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Monday, February 14, 2005

IT: strategic investment or cost of doing business?

The CEO of a small publicly traded company has launched an anonymous blog, the CEO Blogger, as an exercise to "see what this blogging phenomenon is really about." Good for him! His blog is only a couple of weeks old, but it's a great read.

Interestingly, the very first post after his introduction is entitled, "IT Propaganda," where he puts forth the view that much IT spending is unnecessary.
IT is not a profit center, it's a cost center. Once your IT department grows past the minimum size needed to maintain your company, additional money spent on IT is a loss. But IT is always trying to shake down extra unnecessary money in order to bleed away profits.
I think that last sentence is a bit over the top. Just as most functional heads try to get additional budget to do their jobs, so do IT managers. But to attribute such budgetary requests as a "shake down" motivated by a desire to "bleed away profits" of the corporation is just...well, it makes me think that this CEO has had some really bad experiences with his IT group. Or, he's just trying to be provocative.

Hyperbole aside, CEO Blogger has waded into an ongoing debate in the IT community concerning the role of information technology. Is information technology a strategic investment that should be leveraged to produce a competitive advantage? Or is it a utility that should be managed to lowest cost once minimal levels of service are established? The latter view was most recently put forth by Nicholas Carr, in a Harvard Business Review article entitled, "IT Doesn't Matter," which the staff of HBR voted the best article to appear in the magazine during 2003.

My view is that whether IT is a strategic investment or a utility cost depends on what the company needs information technology to do. If information technology is a key element of the firm's product, service, operations, or strategy, then IT should be viewed as a strategic investment. Firms such as Wal-mart, which uses information technology to drive costs out of the supply chain is a good example. Walmart, which one does not think of as a technology company, in fact is a leading force in adoption of new technologies, such as Internet-based EDI and RFID.

On the other hand, if information technology is not a key element, then it should be viewed as a cost of doing business, seeking to maintain acceptable levels of service with managed levels of risk, at the lowest cost.

Of course, there are several positions that a firm may take between these two ends of the spectrum. One may view IT as a strategic investment but still not be leading the charge for new technologies, as Walmart is doing. On the other hand, one may view IT as a cost of doing business yet still make significant investments in new systems as a platform for growth.

What's needed, then, is for management to step back and decide what are the objectives for information technology, how well do the current systems satisfy those needs, and what are the actions, resources, and spending needed for IT to meet those objectives--in other words, an IT strategy.

Related posts
IT decisions that are too important to leave to the IT department
Aligning IT, when there's not much to align to
Escaping the ROI trap
Wal-Mart launches RFID pilot, but will privacy concerns stall adoption?
Wal-mart still pushing its suppliers to Internet EDI

by Frank Scavo, 2/14/2005 05:28:00 AM | permalink | e-mail this!

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