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IT does not matter" fallacy and what in Nicholas Carr views matter

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Lysenkoism Cargo cult programming Capability Maturity (CMM) Virus paranoia Java Cyberwar
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The slogan "IT does not matter" is catchy, simple, attractive and wrong.  IT when properly implemented has a strategic not tactical or commodity value in many (but not all) businesses.  But the is a lot of problems with IT as it exists in large corporation.  It is often inefficient, wasteful and not very friendly if not hostile to business needs.

Nicholas G. Carr notorious for his prediction "IT does not matter" (like stock predictions he does not care to check it: he is too busy writing books but truth be told in 2007 IT employment have grown 7 or 8%), Carr holds a B.A. from Dartmouth College and an M.A., in English literature, from Harvard University). So at best he can approach IT as a sociologist, not as a professional.  Such a sociological approach is completely legitimate and useful but prone to oversimplification and overgeneralizations.  Carr is extremely weak in understanding of networking issues, especially the cost of high bandwidth connections. In a way the grand utility computing vision ("datacenter communism") is a trap in which Nicholas Carr falls due to his own incompetence. 

Like in classic Lysenkoism the concept meet some sociological success amount the IT top brass, people in positions of power (often as incompetent as Carr ;-).  That paradox permits his o survive and prosper in the chosen role. 

When the Harvard Business Review published "IT Doesn't Matter" in May 2003 it produced heated debate. Both timing (end of dot-com slump) and the title of the article was like a knife in the back for many IT professional and IT executives who struggled to survive in complex atmosphere that dot-com bubble burst create. So few people in IT industry appreciated backstabbing that Nicholas Carr performed for his own enrichment and then due to the controversy it created relentlessly milked.  He even managed to write two books on the subject.  The basis for both books is plain vanilla sensationalism at its best and uses a controversial topic as an attempt to milk 15 more minutes of fame. He is an author screaming for attention and not someone versed and experienced in IT.

There several interesting questions raised in the paper:

While clearly misguided and superficial Carr correctly noticed a clear analogy between the technology bubble of the 1990s and the booms and busts of railway and telegraph investment, were busts signaled the growing maturity of those industries.  He just conveniently forgot to mention that there already had been several boom-and-bust IT cycles:

While there is a definite trend in IT standardization that is also an opposite trend: increased adaptability and customarization capabilities due to tremendous raise in complexity of modern software and modern enterprises.  The most successful "standard" software like Microsoft Office or Lotus Notes or SAP/R# are infinitely customizable.  In this sense standardization of software is quite opposite to standardization of cars or TVs.  And IT infrastructure as a utility so far was successful only very few areas and most rabid proponents of it are having financial difficulties. 

But there another import issues in which Carr is completely wrong. To save space I would point out the first critique of  Nicholas Carr views that was published in  Web_Letters immediately after the "IT does not matter" was published.  A couple of them pretty nicely discredited Nicholas Carr's simplistic analogy.  There was also some with provocative title like  Does Nick Carr matter which is a nice way to mock simplistic views of the original article.

Let's first discuss his utility computing model. What he is proposing is a remote centralized and outsourced datacenter that provides services vis 'cloud" using high speed links. Some services are more officially done in utility fashion. Payroll is one such service that proved to beneficial to decentralize. But most enterprise  processing is more efficiently done on a local level. Issues of quality, loyalty, knowledge of the business are not automatically solved by utility model.  This is like saying that just because the Big 4 accounting firms exist with the army of  accountants, tax specialists and so on, organizations can do away with internal accountants altogether.  The hybrid platforms, such as Saleforce.com's application hosting capabilities is also an interensting proposition.

As I  mentioned the analogy is primitive and naive as there are several important differences between transmission of power (electric utilities) and transmission of data.  Also Carr understanding of both telecommunication industry and electrical generation industry smell with non-professionalism. 

The central thesis of the author that the information technology is inevitably going the way of the railroads, the telegraph and electricity. "From a strategic standpoint, they became invisible; they no longer mattered," Carr wrote. "That is exactly what is happening to information technology today."

But this is not true in many cases: just tell it to hedge funds managers like Renaissance Capital to Google (as an example, Google undermines, rather than supports, Carr's point), Microsoft or to a manager who lost several millions dollars because critical system (often SAP/R3 ;-) was mid-designed and uses was too many standard components that do not catch the essence of the particular business. As we all know several companies went down trying due to botched implementation of SAP/R3 management software. They just disappeared from the face earth.  The carcasses of those companies are strong reminders for the simplistic vision the Carr tries to promote. 

There are also several companies which were burned by clueless outsourcing of IT functions.  Still it is useful as an antidote to excessive IT hype. Also as an example, Google undermines, rather than supports, Carr's point.   

But anyone who uses software and enterprise IT knows that it far from being perfect.  And statement "Sloppy. bureaucratic IT does not matter"  is closer tot he truth then the initial statement. But the key question that Nicholas Carr asks is whether it is acceptable to convert it to utility. First of all the central notion of  Nicholas Carr that IT is similar to electrical utilities and there is a process of some convergence between two is a very questionable and somewhat naive as it does not distinguishes between two levels of  enterprise IT: infrastructure level and application level. We understand also inherent limitation of Carr as an outsider,

" A hundred years ago, both these companies were making a lot of money selling electricity-production components and systems to individual companies. That business disappeared as big utilities took over electricity supply. But GE and Westinghouse were able to reinvent themselves."

IT is a very fuzzy word and it encompass a several types of activities. In a narrow sense IT is the provider of   infrastructure: servers, network including but not limited to Internet, PCs and in this area standardization is evident and cost are going down.  So there is a pert of It that is increasingly commoditized. But is a larger context IT is the "computer literacy department" for  the corporation and as literate people in mid-ages IT specialists are key drivers of comparative advantage. It also serves as the supplier/integrator of software that is running on this network and "application level IT" represents a strategic part of business that by and large cannot be commoditized.  To completely outsource this part to vendors opens companies to blatant rip-offs which are inevitable if the company loses critical mass of "IT IQ".

To assume that end users are able to master complex software products like Oracle database, Tivoli, etc is naive. They need intermediates who provide a bridge between business demands and often hidden capabilities of software. They need architects that create a deployment strategy that fits the particular enterprise. 

While corporate IT has its own share of problems, the detachment of datacenter from the company entails significant costs and increases bureaucratization of IT. That in turn and coupled with outsourcing lessens the efficient of any and all solutions. IT in a large enterprise serves more like  battlefield communication infrastructure in the army. As such it has huge strategic value. 

We should not mix Internet as a data communication network  and the microcosm applications that provide business with the necessary information. it does not matter whether they are deployed on Internet or locally,  the key question is how well they are customized for the business needs. Even email is not as standardized as one may think as there are huge differences in strong and week point of various email solutions. First of all running remote datacenter entail significant transmission costs especially in data intensive applications like SAP/R3. We also need to distinguish Microsoft efforts in standardization of PC and PC applications and the complexities and uniqueness of the tasks that adaptation of those applications to corporate needs entail. (as an exercise this guy might benefit from calculation of the total capacity of electrical generators in the cars on the US roads):

At the same time it is difficult to argue that (all too common) IT mismanagement erodes business profits, shareholder value, and business operational efficiency.  So the key question is not whether IT has strategic value of not, but how dominant IT mismanagement became in datacenters.

For more information see:  Obscurantism in Information Technology: Nicholas Carr's "IT Does not Matter" Fallacy and "Everything in the Cloud" Utopia


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Does Nick Carr matter CNET News.com

By strategy+business
Special to CNET News.com
August 21, 2004, 6:00 AM PDT

When the Harvard Business Review published "IT Doesn't Matter" in May 2003, the point was to start an argument, or, as they say in the more genteel world of academia, a debate.

The provocative title of the article, as well as its timing--it was published at the tail end of a long slump in technology spending--ensured that a dustup would ensue. The resulting debate has been impassioned and often revealing. And it's still going on.

The essay was written by Nicholas G. Carr, then editor at large of HBR and now a consultant and author. The central theme: There is nothing all that special about information technology.

Carr declared that information technology is inevitably going the way of the railroads, the telegraph and electricity, which all became, in economic terms, just ordinary factors of production, or "commodity inputs." "From a strategic standpoint, they became invisible; they no longer mattered," Carr wrote. "That is exactly what is happening to information technology today."

The reaction was swift. Within weeks, Carr was branded a heretic by many technologists, consultants and--especially--computer industry executives. Intel's Craig Barrett, Microsoft's Steve Ballmer, IBM's Sam Palmisano and others felt compelled to weigh in with varying degrees of fervor to reassure corporate customers. Their message: Don't listen to this guy. Keep the faith in IT's power to deliver productivity gains, cost savings and competitive advantage.

And the reaction continued. HBR got so many responses that it set aside a portion of its Web site to accommodate them, and Carr kept the controversy bubbling on his own Web site. He became a traveling celebrity of sorts, defending his stance in forums across the country, from the Harvard Club in New York City to the Moscone Convention Center in San Francisco, where he traded verbal jabs with Sun Microsystems' Scott McNealy. The article became fodder for countless columns in newspapers, business magazines and trade journals.

When "IT Doesn't Matter" was published in HBR, I thought Carr had delivered an important, thought-provoking reconsideration of the role of IT in the economy and inside companies. Now that his analysis has been expanded to book length, I still do. This time, his ideas are packaged with a less incendiary title, "Does IT Matter? Information Technology and the Corrosion of Competitive Advantage." His message is unchanged, though more fleshed out and nuanced.

