News Feature

Tom Davenport on E-Strategy: The Next Killer App?

By Tom Davenport

May 01, 2001 — CIO — Strategizing about the role of IT in business has been a roller coaster during the past couple of decades. The ride really started in the early 1980s, when academics and consultants discovered a few managers who had--consciously or not--built their competitive strategies around key IT applications. Maybe you remember: American Airlines and United Airlines had their reservation systems. American Hospital Supply had its online ordering system. Frito-Lay had its handheld devices for the sales force. The realm of strategy as killer app lasted until 1990 when reengineering reared its head. For the next five years IT strategy would consist of redesigning business processes around the capabilities of technology. In the mid to late ’90s, new strategic thrusts came quickly: ERP, knowledge management, CRM. Late in the decade, IT strategy effectively became e-commerce strategy, or e-strategy. The only thing that mattered was how the Internet affected your business.

Today we realize that, just like every previous strategic emphasis, e-commerce can’t do all the heavy lifting. The most aggressive adopters of the Internet, as any burned stockbroker will admit, haven’t necessarily been successful in gaining profits or market share. Sure e-commerce is important, just like all of the other IT-enabled strategic opportunities that preceded it. Perhaps it’s even the most important of them all. But by itself, it’s not enough.

So what’s the new nostrum for using IT to slay your competitors? Is it still even reasonable to think about IT as such a weapon? Since the magic bullet of choice seems to change every few years, maybe we’ve simply been kidding ourselves about the strategic role of technology.

There is evidence of technology’s potent effects, and they lie in the continuing success of the companies that use them well. Think about it. Do you know of any companies that invested long term in IT that have gone out of business? In airlines, United and American have long been the IT innovators, and they’re the largest companies in their industry. In parcel delivery, FedEx has been an IT pioneer from the early days, and the resulting prosperity has been dramatic. UPS was originally quite weak in IT but then made a major strategic shift and invested heavily in technology for more than a decade. It’s no coincidence that UPS has become the primary delivery channel for Internet-procured parcels. In banking, State Street has pursued a technology-intensive strategy in its global custody business since the late 1960s when Bill Edgerly came to the company from IBM; it’s been more consistently profitable than any other U.S. bank. Then there’s Wal-Mart. And H.E. Butt Grocery and Wegmans Food Markets in the retail grocery industry. USAA and The Progressive Corp. in the insurance industry. Dow Chemical in chemicals. BP in the oil business. All of these companies have built their IT capabilities for the long haul, and their strategies have been much the better for it.