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Chapter 5 E-business strategy 323

IT – data storage, data processing and data transport have become available and afford-
able to all … They are becoming costs of doing business that must be paid by all but
provide distinction to none.

While many would agree that the technology such as PCs, servers and communications
technologies have become commoditized, it is arguable whether technology cannot provide
distinction. Carr’s argument is consistent with the productivity paradox concept, since
although IT investments may help in increasing productivity, this does not necessarily yield
a competitive advantage if all competitors are active in making similar IT investments. As
the Financial Times (2003) puts it:
Productivity gains that are easily replicated across an industry usually end up in the hands
of customers. Only when gains remain unique to a company do managers get a say in how
to distribute the spoils – between customers (in the form of lower prices or higher quality),
shareholders (higher profits) and workers (increased pay).
Today, most authors such as Brynjolfsson and Hitt (1998) and Mcafee and Brynjolfsson
(2008) refute the productivity paradox and conclude that it results from mismeasurement,
the lag occurring between initial investment and payback and the mismanagement of infor-
mation systems projects. Mcafee and Brynjolfsson (2008) suggest that to use digital
technology to support competition the mantra should be:

‘Deploy, innovate, and propagate’: First, deploy a consistent technology platform. Then
separate yourself from the pack by coming up with better ways of working. Finally, use the
platform to propagate these business innovations widely and reliably. In this regard,
deploying IT serves two distinct roles – as a catalyst for innovative ideas and as an engine
for delivering them.
More recent detailed studies such as that by Sircar et al. (2000) confirm the findings of
Brynjolfsson and Hitt (1998). They state that:

Both IT and corporate investments have a strong positive relationship with sales, assets,
and equity, but not with net income. Spending on IS staff and staff training is positively
correlated with firm performance, even more so than computer capital.

In conclusion they state:
The value of IS staff and staff training was also quite apparent and exceeded that of
computer capital. This confirms the positions of several authors, that the effective use of
IT is far more important than merely spending on IT.

The disproportionate allocation of spend to implementation was highlighted by the Finan-
cial Times (2003) which said:
Prof Brynjolfsson and colleagues found that of the $20m total cost of an enterprise
resource planning (ERP) system, only about $3m goes to the software supplier and
perhaps $1m towards the acquisition of new computers. The $16m balance is spent on
business process redesign, external consultants, training and managerial time. The ratio
between IT investment and this ‘supporting’ expenditure varies across projects and
companies. But, over a range of IT projects, Prof Brynjolfsson believes that a 10:1 ratio is
about right. Returns on these investments commonly take 5 years to materialise.
The 10:1 ratio between total investment in new information management practices and IT,
mentioned in the extract, also shows that applying technology is only a relatively small part
in achieving returns – developing the right approaches to process innovation, business
models and change management are more important, and arguably more difficult and less
easy to replicate. Some leading companies have managed to align investment in e-business
with their business strategies to achieve these unique gains. For example, Wal-Mart Stores,
Dell, Intel and easyJet have combined extensive use of technology with strategic innovation.