Carr's thinking, in my view, is flawed -- at times seriously flawed -- but not necessarily in ways that undermine his essential thesis. So let's first examine what his fundamental point is, and what it is not.

The title of the original article was misleading. Carr is not arguing that information technology doesn't matter. Of course it does.
The title of the original article was misleading. Carr is not arguing that information technology doesn't matter. Of course it does. Among other things, IT improves productivity by reducing communications, search and transaction costs, and by automating all sorts of tasks previously done by humans.

But Carr asserts that as IT matures, spreads and becomes more standardized, the strategic advantage any individual company can gain from technology diminishes. Paradoxically, the more the economy gains from technology, the narrower the window of opportunity for the competitive advantage of individual companies.

This was the pattern for railroads, electricity and highways, which all became utilities. In the IT world, Carr sees evidence of mature standardization all around him. The strategic implication, according to Carr, is clear. "Today, most IT-based competitive advantages simply vanish too quickly to be meaningful," he writes.

Thus, IT strategy for most companies should become a game of defense. The shrewd executive, Carr writes, will in most cases keep his or her company focused on the trailing, rather than the leading, edge of technology. He offers four guidelines for IT strategy: "Spend less; follow, don't lead; innovate when risks are low; and focus more on vulnerabilities than opportunities."

In Carr's view, there are two kinds of technologies: "proprietary technologies" and "infrastructural technologies." The first yields competitive gain, whereas the second is just plumbing, at least from a strategic standpoint. Technologies shift from proprietary to infrastructure as they mature. When a technology is young, companies can gain a big strategic advantage, and Carr deftly describes how companies like Macy's, Sears Roebuck and Woolworths exploited the new economics of retailing made possible by rapid, long-distance shipments by rail, and how a new breed of national high-volume manufacturers like American Tobacco, Heinz, Kodak, Pillsbury and Procter & Gamble sprang up by gaining advantage from modern transportation, the telegraph and electricity.

Once a technology moves into the infrastructure category, however, corporate opportunity wanes. In IT these days, Carr sees just about everything being folded into the infrastructure, including the Internet, Web services, Linux and Windows. Carr is particularly insightful on the subject of enterprise software, such as SAP's enterprise resource planning offerings and Siebel's customer relationship management programs. As he does throughout the book, he succinctly draws an analogy between technologies of the present and those of the past. In this case, enterprise software is depicted as the modern version of machine tools.

Before the 20th century, machine tools were gadgets made by each factory to suit its own requirements. But then machine-tool vendors emerged. Their economies of scale brought standardization and lower costs to the machine-tool industry. Innovation continued, but it was the vendors who developed and distributed those innovations for all manufacturers--and thus no competitive advantage accrued to any individual manufacturer. Carr sees a similar "vendorization" in enterprise software, where core business processes like supply chain management and customer relationship management are handled by standard software packages. The result is a straitjacket of standardization, leaving little room for a company to distinguish itself. Small wonder, Carr writes, that in the late 1990s enterprise systems came to be called "companies in a box."

Even the companies that seem to be
IT-based success stories, notably Dell and Wal-Mart, are not, Carr tells us.
Even the companies that seem to be IT-based success stories--notably Dell and Wal-Mart--are not, Carr tells us. Yes, Wal-Mart was a leader in using advanced computing and private networks to link sales, inventory and supply information. But Wal-Mart's real edge today, Carr says, is the scale of its operation, which enables it to strong-arm suppliers and zealously pursue efficiencies everywhere. And Dell, he contends, has an edge over rivals because of its direct marketing and build-to-order strategy. "It's true that IT has buttressed Dell's advantage, but it is by no means the source of that advantage," Carr writes.

More generally, Carr observes, strategic advantage derives not from technology itself but from "broad and tightly integrated combinations of processes, capabilities, and, yes, technologies." Translation: How you use technology, not the technology itself, is the crucial variable. "Indeed," Carr writes in his preface, "as the strategic value of the technology fades, the skill with which it is used on a day-to-day basis may well become even more important to a company's success."

It has the ring of innocuous truism, but wait a moment: Does that statement really apply to a utility-like infrastructure technology? Does the skill with which we use electricity, commuter rail service or the telephone have anything to do with corporate success or failure? No one seeks insights from research companies like Gartner or advice from consultants, now including Carr, on how to use real infrastructure technologies. This suggests that information technology may be a bit different after all.

The main difference between computing and the industrial technologies Carr cites is that the stored-program computer is a "universal" tool, which can be programmed to do all manner of tasks. The general-purpose nature of computing--especially software, a medium without material constraints--makes it more like biology than like railroads or electricity. It has the ability to evolve and take new forms. Speech recognition, natural language processing and self-healing systems are just three of the next evolutionary steps on the computing horizon.

Carr might dismiss such comments as romanticized nonsense--and he certainly could be right. Yet understanding the nature of the technology is crucial to determining whether computing is truly graying or, more likely, whether some parts of the industry are maturing while new forms emerge further up the food chain. Are we seeing old age, or merely the end of one stage in a continuing cycle of renewal?

Carr notes that the technology bubble of the 1990s resembled the booms and busts of railway and telegraph investment, which marked the passing of youthful exuberance in those industries. In the computer industry, however, there already had been two previous boom-and-bust cycles--in the late 1960s, when mainframe time-sharing services appeared to be the computing utilities of their day, and in the mid-1980s, when legions of PC companies were founded and soon perished. Again, the pattern seems to be cyclical and evolutionary, as innovations accumulate and eventually cross a threshold, opening doors to broader market opportunities.

Let's take one potential example, Web services. The nerdy term refers to the software protocols that could allow a new stage of automation as data and applications become able to communicate with one another over the Internet. More broadly, Web services are seen as the building blocks of a new "services-based architecture" for computing. Carr briskly brushes Web services into his "vendorization" bucket. He writes, "Here, too, however, the technical innovations are coming from vendors, not users." The vendors, IBM, Microsoft, Sun Microsystems and others, are working jointly only on the alphabet soup of software protocols: XML, UDDI, WSDL and so on.

Yet when technologists talk of a services-based architecture, they are speaking of a new computing platform that they see as the next big evolutionary step in decentralizing the means and tools of innovation--much as the minicomputer was a new platform that decentralized computing away from the mainframe, and then the PC put power in many more users' hands. Computer scientists regard the Web as a "dumb" medium, in a sense. It is, to be sure, a truly remarkable low-cost communications tool for search, discovery and transactions, but the Web is mostly raw infrastructure, because it is not very programmable. Web services hold the promise of making the Internet a programmable computing platform, which is where differentiation and potentially strategic advantage lie.

Carr approvingly cites studies showing a random relationship between total IT spending and corporate profits.
I cite this as only one example of where Carr's desire to fit everything neatly into his thesis leads him astray. There are others. He mentions Linux, and its adoption by Internet pacesetters such as Google and Amazon, as proof that commodity technology is plenty good enough for almost any need. Linux, the open-source operating system, does allow those companies to build vast computing power plants on low-cost hardware from the PC industry. But the other great appeal of Linux--and open-source software in general--is that it also frees those companies from the vendors. The rocket scientists at Google and Amazon can tweak the software and change it without seeking permission from Microsoft or Sun Microsystems or anyone else. Today, Google is both a brand name and verb. But technological differentiation has been the bedrock of its comparative advantage. It is the better mousetrap in Internet search. As an example, Google undermines, rather than supports, Carr's point.

His thesis is often the same kind of straitjacket of standardization that packaged software, as he says, is for companies. Carr approvingly cites studies showing a random relationship between total IT spending and corporate profits. But these merely demonstrate that aggregate technology spending is not the only, nor even the crucial variable in determining corporate profitability. That is hardly surprising. Again, it is how companies use the technology--integrating the tools with people and processes--that counts the most. And Carr can be quite selective in citing the work of others. He points to research from Paul Strassmann, an industry consultant, that supports his case while gliding over the fact that Strassmann was a prominent critic of Carr's original HBR article.

Still, these can all be seen as quibbles. They do not necessarily shake the accuracy of Carr's central point--that the period of sustainable advantage a company can derive from technology is diminishing. But is that really surprising? Everything, it seems, moves faster than it did 10, 20 or 30 years ago, including technology. To say that the advantages technology gives a business are more fleeting than they once were is not to say those advantages aren't worth pursuing. Dawn Lepore, vice chairman in charge of technology at Charles Schwab, estimates that a lead in new IT-based financial products lasts from one to 18 months. "You still get competitive advantage from IT, but there is no silver bullet," she observes.

Carr's book is a thoughtful, if at times overstated, critique of faith-based investment in technology, and it makes a real contribution to the field of technology strategy. But Carr understates the strategic importance of defense. The old adage in baseball is that defense and pitching win championships; in basketball it is defense and rebounding. In business, if you don't make the defensive technology investments to keep up with the productivity and efficiency gains of your industry peers, you simply lose.

The drift toward more-standardized technology that Carr describes also points to a different kind of pursuit of strategic advantage. It may not be IT-based, but it is certainly dependent on technology. This is what Irving Wladawsky-Berger, a strategy executive at IBM, calls the "post-technology era." The technology still matters, but the steady advances in chips, storage and software mean that the focus is less on the technology itself than on what people and companies can do with it.

The trend is already evident in companies and in universities. The elite business schools and computer science programs are increasingly emphasizing multidisciplinary approaches, educating students not only to be fluent in technology, but also in how to apply it. In companies, the same is true. The value is not in the bits and bytes, but up a few levels in the minds of the skilled businesspeople using the tools. Large chunks of the technology may be commoditizing, but how you use it isn't. That is where competitive advantage resides.

