Carr’s Key Premises

IT is ubiquitous, not scarce

IT is infrastructure, not proprietary
The Internet is accelerating the rate of
commoditization of new IT applications
◦ => IT applications do not provide proprietary
advantage anymore

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Carr’s Conclusion
Spend as little as possible on IT
Focus IT investment on cost savings
Follow rather than lead in adopting new
IT
Focus on managing risk, rather than
searching for new IT opportunities
What do you think of Carr’s suggestions?

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Justifying IT Investment
IT expenses exceed $3.4 trillion
On an average, organizations spend 5% of
their revenue on IT
Cost of maintaining and managing IT
infrastructure represented 80% or more of
the annual IT budget
How to justify IT investment?

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 Justifying IT investment - the old
way
IT infrastructure (mainframe computers, networks,
facilities) investment was treated as capital
investment
Maintenance and operations was part of the annual
operational expense
New application development investment was
justified based on the benefits that would accrue due
to automation
A project-by-project justification of IT investment is
performed
◦ The underlying assumption is that the costs and benefits are
confined to the project being assessed
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Justifying IT investment – the new
way
Creation of reusable assets - can lead to benefits
in the future
◦ Modular development
◦ Shared IT infrastructure creates opportunities to
deploy new business ideas at a lower cost and/or
generate new revenue streams

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IT Value Framework

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Investing in IT Infrastructure
Most old (20+ years) and established
companies own a sizeable chunk of
legacy infrastructure (mainframe based
systems)
These are not replaced based on the logic
“If it is not broken, why fix it?”
What do you think?

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 Limitations of Legacies

They are expensive to maintain – many disparate

systems that lack interoperability
They cannot benefit from positive network
externalities arising out of wide spread adoption
of internetworked infrastructure
They lack flexibility, which creates the options
value
◦ Options value approach to evaluating IT investments is
based on the premise that an IT investment today
creates the option of deploying future applications at a
lower cost and/or risk

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 How can IT bring about market
value?
IT can be used to drive cost savings –
classic example is IBM (60% headcount
reduction, 128 to 1 CIO, 31 disparate
networks converted to one common
platform, etc.)
IT can be used to drive revenue growth –
streamlining core processes, BI tools,
embedding IT, creating new
products/services, enhance current
product/service
 IT adds market value….
IT can be used to make more efficient use of
assets
◦ IT infrastructure (technology, data centers,
networks, people, etc….)
◦ Applications – both enterprise-wide and specific
business applications, along with the people
involved in those
◦ Leadership, governance
◦ Information assets, IP and patents, etc.
Get rid of unproductive assets or try to
enhance existing ones