2008 was a banner year for me. But I could smell the commoditization starting to settle in. Demand for IT products and services was slowing down. I was in a meeting with a big time CIO who wasn’t shy about his accomplishments and influence. IT suits at Fortune 100s pick their teeth with vendors and manufactures falling over themselves for a purchase order. As expected, this guy had all the juice of a banana republic dictator and the bravado to go with it. Manufacture reps would call him for parts to save their customers. I half expected to see a black Lincoln Continental with suicide doors or a Mercedes Grosser parked out back.
“…I’m watching someone burn out in realtime”
Big shops like this bought so much IT gear they became a second warehouse for even the biggest names; one in particular shall remain nameless but rhymes with Crisco.
But I had a job to do so I buried my thumbnail inconspicuously into the tweed covered chair arm and pitched away. “We sell brand A-Z IT solutions and have a stable of top guns in our tech squad ready to help you install, support, or redesign your network, server environment etc.”, I elucidated.
I filled the two second pause with a glance at my pre-sales engineer who was, mercifully, not asleep just in time for Carl to tell me how much he didn’t need my services right now.
And now, not only does every bank offer it[online billpay], the fees have been competed away too.
But nothing could have prepared me for what he actually said. “All this..” he begins to unload, “we’ve pretended for years [information technology] to be such a big deal. That it’s so strategic. It’s not. It just isn’t.” he revealed. “I’m considered an executive in this company for pretending that [networks and servers] are strategic.” Is he having a little crisis, or what? I guess I’m watching someone burn out in realtime.
“A switch port of gigabit network [access] is simply not strategic.” Carl insisted. So as he pounded another tread plate pattern into the word ‘strategic’ I finally started to get what he was on about. He tells me about a book titled Does IT Matter? by Nicolas Carr. (Read a rebuttal to his controversial work here.) He explains that for over twenty years companies have been spending copious dollars on IT thinking that it can amount to a competitive advantage. But it never works that way. Despite the bleeding edge thinking in 1953 between IBM’s Blair Smith and American Airlines’ CEO, the SABRE system resulted in a “revolution in the airline industry” rather than merciless dominance of American Airlines over the airline industry. Why not? Because they were an early adopter. Like the first person to buy an iPhone they had an enormous advantage over the rest of the world; for about ten minutes. And not only does an early tech advantage not last, the early tech is almost immediately inferior to what follows.
There’s gold in them thar hills!
Sustainable advantage over your competitors relies on the scarcity of the resource which gives you the upper hand. But technology is not scarce. They are investing in a competitive advantage today that Moore’s Law will simply take away tomorrow.
Tomorrows tech will be cheaper, faster, and in greater supply than today’s tech. Example? I have a smartphone. Does it save me time? Yes it does. But does it give me an advantage over anyone else? Maybe over the laggards who rebuild their rotary phones every twenty years but that’s ten percent of any market. Millions of other people have smartphones and can do all the stuff I do with mine. While expats in Ecuador might disagree, I have no advantage because of access to technology. Online bill pay used to be a differentiator for banks and they used to charge for it! And now, not only does every bank offer it, the fees have been competed away too.
I can’t blame an executive for turning to information technology for help his/her company stay competitive. But that is very different from using it to gain a sustainable competitive advantage over competitors. The reality is that if technology is available on the open market, it cannot be used to maintain an advantage for very long. This is the key. Once your neighbor gets his own iPhone he’s as appmazing as you are.
“Oh but our IT guys are so smart and we have so many of them that we can do things that no one else can”. No… Stop. Just stop. You cannot arrange commodity inputs so much better than your competitors that you will beat them in the marketplace because of it [sic]. It doesn’t happen. UPS and FedEx know this and they have many proprietary systems.
Even pharma companies can’t escape this reality. Barring rent-seeking corporatist monopolies, technology cannot provide a permanent advantage in a free market. There is an entropic effect that drives it to equilibrium. Demand for products and services can change to exacerbate the effect. So when is it possible?
The best examples of durable, persistent competitive advantage come directly from nature.
Assuming oranges grow better in Florida than in Canada, Florida oranges will always be better, cheaper, and outsell Canadian ones (I have never heard of a Canadian orange. But that’s kind of the point). Not that Florida has no one to compete with i.e. California, Portugal and even Texas grow good oranges but it isn’t called the Sunshine State for nothing. Thus a climate not well suited to growing oranges will require greenhouses, hydroponics, artificial lights producing more expensive if not inferior oranges. Portland is good for glass blowing while wine grapes like microclimates. Those of us who can sweet talk nature into doing important work for us will have an edge.
But doesn’t culture, values and philosophy lead to a durable advantage over our rivals? From fastidious Germans to passionate Italians to us impetuous Americans what we believe can be powerful indeed. And it shows in what we do and how we build things.