To read more articles like this one, visit http://www.strategy-business.com/.

Copyright © 2004 Booz Allen Hamilton Inc.

Reprinted with permission from strategy+business, a quarterly management magazine published by Booz Allen Hamilton.

Nicholas Carr - IT Doesn't Matter - Summary by Yann Gourvennec

IT doesn't matter or does IT, really?

If there is one article worth reading at the moment it must be Nicholas Carr's "IT doesn't matter" which was published by the Harvard Business Review in May 2003. Its sharp criticism of today's IT worship is devastating and it echoes greatly the sweeping changes that are currently imposing themselves on the IT world, especially in Europe.

Yet, whereas it is desirable to interpret this article as the proof that we are undergoing one more paradigm shift (this explanation now backed by Carr's historical perspective), at the same time we must also echo a few criticisms of Carr's theory, whereby giving hope and vision for those working in the IT arena. Jean Mounet, President of Syntec (the French IT industry association) reminded us in a recent article that one in three graduates from French engineering schools are recruited by the IT industry in France. One can therefore imagine what such an industry represents in the lives of so many people and the future of our modern economies.

Many in the industry have interpreted this article as a manner of threat on the efforts that are made to convince businesses that they should invest more on IT. However, French economist and IT industry expert Michel Volle has developed some very interesting counter-arguments to Carr's theory which are available in French at Volle.com. I wish to draw your attention too to the other string of articles entitled "Does IT matter" available from HBR.

A summary of Carr's "IT Doesn't matter" article By Yann Gourvennec

I. Ubiquitous computing reinforces the triviality of IT

IT has deeply transformed today's business world and all businesses use information technology on a large scale. As a consequence, capital expenditure devoted to IT has increased dramatically over the years and is still tremendous in spite of the current economic situation. Besides IT tools are no longer considered for low-level employees, but are used intensively by top managers who openly value the supposed competitive edge that they can derive from its usage. Behind all that lies the thought that the pervasiveness of IT usage has led to its becoming more strategic.

On the contrary, Nicholas Carr shows us that IT has in fact become the latest item in a list of commodities that helped shape business and industries as we know them. Being a commodity, IT also becomes transparent to its users.

II. Proprietary vs infrastructural technologies

Proprietary technologies, may generate a competitive advantage to their owners provided adequate protection of their investors' rights. Conversely, Nicholas Carr proves that Infrastrutural technologies are more productive when they are shared, although owning them may prove more cost-effective at the beginning of their existence. Once standards are in place, that type of infrastructural technologies is more effective when shared.

Nicholas Carr uses the striking examples of electric power production or trains to prove his point, showing that no company would benefit today in purchasing and maintaining its own railway network.

Also, one of the major pitfalls that managers fall into is the belief that competitive advantages brought by infrastructural innovations will last forever. At the end of the buildout phase of a new infrastructural technology, new standards will emerge, competition will rise dramatically and prices will fall. Even the usage of the new technology will become standardised. Therefore, the advantage of infrastructural technologies will shift from the micro to the macro-economical level for when they become pervasive, only countries and regions benefit from their presence, whereas individual companies are all competing on the same level.

Likewise, infrastructural technologies are often subject to overinvestment therefore causing sweeping economic trouble. What we have witnessed with the 'Internet Bubble' happened in a similar fashion with the overinvestment in railroads in the 1860s. The analogy shows that there is a risk for deflation to settle on our 21st century economies as in 1860. N Carr would like the analogy to end here but the risk cannot, in his mind, be overlooked.

III. Information Technology: this new commodity

Despite appearances, IT is truly an infrastrural technology and according to Nicholas Carr, it is particularly prone to commoditisation due to the following characteristics:

Throughout the buildout of the IT infrastructure, a myriad of companies have been able to derive significant competitive advantages from IT. Some have been able to establish a durable competitive edge (e.g. Dell Computers, Wal-Mart, ...) whereas others have only been able to generate a temporary advantage. But the ability to generate a competitive advantage from IT is becoming very rare nowadays, as is always the case with infrastructural technologies according to Mr Carr.

Whereas it is not possible to predict the end of the buildout of an infrastructural technology, there are many signs that the ramp-up of IT infrastructure is nearing its completion:

The incentive for customisation will now be marginal and reserved to a few niche vendors which offer some highly specialised software.

IV. What should companies do?

According to Mr Carr, the more an infrastructure becomes pervasive, the more it emphasises risk as opposed to generating competitive advantages. As soon as an infrastructure is shared and open, its non-availability is more crucial than its intrinsic value. As a consequence, all organisations should focus on trying to avoid the risk of the non-availability of this infrastructure, according to Mr Carr. Yet, very few have analysed the threats that could paralyse their whole businesses.

IT managers, according to Mr Carr, should focus on:

  1. Spending less: This is made necessary by the fact that IT is no longer considered strategic and because overspending is the biggest threat to companies. Apart from the requirement to look for cheaper alternatives, it is also necessary that IT managers cut out waste, mainly with regards to personal computing which is mostly used for standard tasks and do not require much computing power. Should vendors balk at reducing costs, Mr Carr suggests that IT managers resort to Opensource software packages and bare-bone network computers,
  2. Following vs innovating: It should no longer be necessary to be on the cutting edge of technology, most requirements being fulfilled by existing software and equipment,
  3. Focus on risks because IT is mostly judged on what does not work as opposed to its vanishing competitive advantage.

Mr Carr goes on with a study of the 25 companies with the highest economic returns and shows that they are spending far less on IT than the average. He therefore encourages managers to focus on costs and get back to basics, however boring it may prove.

Follow up to Nicholas Carr's article:

The IT department is dead, author argues - Network World by Carolyn Duffy Marsan,

01/07/08 | Network World,

New Nicholas Carr book predicts utility computing will replace internal IT shops. The IT department is dead, and it is a shift to utility computing that will kill this corporate career path. So predicts Nicholas Carr in his new book, The Big Switch: Rewiring the World from Edison to Google.

Carr is best known for a provocative Harvard Business Review article entitled "Does IT Matter?" Published in 2003, the article asserted that IT investments didn't provide companies with strategic advantages because when one company adopted a new technology, its competitors did the same.

The Harvard Business Review article made Carr the sworn enemy of hardware and software vendors including Microsoft, Intel and HP, as well as of CIOs and other IT professionals.

With his new book, Carr is likely to engender even more wrath among CIOs and other IT pros.

"In the long run, the IT department is unlikely to survive, at least not in its familiar form," Carr writes. "It will have little left to do once the bulk of business computing shifts out of private data centers and into the cloud. Business units and even individual employees will be able to control the processing of information directly, without the need for legions of technical people."

Carr's rationale is that utility computing companies will replace corporate IT departments much as electric utilities replaced company-run power plants in the early 1900s.

Carr explains that factory owners originally operated their own power plants. But as electric utilities became more reliable and offered better economies of scale, companies stopped running their own electric generators and instead outsourced that critical function to electric utilities.

Carr predicts that the same shift will happen with utility computing. He admits that utility computing companies need to make improvements in security, reliability and efficiency. But he argues that the Internet, combined with computer hardware and software that has become commoditized, will enable the utility computing model to replace today’s client/server model.

"It has always been understood that, in theory, computing power, like electric power, could be provided over a grid from large-scale utilities — and that such centralized dynamos would be able to operate much more efficiently and flexibly than scattered, private data centers," Carr writes.

Carr cites several drivers for the move to utility computing. One is that computers, storage systems, networking gear and most widely used applications have become commodities.

He says even IT professionals are indistinguishable from one company to the next. "Most perform routine maintenance chores — exactly the same tasks that their counterparts in other companies carry out," he says.

Carr points out that most data centers have excess capacity, with utilization ranging from 25% to 50%. Another driver to utility computing is the huge amount of electricity consumed by data centers, which can use 100 times more energy than other commercial office buildings.

"The replication of tens of thousands of independent data centers, all using similar hardware, running similar software, and employing similar kinds of workers, has imposed severe economic penalties on the economy," he writes. "It has led to the overbuilding of IT assets in every sector of the economy, dampening the productivity gains that can spring from computer automation."

Carr embraces Google as the leader in utility computing. He says Google runs the largest and most sophisticated data centers on the planet, and is using them to provide services such as Google Apps that compete directly with traditional client/server software from vendors such as Microsoft.

"If companies can rely on central stations like Google's to fulfill all or most of their computing requirements, they'll be able to slash the money they spend on their own hardware and software — and all the dollars saved are ones that would have gone into the coffers of Microsoft and the other tech giants," Carr says.

Other IT companies that Carr highlights in the book for their innovative approaches to utility computing are: Salesforce.com, which provides CRM software as a service; Amazon, which offers utility computing services called Simple Storage Solution (S3) and Elastic Compute Cloud (EC2) with its excess capacity; Savvis, which is a leader in automating the deployment of IT and 3Tera, which sells a software program called AppLogic that automates the creation and management of complex corporate systems.

Carr points out that many leading software and hardware companies — Microsoft, Oracle, SAP, IBM, HP, Sun and EMC — are adapting their client/server products to the utility age.

"Some of the old-line companies will succeed in making the switch to the new model of computing; others will fail," Carr writes. "But all of them would be wise to study the examples of General Electric and Westinghouse. A hundred years ago, both these companies were making a lot of money selling electricity-production components and systems to individual companies. That business disappeared as big utilities took over electricity supply. But GE and Westinghouse were able to reinvent themselves."

