Computers are the repositories of intelligence about customers, suppliers and products, the most valuable knowledge assets of any firm. Emerging solutions include data warehouses, enterprise portals, analytics and business intelligence – which are moving towards mainstream adoption, but clearly have not reached commoditization. The company that is able to collect and apply such knowledge to effect bottom-line impact is the likely winner over the next decade.

Level 4 - Information Warfare: Once the basics of knowledge capital management are covered, the focus moves still higher from reactive analysis to information, to proactive control of the information as a competitive weapon. Level 4 is the futuristic era of information warfare for corporations. This battlefield is rather ambiguous at this point, and takes its lead from military research and application – but clearly a corporate analogy to the current military shift from conventional to information warfare will occur. The focus of information warfare will be the use of information distortion or denial, and the countermeasures to fight such attacks. Several expected components include: Hacker Warfare – where computer systems are attacked, Psychological Warfare – where information is used to change the minds of friends, neutrals and foes and Economic Information warfare – blocking information or channeling to pursue economic dominance. Information command and control systems, strategy and counterstrategies and business intelligence2 are the tools not yet developed to meet the level 4 needs.

Conclusions

The generalizations of Mr. Carr’s article clearly do not reflect the entire IT marketplace, and following such generalized advice can lead to disaster. The IT hierarchy of needs helps companies understand how to categorize various investments – and how to assess what is most important to solution decision-making. As the hierarchy of needs clearly dictates, for the fundamental needs that have already been met, the markets have commoditized, and solutions with the lowest total cost of ownership win. As capability is met, investments naturally progress to the next level – where innovation still reigns, value versus cost matters most, and competitive differentiation can be gained with the right projects and spending plans.

As computerization evolves, it becomes harder to compete with each evolving level in the hierarchy, and requires even smarter and larger investments to win. Understanding the benchmark and roadmap against the hierarchy of needs can help to put articles such as Mr. Carr’s into perspective, and help the team better align spending plans with bottom-line impact and competitive advantage.

Additional Information:

Abraham H. Maslow Toward a Psychology of Being, D. Van Nostrand Company, 1968 Library of Congress Catalog Card Number 68-30757

Knowledge Capital, Paul Strassmann, New Canaan, CT: The Information Economics Press, 1999

Tom Pisello is the CEO of Orlando-based Alinean, the ROI consultancy helping CIOs, consultants and vendors assess and articulate the business value of IT investments. He can be reached at tpisello@alinean.com