Forrester CEO looks above IT iceberg waterline

By George F. Colony | CEO, President, Forrester Research

Thesis: Some of IT is a commodity -- but much of it remains a source of competitive advantage.

Argument: Surely one of the great inanities of 2003 is Harvard Business Review's May 2003 article, "IT Doesn't Matter." You know that you are about to come roaring out of a bad tech cycle when the general business press begins to predict the death, maturation, or irrelevancy of the industry. When the minicomputer business augured in during the 1980s, and the PC market went moribund in the early 1990s, the obits were posted. Oops.

The HBR article posits that tech has become a ubiquitous commodity like electricity or railroads that can no longer create advantage for companies. From the other coast, we're getting the same message from Larry Ellison, claiming that tech has become mature -- only a few big companies will dominate, as in the car industry. And Larry's out to prove his case with M&A silliness.

As it turns out, Larry and HBR are half right, and therefore totally wrong. I'll explain:

For years Forrester has researched high-performance IT -- what made some companies great users of technology and others mediocre. Factor No. 1 of high performance was mastery -- smart, motivated people in IT who were well led and well organized. The second factor was high standardization. Think of corporate IT as an iceberg, with the standardized technology below the water line and the nonstandardized above. The best CIOs are always jumping up and down on top of the IT iceberg to get it lower in the water, to get more technology fully standardized within their company. CIOs like Peter Solvik at Cisco and Dennis Jones at FedEx (both of whom have since moved on) were big iceberg dunkers.

Standard infrastructure

Low icebergs have two effects: decreased cost and higher flexibility. It's more expensive to maintain different types of infrastructure. Implementing, maintaining, customizing, and supporting three financial systems take more resources than handling one. A standard IT infrastructure also knocks down barriers within companies (no zoo of email programs!) and enables divisions or lines of business to reorganize and collaborate without worrying about tech impediments.

Low icebergs require fanaticism. In high-performing companies you find the same wiring closet designs in Madrid, Tokyo, Atlanta, and Toronto. The CIO forces decisions on servers, operating systems, PCs, networks, CRM, and email systems and makes them worldwide standards -- in the face of user objections and political fallout.

So cost reduction and flexibility are injected. But the biggest payoff of low icebergs is that IT resources are freed up to focus above the water line where it is snowing, where new technology is emerging. These technologies are not yet standardized but are ready for application in business. This is the stuff of tangible differentiation and advantage. High-performing CIOs don't wake up worrying about which server to buy; they are fixated on how to use the "above the water line" tech to nail the competition. My favorite current example is Steve David's effort at P&G to electronically tag products like laundry detergent and soap, reducing stock-outs and enabling the use of cheaper recycled packaging materials.

Below the water line

So back to the Harvard Business Review and Larry. Their theses work -- below the water line. Down there, massive standardization and commoditization are going on. PCs, storage, basic network links, single application servers, and basic Linux is headed toward coal land. Smart users go to the dominant, market-leading vendor and buy on good price and good service. Below the water line, IT doesn't matter.

But there's a blizzard above the water line. The current crop of game-changing technology includes Organic IT, executable Internet, adaptive supply networks, Web services, and physical-to-digital systems like radio frequency ID chips (RFID). There are no standards yet. There is no Dell or Cisco or Oracle. There is no commodity pricing. There are no grunts at IBM Global Services that can quickly replicate your competitor's cool system. Above the water line, IT matters a lot.

What it Means No. 1: The Oracle/PeopleSoft/J.D. Edwards affair is the mating dance of dinosaurs. Larry's right. His world will and should narrow down to a few players. But Ellison's incorrectly projecting his market reality onto the whole of high tech.

What it Means No. 2: When it comes to IT spending, it's not "more is better," it's "better is better." Low icebergs (high standardization) mean high bang from low budgets. Just make sure a slug gets spent above the water line.

What it Means No. 3: Yes, the high-tech capital markets will re-emerge. A new batch of vendors will arrive on the scene in the next two years. They are already coming on to the radar screen -- companies like Egenera in servers, Candera in storage virtualization, and VIEO in next-generation datacenter management.

You want to bet against meaningful technology change? I'll take that wager any day -- especially if it's placed by the Harvard Business School.