Carr offers a grimmer future for IT professionals. He envisions a utility computing era where "managing an entire corporate computing operation would require just one person sitting at a PC and issuing simple commands over the Internet to a distant utility."

He not only refers to the demise of the PC, which he says will be a museum piece in 20 years, but to the demise of the software programmer, whose time has come to an end.

Carr gives several examples of successful Internet companies including YouTube, Craigslist, Skype and Plenty of Fish that run their operations with minimal IT professionals. YouTube had just 60 employees when it was bought by Google in 2006 for $1.65 billion. Craigslist has a staff of 22 to run a Web site with billions of pages of content. Internet telephony vendor Skype supports 53 million customers with only 200 employees. Meanwhile, Internet dating site Plenty of Fish is a one-man shop.

"Given the economic advantages of online firms — advantages that will grow as the maturation of utility computing drives the costs of data processing and communication even lower —traditional firms may have no choice but to refashion their own businesses along similar lines, firing many millions of employees in the process," Carr says.

IT professionals aren't the only ones to suffer demise in Carr's eyes. He saves his most dire predictions for the fate of journalists.

"As user-generated content continues to be commercialized, it seems likely that the largest threat posed by social production won't be to big corporations but to individual professionals — to the journalists, editors, photographers, researchers, analysts, librarians and other information workers who can be replaced by . . . people not on the payroll."

Carr's argument about the future of utility computing is logical and well written. He offers a solid comparison between the evolution of electrical utilities in the early 1900s and the development of utility computing that's happening today.

Carr's later chapters — about the future of artificial intelligence and the many downsides of the Internet — seem less integral to his utility computing argument. And his discussion of Google's vision of a direct link between the brain and the Internet seems far-fetched.

Nonetheless, The Big Switch is a recommended read for any up-and-coming IT professional looking to make a career out of providing computing services to corporations. If Carr's predictions come true, strong technical skills will still be valued by service providers.

All contents copyright 1995-2008 Network World, Inc. http://www.networkworld.com

Pretending to know the area while in reality he is limited in its understanding he managed to provide the most dangerous advice to CEOs has come from people who either had no idea of what they didn't know, or from those who pretended to know what they didn't.

Amazon.com Customer Reviews Does IT Matter Information Technology and the Corrosion of Competitive Advantage

10 of 12 people found the following review helpful:

A look in the mirror, May 29, 2004

Mike Tarrani "www.tarrani.com" (Deltona, FL USA) - See all my reviews

Carr does not diminish the value of technology in this book, but instead shows how it is improperly acquired and managed by most IT departments. As such, this book's central message is an indictment of how [all too common] IT mismanagement erodes business profits, shareholder value, and business operational efficiency.

The key question is, "is it as bad as Carr reports?" I can share my experience as a consultant who has worked some of the largest US and global corporations by answering "unfortunately, yes". I've seen the symptoms Carr cites in one engagement after another. It is not the fault of technology. I've witnessed the implementation of technical solutions that should have added value to business operations, yet were so mismanaged by IT that the solutions never came close to the projected ROI that justified their acquisition and implementation. Indeed, this book is similar to a collection of anti-patterns - common bad practices - which, sadly, reflect a typical IT department.

Although this book is short on solutions (which accounts for the lower rating I gave it), it does provide a conceptual framework from which to derive solutions. For example, much of what IT does can be classified as commodities - services such as desktop support, development (especially for web services), system administration, etc. These activities do not represent intellectual capital within IT in the same manner as architecture, business systems analysis, and service level management, all of which require an in-depth knowledge of technology and business requirements, and are not commodities.

Who will get the most value from this book? CIOs and IT managers who recognize there is a disconnect between IT and business operations, and who have the courage to look in the mirror that Carr provides will benefit. Executives at the COO, CFO and CEO level, or members of corporate governance will also benefit because they will be able to spot common problems in their own organizations that are so clearly reported in this book. The gap Carr leaves between symptoms and problems, and solutions to those can be filled in part by other books that are more solution-oriented (I recommend "RoadMap: how to understand, diagnose, and fix your organization" ASIN 0964163527; and "Connecting the Dots: Aligning Projects with Objectives in Unpredictable Times" ASIN 1578518776

IT departments focus myopically on , August 1, 2005 Michael Davis "www.byvation.com" (Arlington, TX) - See all my reviews

I fully concur that Information Technology (IT) is too technology focused. As a former IT Manager at Metlife, and Allstate Insurance, I attest to the fact that the IT department focuses myopically on solving (and sometimes even creating more) computer problems. Therefore, as Carr illustrates, technology offers no competitive advantage - only the prospect of avoiding competitive disadvantage.

Without differentiation, organizations will do well to cut off IT from the rest of the organization and outsource it as a commodity. Carr's premise is that IT is undergoing commoditization and may cease to provide a sustainable competitive advantage. Hardware is already a commodity. Software is quickly becoming commodity like. What Carr illustrates is a clear and compelling reason to step up our efforts to use technology strategically to support the core business. After all, technology exists to serve the business, not the other way around.

Nothing new & no clear prescription, June 1, 2004 Linda Zarate "IT Ops Consultant" (Azusa, CA United States) - See all my reviews

If possible I'd award 3.5 stars. There is value in the book, which has two main levels:
(1) makes a case for the deplorable state of IT as a business enabler
(2) claims IT is now viewed as a commodity

In (1) what Carr has to say is true and has been for as long as I've been in the profession, which is over 25 years. Carr's contentions parallel my experience on this level. When I started out we "MIS" professionals were the priests and priestesses who worked our magic in glass rooms. We were merely arrogant then. Life was simpler and some vendors worked closely with us. IBM, which is my main background, had a reputation for never letting their customers fail. That is not to say that their recommendations and solutions always translated into business value for their customers, but rarely did they result in disasters either. As time went on though MIS became IS, then IT. Systems grew more complex, proprietary systems gave way to interoperability, then open systems, and new vendors started arriving in droves. Innovation fanned the flames of complexity, and IT remained arrogant, but began focusing so much on the technology (and trying to keep up with it) that they lost sight of business needs. Methods devolved into chaos and the chasm between IT and the business widened to the point where IT was in some cases counter-productive to business needs.

On the second level, where Carr claims that IT is now viewed as a commodity, is where this book gets interesting. In many areas that has been going on for over a decade. Mass storage systems are measured in pennies per MB, powerful desktop systems are priced in the same range as consumer entertainment electronics, and certain classes of applications software are bargains. Further, the open source movement is changing the dynamics as I write this review, which may one day render much software as a commodity.

What Carr does not do is give clear advice about how to deal with problems and new dynamics that have roots in the distant past. The status quo is clearly and accurately documented in this book, but the prescription is vague. That is where this book falls short.

The main value of this book is as stated by others: use it as a mirror if you work in IT. Perhaps a few brave souls with leadership skills will start changes in the profession that will have a ripple effect. Especially if those brave souls work for large enterprises and get sufficient press for their successes. At the very least the CxOs who may stumble across this book may see their own IT organization in the descriptions Carr gives and decide to do something about it. I would also hope that those who work on the vendor and product development side take a few hints from this book and craft their technology innovations into actionable solutions that will get IT back on track. It can be done, especially if the ingenuity those vendors exhibit in technology innovation can be extended to bundled products that also contain innovative solutions and consulting.

One final comment: a colleague distinguished between intellectual capital and task-oriented work performed by IT. Obviously the task-oriented work is a commodity, and with some analysis can be identified and outsourced. That is a step towards getting IT back on track and delivering value to business. There are other such ideas hiding in this book if one reads it with an open and inquiring mind.

Useless except as a catalyst to get you to do your own thinking, July 5, 2005
By Anonymous Reader (USA) - See all my reviews
This book, as Nicholas Carr has claimed about IT, "doesn't matter". As one reviewer stated, Carr is a good writer but should have kept his assertion to a short article.

Carr claims that IT (hardware and software technologies) is becoming a commodity and therefore that by itself it does not provide competitive advantage. This is eye-opening and insightful only if one believes all the claims of the dot-com era (some of which are still turning out to be true after all) and if one does not understand that the economy is getting more competitive all the time. So what? Isn't everything becoming commoditized? What is left after the Information Age and outsourcing of everything? Some say it is the Creative Age, in which creativity and innovation are what confer true advantage - human mental processes, some of which have to do with using or applying technology differently.

Carr readily admits good USE of IT does confer an advantage - but again, isn't this true with any input or tool? It is management and innovative use of the input rather than the input itself that confers some advantage.

One needs a much more sophisticated hands-on understanding of IT besides the superficial observation that hardware and software technologies are becoming commodities available to all -- besides, this argument is only true in a 30,000 foot view of the world.

When one looks closer, in most cases the "free" open source software that is theoretically available to all is not truly available to all because the expertise needed to use it is very limited. Can all organizations use Linux, Perl, MySQL, etc. equally well? If not, are they really "available to all", or only to those who can actually use them? That everyone can "buy" them does not equate with them being "commodity inputs" -- they are just "technologies" not actual "INPUTS" if they are bought and not used. These questions are intertwined and more complex than they at first seem. For better or worse, one needs an experiential, not an academic or theoretical understanding, of IT in order to arrive at an answer.

In the last chapter, Carr backs off somewhat, saying it is too early to tell the impact of IT - but if it is too early to tell the impact, how can he already conclude it doesn't matter? I suppose that is why he modified his title from the article title of "IT Doesn't Matter" to the book title of "Does IT Matter?". This question seems to be unanswered despite agreement that many information technologies (just as other technologies, products, inputs, processes, and so on) become commodities very quickly, and at an ever increasing rate.

