You Need a Response to the Utility Analogy for IT

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 utility analogy has gone mainstream, as it did in a column in the Washington Post this week.

Because the analogy is historical, it’s easy to forget the many years of evolutionary change that occurred in railroads and the power grid 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 has been going 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 been happening 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 today and 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 the IT infrastructure does truly 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 the 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 today. Yet when the infrastructure does finally go away, the opportunities to innovate using IT inside companies will improve, making IT more important, not less. Innovation will happen much faster when the technology infrastructure that supports it is standard (just look at Google today and its ability to crank out innovation on top of the standard internet).

But the shelf-life of innovation will shrink, too. If everyone has the same infrastructure, your competitor will be able to come up with a duplicate of your process much faster than today, when they have to assemble the infrastructure, integrate it and code it. Without all that mess to worry about, IT competency becomes a competitive advantage in fostering and creating innovation and a defense against the shrinking lifecycle for innovation.

Can that competency melt into the business as the technical pieces become less important? Yes, to some extent. Good CIOs are already pumping up their staffs with business knowledge, moving them off of maintenance and help desk and focusing them on business process innovation. Eventually, more and more business people will be able to do some of what IT staffers do today. But will that competency melt away completely anytime soon? No way. At the very least, someone with a deep knowledge of technology will need to manage the IT utility vendor(s). Secondly, you need to have someone capable of telling the business what the utility vendor could be doing with the utility to foster innovation and improved business processes than they aren’t doing. And the ability to innovate–which lately has become completely intertwined with technology–can’t come from outside, it has to come from within.

You’re probably tired of thinking about the utility analogy by now, but if you haven’t addressed it with the top business people in the company, you should. It is a useful and healthy discussion. But it has to be thoughtful and it can’t be defensive. The mistake that Carr and the Washington Post columnist make is to indict IT industry responses to the utility analogy by association. The Washington Post writes: “And, not surprisingly, the industry has largely pooh-poohed Carr’s thesis and thrown up all sorts of reasons why things won’t — or shouldn’t — develop in that direction.” Carr dismisses some of Forrester’s George Colony’s responses to his writings on similar grounds on his website. That’s wrong.

Is it really impossible for someone in the IT industry to come up with an objective objection to the analogy, which definitely has its flaws? I don’t think so. But if CEOs read enough columns like the one in the Washington Post, they may also view any disagreement from IT as defensive reactions from people trying to save their jobs. That’s why it’s important not to simply dismiss the analogy but come up with a cool-headed, thoughtfully reasoned response. You shouldn’t dismiss Carr’s arguments simply because he isn’t from IT. Indeed, even if CEOs dismiss the analogy themselves, CIOs should address it rather than letting it sit, ill-informed, in the CEOs brain for years, where it could turn to outright skepticism about the effectiveness of IT.

So what is an effective response to the utility analogy? That it is correct, ultimately, at least from an infrastructure perspective, but that it is an evolutionary process. And that innovation will never be a commodity. CIOs are managing the evolution by cutting costs in the infrastructure and redirecting as much staff as possible toward innovation with the business and customers.

We’ve had other responses to Carr’s arguments in CIO from our columnists Michael Schrage and Don Tapscott. And our editor, Abbie Lundberg, did an interview with Carr in 2004. We also ran a column about it in our sister publication, Darwin.

So what is your response going to be? Tell us.