You Need a Response to the Utility Analogy

A vivid analogy sticks in people's minds. Regardless of what you think about Nicholas Carr's analogy between IT departments and power utilities and railroads, or IBM's marketing of on demand or utility computing, it's clear that CIOs need to have a response to the prospect of IT turning into a utility like electricity. Why? Because the analogy is historical, it's easy to forget the many years of evolutionary change that occurred in railroads and power and instead squash all that time into an instant imperative: IT is a commodity - so let's stop focusing on it.

What Carr describes is a natural evolution that's been on since the days of the mainframe and will continue for many more - though the Internet has given it a kick in the pants. Technology improves, economies of scale improve and consolidation and commoditization follow.

That's happened for 40 years in IT infrastructure. It passes through technology gates - client/server, the Internet and now SOA - that enable the consolidation and commoditization to happen at varying speeds. So is Carr right?

Yes, he's right about IT infrastructure. Sure, there may be some companies that continue to view their infrastructures as a competitive advantage - think American Airline's reservation system in the seventies or Google's infrastructure today - but if the trends toward cheap computing and standards continue, fewer and fewer companies will be able to justify it over time. And that means IT departments will shrink over time, too.

This is the most vivid and valid part of the analogy and the part that CIOs have to address with CEOs - constantly. The CIOs I've spoken to recently say they tell the CEO about how they have program managers in charge of cutting costs in the infrastructure by at least 10 percent per year and who look for opportunities to outsource selected pieces of that infrastructure - if they can be more easily and cost effectively managed by someone else.

But where the analogy gets dangerous is when you assume that if the IT infrastructure goes the way of the power grid, the internal competency of IT - the understanding of data flows, processes and interactions with technology that are the core wisdom of IT today - will go with it. That should not happen. Could it? Yes, an outsourcer could be doing all that for you today. But for the foreseeable future, that outsourcer will simply be trying to replicate that competency inside their own organization to serve your company.

There is no economic benefit from a productivity perspective and there is the potential to hamper innovation inside the company because the outsourcers don't understand the business as well - or feel as motivated to change it - as internal employees do. And when IT infrastructure does become a utility, that internal IT competency will become more important than ever. IT isn't just about transporting information; it's about doing innovative things with it.

Companies don't worry about the transport of electricity anymore, but they do still worry about having enough engineers to do innovative things with electricity inside their products. In many ways, IT is held back by its ownership of infrastructure today, in terms of money wasted on maintenance and overcapacity. This is the most powerful part of Carr's argument that IT lacks competitive advantage. Yet when the infrastructure does finally go away, the opportunities to innovate using IT inside companies will improve, making IT more important, not less.