Bottom line: you do not need to bother reading the book. If you wish to understand Carr's argument, read his original article.

As with so many popular "management books", Peter Drucker had already summed up what a manager should know and think about in a more concise way -- for example, that it is the "I" in "IT", not the "T", that matters. Organizations need INFORMATION not TECHNOLOGY and in particular INFORMATION about the OUTSIDE. For better guidance on strategy and IT, see Drucker's Management Challenges of the 21st Century. Yes, technology does matter., May 16, 2004
By Gaetan Lion - See all my reviews
Carr makes a thought provoking but flawed case that technology does not matter all that much. According to him, competitive advantages of companies do not depend on technology. He does point out that many segments of information technology are mature, and have become low return commodities. He also points out that companies are better off not buying the overpriced state of the art technology, but instead should wait till prices come down. Thus, Carr makes many relevant and somewhat self-evident points. Nevertheless, his overall case that technology does not matter falls apart.

Contrary to what Carr suggests, the technological race is endless. There is no finish line. We are in a 24/7 society hooked on perpetual improvement. Whatever gismo you come up with, people are going to imitate it and better it very quickly. Thus, no one can rest on their laurels for long. By the same token, you can't afford to run a business that is not up to date technologically. Technology is both the right of entry, and the key to success for almost any business you can think off.

Also, innovation is the U.S. raison d'etre. You figure everything that can be commoditized is going to be either offshored to China or outsourced to India by American companies themselves as pressured by American stockholders. If the U.S. stops to innovate proprietary technology, our labor force will not remain internationally competitive. We have to add value to our products. We have to constantly innovate and create new markets. If we do, as we have done so far, we will remain the most advanced and productive society. If we don't, we will fall behind just as many high cost Western European countries already have.

If you interested in this subject, here is a couple of books I recommend: "Rational Exuberance" by Michael Mandel. He makes a convincing case that technology does matter, and that the U.S. remains the undisputed leader in innovation, and more importantly in implementing innovation. Another good book is Roger Alcaly's "The New Economy." This is an excellent analysis on the history and prospect of technological innovation. Both these authors get that technology is crucial to the present and future of the U.S. Carr does not [get it].

Don't waste your time, June 24, 2004

By A Customer

I started this book with an open mind and read it in about 2 days. It is an easy read but delivers little. The Cliff Notes version, if there was one, could be summarized in 2 or 3 paragraphs. Many of the authors predictions are based on silly analogies. In the book he compares electricity to information technology. He mentions a few electrical related job titles that are no longer part of corporate America but fails to mention that there are still plenty of Electrical Engineers, Electricians, Electrical Contractors, etc. still employed in our economy. He takes a small segment of technology and predicts it's commoditization. Big Deal! Technology is ever-evolving and his predicitions are not that revolutionary. What makes this book ridiculous is his prediction that all of information technology will eventually be a commodity. This book is an obvious attempt to create a controversy to sell books. Don't fall for it. Save your money and look elsewhere.

Urge all your competitors to read this book!, May 28, 2004

By A Customer

Two Harvard professors summarized Carr's ideas ... the most dangerous advice to CEOs has come from people who either had no idea of what they didn't know, or from those who pretended to know what they didn't. What you want is for your competitors to read this book, hoping they will buy into Carr's misconceptions and dangerous recommendations... so rate it 5 stars for them, while your company pursues IT that does matter.

If any of your technology-challenged board members are reading this book, be sure to point them to Don Tapscott's May article in CIO magazine so they will quickly understand Carr's Blueprint for Failure, and to Smith and Fingar's book, IT Doesn't Matter--Business Processes Do, for a complete critical analysis of Carr's superficial premises and misguided recommendations. You may also want to google: Does IT Matter, An HBR Debate, whence the opening comments of this review came. Meanwhile, be sure all your competitors know how wonderful and meaningful this book is. ;-)

Dr. Martin Bushton, former CEO, consumer products company

Opinion No End in Sight Frank Hayes

May 16, 2005 (Computerworld) The last time we heard from Nicholas Carr, in 2003, he was pitching the idea that IT doesn't matter . Now he's back with an article in the spring MIT Sloan Management Review called "The End of Corporate Computing." Carr seems to have learned something in two years: You don't get high-dollar consulting gigs by telling potential clients that their products and job functions don't matter. So now he's taking a 100-year view, saying the end of corporate computing could take a lonnnng time. He's also getting behind vendor pitches for grid, on-demand and utility computing.
Trouble is, he still doesn't understand much about IT.
In "End," Carr compares IT to electrical generation 100 years ago. He lovingly details how individual companies once generated 60% of all electricity in the U.S. and how that changed when Sam Insull created Chicago's Commonwealth Edison, the first big electric utility. Insull used economies of scale to drive down costs, worked out metering and pricing, then rolled out sophisticated marketing to convince manufacturers to shut down their generators and buy juice from him.
IT, Carr says, can be outsourced in much the same way. Corporate IT is scattered and wasteful, with miserably low capacity utilization. Centralizing IT is an irresistible trend, and supercentralizing it in outside utilities is inevitable. We're just waiting for a new Sam Insull to create the vision and define the utility computing industry.

Well ... no. High-capacity utilization is important when a production resource is expensive. Thanks to Moore's Law, computing gets so much cheaper so fast that economies of scale are trivial. That's why spreadsheets run on PCs, not mainframes.

And centralization isn't so much a trend as a cycle. Users decide central IT's prices are too high, so they buy their own servers or Web sites or network gear. Then the cost of managing decentralized IT gets too high, so it's recentralized into the data center. Then the cycle starts again. Takes about 10 years to go around. Watch, and you'll see it.

And utility computing has its own Sam Insull -- Ross Perot, who realized in 1962 that he could sell computing instead of computers and left IBM to found EDS. (The idea wasn't even new then; ADP had been a payroll data-processing utility for five years.) Utility computing is mature. And it works. But it hasn't replaced corporate computing the way Commonwealth Edison replaced private generators.

Why not? Because corporate computing is no longer about big data-processing generators. Hasn't been for years. IT shops still process data, but the real action comes from business people who use computers to communicate, to monitor current business processes and to simulate new business scenarios.
Users are the ones who experiment and create business innovation. So the most important place to put computing, and control of that computing, is in users' hands. Everything else -- networks, data, back-end applications -- is there to support those users. They do corporate computing. We in IT just help.
And if we replace their flexible, too-cheap-to-meter computing with thin clients and a fixed-cost, fixed-services utility, as Carr recommends? IT gains manageability, centralization and higher utilization. Business users lose the ability to innovate.

Yeah, that would sure align IT with business needs, wouldn't it? Will Carr ever understand corporate computing? Probably not. He's got a vested interest in his Industrial Age utility model and the end of IT -- his best shot at the big time.

But corporate IT's interests had better remain with the users -- whose scattered, wasteful computing is the best generator of business advantage we've got.

Frank Hayes, Computerworld's senior news columnist, has covered IT for more than 20 years. Contact him at frank_hayes@computerworld.com.

My response can be found at my blog.

Rough Type Nicholas Carr's Blog IT doesn't matter, part 1

IT doesn't matter

In 1968, a young Intel engineer named Ted Hoff found a way to put the circuits necessary for computer processing onto a tiny piece of silicon. His invention of the microprocessor spurred a series of technological breakthroughs – desktop computers, local and wide area networks, enterprise software, and the Internet – that have transformed the business world. Today, no one would dispute that information technology has become the backbone of commerce. It underpins the operations of individual companies, ties together far-flung supply chains, and, increasingly, links businesses to the customers they serve. Hardly a dollar or a euro changes hands anymore without the aid of computer systems.

As IT’s power and presence have expanded, companies have come to view it as a resource ever more critical to their success, a fact clearly reflected in their spending habits. In 1965, according to a study by the U.S. Department of Commerce’s Bureau of Economic Analysis, less than 5% of the capital expenditures of American companies went to information technology. After the introduction of the personal computer in the early 1980s, that percentage rose to 15%. By the early 1990s, it had reached more than 30%, and by the end of the decade it had hit nearly 50%. Even with the recent sluggishness in technology spending, businesses around the world continue to spend well over $2 trillion a year on IT.

But the veneration of IT goes much deeper than dollars. It is evident as well in the shifting attitudes of top managers. Twenty years ago, most executives looked down on computers as proletarian tools – glorified typewriters and calculators – best relegated to low-level employees like secretaries, analysts, and technicians. It was the rare executive who would let his fingers touch a keyboard, much less incorporate information technology into his strategic thinking. Today, that has changed completely. Chief executives now routinely talk about the strategic value of information technology, about how they can use IT to gain a competitive edge, about the “digitization” of their business models. Most have appointed chief information officers to their senior management teams, and many have hired strategy consulting firms to provide fresh ideas on how to leverage their IT investments for differentiation and advantage.

Behind the change in thinking lies a simple assumption: that as IT’s potency and ubiquity have increased, so too has its strategic value. It’s a reasonable assumption, even an intuitive one. But it’s mistaken. What makes a resource truly strategic – what gives it the capacity to be the basis for a sustained competitive advantage – is not ubiquity but scarcity. You only gain an edge over rivals by having or doing something that they can’t have or do. By now, the core functions of IT – data storage, data processing, and data transport – have become available and affordable to all. Their very power and presence have begun to transform them from potentially strategic resources into commodity factors of production. They are becoming costs of doing business that must be paid by all but provide distinction to none.

IT is best seen as the latest in a series of broadly adopted technologies that have reshaped industry over the past two centuries – from the steam engine and the railroad to the telegraph and the telephone to the electric generator and the internal combustion engine. For a brief period, as they were being built into the infrastructure of commerce, all these technologies opened opportunities for forward-looking companies to gain real advantages. But as their availability increased and their cost decreased – as they became ubiquitous – they became commodity inputs. From a strategic standpoint, they became invisible; they no longer mattered. That is exactly what is happening to information technology today, and the implications for corporate IT management are profound.

Nicholas Carr IT still doesn't matter Tech News on ZDNet

Nicholas Carr, a perennial thorn in the side of the IT industry and author of the 2003 Harvard Business Review article "IT doesn't matter," looks set on stirring fresh controversy in the industry, telling companies to stop spending on technology.

Last week, Carr told an audience in London that companies have been misled to believe buying technology can make them more productive.

He said: "Smaller firms are more productive than large firms and yet they have less technology." And though he conceded it would be naïve to assume that represents the grounds for a hard and fast rule, he added it should at least "lead anybody to question the importance of IT."

Carr said: "Companies should spend less on IT." "But when I say spend less I don't mean use less or get less," he added, saying companies need to reduce their vulnerabilities when buying IT - such as over-spending or buying into expensive projects that ultimately fail to deliver.

He said: "Successful IT management comes down to successful management and not just those who are more innovative or take more chances."

As such he said companies should resist the urge to buy new technologies and should discard any notion of the cutting edge, saying there are few companies likely to see competitive advantage by being an early adopter.

He added: "The vast majority of companies should be IT followers not IT leaders. The innovator is going to pay a lot more than those who follow in the innovator's wake."

Though one might expect Microsoft to wholly reject Carr's ideas, Bob McDowell, VP of information worker business value at Microsoft, admitted the industry and business customers haven't always done themselves any favors.

He said: "There was over-hype in the 90s and there was overspend." And he added that the IT industry is "still paying the price now".

James Governor, analyst at Red Monk, said Carr's comments are welcome in an industry that is short on "comedians". But he said there is also a greater relevance to some of Carr's words. Governor said: "Frankly we should all be shifting uncomfortably in our seats," adding Carr's words should ring true with many people who may rather forget past over-spend or poor buying decisions.

While he said it's unlikely any CIO "will stand up at the end of the year and say 'please reduce my budget'", Governor said businesses should be savvier.

He said: "A" href

Ted Leung points me to TechDirt and an editorial by Hal Varian who rebuts Nicholas Carr's thesis titled "IT Doesn't Matter".

Hal Varian makes an observation that we all too often forget: "Profit comes from scarcity". He then argues that well all have to agree with Carr's main thesis, that it is not information technology itself that matters, but it is how you use it. Although, its quite an obvious statement however is surprising how many MIS departments fall into this trap. This fact points out the scarcity that prevails in the industry, most MIS departments don't know how to use IT technology. I personally have been in 3 companies in the last year and I've got to admit, none of them seem to understand how to exploit IT.

Varian's main arguments focus on the higher value activity of component integration:

In my view, companies cannot afford to ignore information technology, or relegate it to the back burner. Commoditizing it does not necessarily mean innovation slows. If anything, it could accelerate as more and more innovators experiment and tinker with those cheap, ubiquitous information technology commodities.

How you integrate functionality so that its useful for the corporation is today the high margin business of IT, just ask IBM. IBM's largest growing revenue stream has been in its Global Services division (i.e. consulting). However, if you think about it, isn't consulting just another commodity? In short, I think Varian's arguments are pretty weak.

However, I can think of two better arguments against Carr's thesis. The first is that commoditization of the hasn't truly happened yet. After all, why do we still have applications that are built in a stove pipe manner? That is, despite all the componentization of various technologies, IT continues to build monoltithic applications. The monolithic applications continue to be extremely inflexible and lack the agility to integrate with other corporate functions in a rapid way. This is the crux of my argument in a piece I wrote last June.

The second argument is one I a law that I had recently stumbled on. That is Christensen's Law, "the conservation of attractive profits". Christiansen theory is about the migration of value of time, high margins move up and down the value chain over time. It doesn't move always in the direction of going up the food chain, it can go the other way too! What has become commodities, may become profit centers in the future.

In summary, today's high margin business will be based on the Manageability of our software. However, that doesn't mean it will always stay that way, that'll be a commodity some day. When that happens, the higher margins will belong to those specialists in component development. Look at it this way, if complete systems becomes a commodity, parties will attempt to derive differentiation from its various components. It's just the natural flow of things.

Business Technology IT Doesn't Matter - News by InformationWeek

By Bob Evans
InformationWeek

May 12, 2003 12:00 AM

Whichever ancient sage who first divined that the gods do not always smile upon us surely knew of which he spoketh. I need to cut my shaggy grass, but it keeps raining; my beloved but bungling Pittsburgh Pirates have lost six in a row; the drain trap below my shower is leaking; and on top of all that comes word that the Harvard Business Review has decided that IT doesn't matter.

Yep, that's what they say in the table of contents, in the headline, and at the top of each page in the lengthy article: "IT Doesn't Matter" (HBR, May 2003, p. 41). And here I was, fussing about leaks and losing streaks when IT was just stopping mattering. Can it be so?

The article is thoughtful and sweeping and quite interesting to read. I'd heartily recommend it. But that doesn't make it either accurate in its conclusions or even properly focused, and that's the problem I have with it. Written by HBR editor-at-large Nicholas Carr, the article is intent on proving the thesis that because IT has become widespread, then it must perforce become a commodity, as happened to other one-time breakthrough and industry-jarring innovations, such as steam engines and railroads, telephones and telegraphs, electric generators and internal-combustion engines. And Carr's unshakable belief in that inevitability leads him to a conclusion that's no doubt provocative, which I think was his primary intent, but also profoundly shortsighted and dangerous.

Now, please allow me a brief digression to the Full Disclosure Department: I will certainly admit that given my position with a publication like InformationWeek, I have a vested interest in the ongoing relevance, growth, and vitality of what I believe Carr is referring to as the IT industry. And I can certainly say that my view of the future that lies ahead for you readers could not possibly be in more extreme opposition to what Carr forecasts in the final paragraph of his article: "IT management should, frankly, become boring. The key to success, for the vast majority of companies, is no longer to seek advantage aggressively but to manage costs and risks meticulously." So, yes, I am a bit subjective on this topic, but I also feel that while the jobs of Randy Mott and Ralph Szygenda and Rob Carter and many tens of thousands of others in top IT management positions will be many things, one thing they will must assuredly not be is boring.

Where the article should have gone, I think, is outside the realm of embedded infrastructure and applications and into some attempts to look at what the future might look like. Instead, it assumes that the futures that befell railroads and steam engines will, inexorably and inevitably, be the future of IT. And I think that's astonishingly shortsighted. Only 10 years ago, how many of you had heard of the World Wide Web? And today, we've all heard of Web services--heard too much and seen too little, some would say--but can any of us really imagine what business will be like when the potential of those new technologies begins to be expressed? Or when global and mobile get more stable, and true collaboration becomes less psychology and more process and software, and the recent focus on internal technology becomes redirected on customer-centered possibilities? If we've learned anything in the last several years, it's that the balance of power in the world of business has tipped to the buyer and they will continue to get more demanding, more fickle, more selective, and more willing to spend their bucks elsewhere unless businesses mold their efforts around those customers.

Will that be done with people? With paper? With singing telegrams? I don't think so; the key will continue to be technology.

IT doesn't matter. Or does it?

Bob Evans
Editor in Chief
bevans@cmp.com

Tom Huber, CEO of Collegis, took issue with my May 5 column about two IT workers who found child porn on a New York Law School professor's computer. His response can be found at: informationweek.com/938/collegis.htm.

Bill Gates' Web Site - Speech Transcript, CEO Summit 2003

Remarks by Bill Gates, Chairman and Chief Software Architect, Microsoft Corporation
CEO Summit 2003
Redmond, Washington
May 21, 2003

BILL GATES: Good morning. I hope the Tablets are working, but I also hope they won't be too distracting.

We're going to start out with a topic that we've touched on at every CEO conference going back to the very first one in 1987, and this is talking about IT and its role in corporate competitiveness: What are some of the key issues, and what are some of the key opportunities?

Microsoft's view on this has been pretty constant throughout. When it became over-hyped, we were a little concerned about the promises that were being made during those times. At this stage, in a sense, you could say it's almost under-hyped, and a good example of that is that there are various articles that have come out. The Economist said "Paradise Lost." Even IBM, the other largest company in our industry, talks about the post-technological period. The most extreme was probably the Harvard Business Review sort of suggesting that railroads and IT had a certain similarity, and now that the tracks have been laid, there was no competitive advantage to be had from having better IT systems. The New York Times said, "Has technology lost its special status?"

Well, our view on this is that IT long ago moved away from being simply about back-office activities, simply about printing checks and keeping the account books. And, over these last seven years, it's moved to become the tool that determines whether your information workers can do their job effectively. Do they know what's going on with customer satisfaction? Are they engineering new models in a very effective way? Are they finding partners to work with in a strong fashion?

And, although a lot of that is very difficult to measure, it has been a very big challenge for IT departments to step up to these new things. Historically, the IT department knew that its equipment was all in the glass house, and understood how to deal with that. Today, it's cell phones that people are carrying around and downloading information to. It's portable devices, it's spreadsheets that people have on different desktops, and in a sense, the scope of their responsibility, and how much they should invest in making those people more effective, is something that a lot of companies have had a hard time seeing exactly what that level should look like.

I think the good news is that the advances in the technology are strong enough that, literally for the kind of investment people have been making, they can get best-in-class, very exciting advances. And so, we don't need to be even at the peak levels that existed during some of the more ebullient years, and yet, cleverly applied - being on the forefront and getting a lot more out of the very substantial investment that's made in the workers themselves - then that's achievable.

Our industry, of course, benefits from the so-called Moore's Law, the doubling of power every two years. The key investments that drive that forward have not slowed down, despite what's going on with the economy or IT spending. If you ask how fast will the chips be over the next six or seven years, it's that same exponential increase. How large will the disk be that's connected up to these machines that are now typically 20 or 40 gigabytes? Those will continue to grow in size, at the same time that, actually, the cost of those are coming down.

There's been an interesting crossover point that we've been looking forward to for quite some time, and that's the point at which the high-volume, so-called industry standard, machines that use Intel or Intel-compatible chips: When will they have the performance of the more expensive, proprietary type systems, which have been lower volume? Classic mainframes are very high-end UNIX type systems.

We've passed that in terms of price performance a long, long time ago. In fact, that's sort of the business model of the industry standard offering has implicitly because the R&D cost is spread across so many units, millions of servers and over 100 million desktop machines. Whether it's chip R&D or software R&D, it's really a very different world.

The one footnote to that, though, is that if you wanted the absolute highest levels of performance, there were still some things that these devices couldn't do. A few years ago, for all but the applications that had to run on a single system, we reached the crossover. That is, in any application, like a Web front-end where you could use multiple machines and split the task up, the industry standard price performance and absolute performance was in the lead.

More recently, as part of the launch of our new Windows Server 2003 product, we - together with HP - showed through a wide range of industry benchmarks, transaction type benchmarks that actually, even in the most demanding case where the database or another application has to run on a single system, we have passed over.

So, this intersection point that I'm showing here on this timeline - we are now just past that crossover. That's a nice thing, because it means in terms of simplicity, what you have to have - development models, development tools and just plain the price of the equipment involved - now, it's not just some applications that can ride this curve, but it's everything that you're doing.

So, that's a very interesting milestone. In fact, one of our top researchers, Jim Gray, who writes about transaction systems and the great things we're doing, wrote a paper saying that it's a zero-dollar business over time, because as the hardware gets more powerful, the hardware prices go down. It is a true map mathematically that at least the hardware piece, that the price approaches zero. It's not at zero yet, but that kind of performance really opens your mind to thinking about using these transactions and using these rich systems -- that the trade-offs will be very different than they've ever been.

Let's look at the different eras that we been through, going back really to the Internet explosion. By the time of the Internet explosion, which was '97 - '98, PCs were in place by and large, but they weren't all that well connected together. It was really this period, '98 to 2000, where we saw the explosion of a number of things, and, coupled with this, of course, we saw IT spending in absolute, as a percentage of capital spending, achieve record levels.

The Internet came along, and there was a lot of discussion of what that meant, some of it in retrospect overly optimistic, but it did mean information accessibility. It did mean that companies needed to drive to have Web sites to do things very rapidly. It meant that some of the ways business relationships were handled were becoming very different.

It was during this era that the number of devices, PCs and servers really exploded, and it was just necessary that if you had a PC for every information worker, if you had servers for all these tasks, you were going to have these large numbers. E-mail exploded, almost became for most companies the standard way that people share information. The number of vendors of software was very large, and because people were in a rush to get the best pieces put together, they often found themselves with literally dozens of software suppliers. And integrating those things together, understanding how to work across those different things, this was the era where it became common sense that enterprise applications - particularly SAP's R3, but also some of the others - that everyone would move to use those as the foundation piece, instead of writing in-house software to do those things.

And so, there were huge benefits. This was an era where people were moving very rapidly, and certainly well over half of what people expected to get out of these things came to pass.

We've gone through a period that I'd say started March 2001, if you use stock price as a nice demarcation, to when the mentality kind of shifted. We've gone through a period where the view of looking at this, the glass that's half full, and seeing what are the harsh realities of what's really not there, and what should be done better: that's been the dominant theme.

So the Internet bust, you can measure that not only in financial terms, but think about what people said about B2B exchanges, where there'd be these middlemen organizations, and all the business would flow through those things. I think of the several hundred of those that were put together, only two or three have found enough value-add that they still exist today.

That vision of e-commerce is still very important, but it will be done without hubs. It will be done with each business essentially being its own hub, and being able to reach out to its suppliers and customers using software to get all the benefits that the hub was supposed to provide - the ability to find everybody out there, the ability to map their data formats into your data formats - and so there really doesn't have to be any friction, any middlemen, in that.

But those dreams were strong. People have looked at the complexity of IT management, all these different packages. You know, do they know if their systems are up to date? Do they know that they can say there won't be any security problems that come along in the systems? Even e-mail, as wonderful as it is, some of these things like spam are now at pretty unbelievable levels. And it's not just spam against consumer e-mail accounts like Hotmail or AOL. I'm sure many of you have noticed that spam has come into corporate e-mail domains as well. And e-mail can often be a distraction unless the tool is very good, and people are smart about using it. In some ways, the time benefits you get, a lot of that can be thrown back away unless it's done in a very clever way.

And finally, the idea of those enterprise applications, as good as they've been: the panacea that you'd be able to really dive into data in a way that's meaningful to manage, or get down to any level of information and run complex processes like sales analysis and forecasting in the most effective fashion. That dream has not been realized.

And so, many people looking at these harsh realities sometimes say, well, this IT stuff, it's messy. Let's outsource all of this. Let's get somebody else to do it. They can get the benefit of Moore's Law, and we'll just sign a five-year or 10-year contract that drives that outside.

Certainly, for some parts of IT, which are very measurable, repeatable type things, there is validity in that. But we're from the camp that says when it comes to defining new applications and thinking about business processes, IT is so central to the way work gets done and the quality of that work, and there are so many opportunities to do that better, that staying in control of this to have it as part of the overall business strategy is very, very important.

Now, the industry saw these harsh realities not just in these last few months. The issues of reliability, cost of ownership, security - those go back three or four years. And so, what we're seeing in the products that are coming out this year and next year is how the industry has responded by making investments to deal with those things. And this is where I think in some ways people are really underestimating what can be done. It's kind of natural if you overestimate what an industry can deliver, and then that you cycle back to where you underestimate those things. But I think we're on the verge of particular software advances that really address these harsh realities.

For example, e-commerce. Many of you have heard about XML Web services, and although that's a fairly technical thing, it's a fundamental thing, because it's the infrastructure that allows companies to exchange information for buying and selling and collaborating without the two IT departments having to build special applications that only relate to that one particular relationship. It's a general way that no matter whose software you use - whether you use IBM's or Microsoft's or someone else's - as long as that software adheres to these Web services standards, that ability to buy, sell, collaborate is available. And not just in the trivial sense of taking the paper invoice and sticking it in e-mail, but in the deepest sense of how you find those partners, how you do secure exchanges with them, how you track the workflows, so that if something is delayed or something comes in that's not right, the electronic path is the effective way of dealing with those issues.

As people move to partially do e-commerce, in some ways it was even more complex because you had the straightforward information passing electronically, but all the exceptions would result in phone calls and faxes and e-mail, and having the understandings that were created in parallel in that knowledge worker side, and getting the backend systems to understand that sometimes the impedance and the mismatch there even took away the benefit of having a piece of it be electronic.

The idea that when you have these Web services, that you can capture the full richness of what's going on with complete visibility to the knowledge workers, to update those things and be notified appropriately of things, that is where you get real benefit of saying that the paper approach really is completely obsolete.

Web services are something the industry started on several years ago. We bet our company on it in the year 2000, calling it our .NET strategy, and there's been great progress on that, in fact, lots of interoperability between the different software stacks, the key specifications all put together, and now we have pioneering customers doing very well with that.

The second issue is about managing all these things. The IT department generally measures its difficulty in handling things as proportional to the number of servers or proportional to the number of desktops. That really shouldn't be the case. I mean, the software should automatically keep things up-to-date, and if you say apply this new version for all of these workers the software, the network should make that happen. So things shouldn't be proportional to those large numbers.

Well, that takes a new generation of software. It didn't exist on those earlier systems because the numbers just weren't large, and so having manual involvement was not impossible. Here, it is impossible. The vision has been articulated by many companies in the industry. Sun talks about M1. IBM talks about autonomous computing. Microsoft calls it the Dynamic Data Center. And it's really the same thing; it's software tracking the system, and IT only having to see the exceptional cases that can't be solved through that software intervention, so none of the efforts having to be proportional to the large number of systems out there.

Another key thing is this idea of Trustworthy Computing. How can we make these systems so that virus attacks or software holes are extremely rare, and that recovering from those things, even when they do happen, is very straightforward, where you understand exactly what needs to be done to reset so those aren't a problem. This has required a lot of invention by the industry. It's required a new way of doing software development, new testing tools, and the progress here has been even faster than I would have expected.

This is not a completely solved problem, but the rate of improvement, the degree of improvement, the monitoring tools, the ability to audit and say, is somebody following the best practices on these things, has improved very dramatically in the last few years, partly because this became the top priority for the industry. We took products like the Windows Server I mentioned earlier and we actually stuck an extra six months in the schedule because we knew this was such an important thing.

E-mail: People love to complain about e-mail, but if you say to them, OK, we're going to take your e-mail away, then they'll complain even more, so it's that love-hate relationship, and the key is how do you take and do things that get the love part to be preserved and take away all those things about the distraction. And I'm going to show you in this next generation of e-mail products how we think that's been achieved.

Another big advance is the understanding what's going on with these systems. Microsoft four years ago had no visibility when people were using PCs and things wouldn't fit together. If a device driver didn't work, if it was hard to install, if software conflicted with each other, we didn't have a real picture of where those mismatches were.

Now the software has built into it reporting-back facilities, and so for anybody who's willing to let those reports flow back, which 70 percent do, we see those things, and that drives our priorities in terms of who's got to work with these driver makers, who's got to work to make these systems more resilient, having a total picture of what people are frustrated about, what's not working for them, which we call our Watson Initiative. It's been night and day in terms of being able to understand exactly how engineering resources should be applied, and being very numerical about what the PC experience or PC server experience is like.

And finally this issue with these silos of information, serendipitously it turned out that the architecture, this Web services approach that is necessary for e-commerce, also is necessary for moving information even within the company, and so that one approach, we're getting massive payoff for that. In fact, we're using it for systems management, we're using it as the basic connecting architecture for everything that goes on. And so the leverage there, because now we have tools there, we have broad industry understanding, it means information flow within a company, across company boundaries, and then the specific IT issues are dramatically advanced because of that one architecture.

So for any company, our view is you have to think about how software, the software strategy, information sharing, the rich applications that you license and that you create, how those affect the four things I'm showing here: How the people work together, how the processes work, and even simple processes like expense report management or the human resources review type process, is all the information really there in the simplest, most effective form? As you talk to somebody about their headcount budget, is it easy for them to immediately go and see how that's changed and where things are versus forecast? Very basic processes that, I'd say, the state of achievement in most companies is way, way less than even commonsense would dictate that it should be. Information about the market and what's going on; there also people who haven't gotten things that really would help them drive their processes.

Web sites today, although they have lots of information, they're not gathering as much customer information as they should, and that information, the way it flows inside the company, is not a simple as it should be.

Creating relationships where you think about key partners and how you do work with them, that's another thing where partly because the security infrastructure hasn't been in place, partly because the Web services things weren't there, people are only getting a little bit of benefit once you've crossed that corporate boundary.

So all of these things tie back into whatever the core business goals are, and really require a strategy focus.

One of the accounts I work with set goals for their IT budget, and unfortunately it was decoupled from the idea -- this is an auto company -- was decoupled from the key initiatives in their engineering group to get the design cycles down to be 30 percent shorter than they were. And when you get that kind of decoupling, of course the IT people aren't going to do the things, some of which are very modest in expense, you know, the basic expense of the PCs and the network are there, the idea of building these sharing Web sites and getting people able to use them, it's about a 5 percent increment on top of just keeping that normal infrastructure in place. And yet, because the investment decision and that strategic goal were not tied together, the engineering initiative thing was delayed, and may not happen in the timeframe that it should.

Jack Welch talked when he was at the CEO conference about how do you get competitive advantage. The people you're hiring come out of the same pool, the techniques that you're using are not that proprietary, and so he talked about this information advantage being the key thing: understanding customers, understanding competition, moving at a speed that you take that information and translate it into action.

And so every software system should be benchmarked by exactly that kind of criteria. And so when somebody says, to take the extreme quote from the Harvard Business Review article, they say IT doesn't matter, they must be saying that with all this information flow, we've either achieved a limit where it's just perfect, everybody sees exactly what they want, or we've gotten to a point where it simply can't be improved -- and that's where we'd object very strenuously.

We have seen in terms of new technology a lot of waves come along: the original PC, where you had the development and you had big adoption; then we had Windows, which was a wave like that. I talked about the Internet wave; really it was the biggest, because it moved out from just the individual to the way that organizations worked. And we have some of these waves that we're just at the early cusp on, things like wireless networks. Of course, these Tablets are connected up to a wireless network. Everywhere at Microsoft, that wireless network is in place. And so when people go to meetings they take their PC, they have the latest information, they can write their notes, share those with other people, check information, so we just kind of take it for granted. Wireless networking: one of the beauties of this Wi-Fi is that it doesn't have any ongoing costs. Once you get it into place, other than maintaining it, it's there, it's simply using spectrum that's available to everyone, and so as an increment to the base network cost that you have it's not that significant.

So that's just catching on, catching on in the home, catching on in the places that people travel, so-called hot spots, catching on inside corporations. I'd say about 20 percent of corporations have done what we've done and made it something that's pervasive in terms of what they do.

If you look at the investments that are made in IT, of course it breaks down into some very significant buckets. Licensed software tends to be, even if you take all the different applications, on the order of 5 percent or so. The biggest expense -- and the ones that really new software advances will be measured against how well they do -- is how they can help with these other pieces, letting you take advantage of low-cost hardware. I'd give the industry a very high grade for doing that. Letting you rationalize your network cost so that you can benefit from the price declines that are taking place there; a good example of that is that now we allow people to take their mail servers and put them all in one place, you only have the mail servers in one location for a global enterprise. That makes it a lot easier to pool those things and to have the IT expertise, as opposed to before where, because of network delays and sometimes reliability issues, the software didn't get around those problems, so you had to have the e-mail servers out on a very distributed basis.

Making the IT staff not having to visit desktops so that, as they diagnose issues, they come to them in a very high-level form, and making sure whatever IT services get used are not applied to writing essentially glue code that just connects applications together. I think that we'll see very substantial changes in how these investments are made, but the enabling factor is the advances that come in that platform and application software.

Because of the volume economics, literally billions, if you take the aggregate R&D of these things together, it's about $40 billion, of which Microsoft would be about $6 billion of that. The advances will come very rapidly here and allow for either cost reductions or more effective use of the other parts of those investments.

Well, let me now switch and talk about some of the particular things that drive our excitement and optimism about how people are going to work, and how that's going to change information flow inside a company.

Communications today is nowhere near the ideal. Your multiple mailboxes and phone numbers, and the different devices and people trying to get a hold of you, a lot of integration could be done here, and that means integration across the different devices, integration between the PC and the phone and allowing the PC to be more than just e-mail, letting you communicate in real time and share and do things together. We're investing very heavily in this because any improvement to communications has this very dramatic effect. Knowledge workers spend most of their time in communication activities.

The idea of collaboration, sharing information, this is another area where the choices have been pretty limited. Web sites are very hard to build. If somebody in the office says, OK, I want to make a new Web site, they have to go to IT and get it approved, they have to use complex tools, so they're not likely to share that way. Sharing files -- all you get is a list of files up there. And the final way of sharing, that's the most common right now, is just doing enclosures in e-mail, but that doesn't let people see the different versions, your e-mail gets flooded, you have different people working in parallel with documents that may be out of date. Really what you want is that Web site, but you want the Web site so that anybody can just sit down and create one without having to go to IT, without writing a line of code, and pick a template to choose for the Web site, and then easily customize what they want to create on that. This kind of sharing and collaborating is a big step forward for us. We call it using SharePoint.

So, just to give you an example of some of these communications tools, and how the PC will be viewed in a different way in this, I would like to ask one of the people who has really driven some of these products, JJ Cadiz, to come out and show us real time collaboration.

Good morning.

JJ CADIZ: Good morning. Thanks very much.

It's my pleasure today to be able to show you PlaceWare, which is a technology that you can get in your company today to drive a lot of improved productivity by enhancing telephone conference calls you may have in your company, but also to reduce costs by reducing the amount of travel that happens in your company to talk between distributed team members.

So, let's go and take a look at PlaceWare. What is PlaceWare? PlaceWare is a Web-conferencing application being used to basically take any Web browser and telephone to have meetings online. And when we talk about meetings online, we're talking about meetings with remote colleagues, with customers, and also with partners. And when I say meetings, I'm not talking about just the small one-on-one group meetings that are out there, but also huge group meetings. So we're talking about meetings of up to 2,000 people. So a lot of times those would be meetings of a whole division.

Now, I'm actually using PlaceWare to talk about PlaceWare here. So in the main screen, what you see here is PlaceWare, and we're actually logging into a room that I've created for this demo, and in the lower right hand corner you should see Bill is actually logged into the same room. That way we can give you the sense of the two different rooms, and how they look, and also how quickly things update.

Let's talk about the basics of PlaceWare. Now, as you think about meetings, there are kind of three major stages of meetings. There's the before-meeting, the during-meeting, and also the after-meeting. Now, the way that you can schedule meetings is very simple. You just need to go to a Web portal and schedule meeting, a PlaceWare meeting, when you schedule a meeting with Outlook, or you can also go and use the Outlook client to do that as well.

Now, when it's actually time to enter the meeting, you can do things with Messenger, you can click a link within Messenger to go in there, you can go into the same Web portal to do it, or you can just go to an e-mail invitation, which is probably the major way that most people get into PlaceWare meetings. Let me show you an example of one of those e-mail invitations. I have the ones here for the demo that I'm showing you here. And all any employee would have to do with a Web browser is just click this link, and they'd be able to get into that meeting.

Now, if I actually wanted to show someone an example of this e-mail, you'll notice that in the lower right-hand corner there, you aren't actually able to see this e-mail, all I would have to do is hit the snapshot tool here in PlaceWare, position it over the e-mail, and then just take a picture. Let's go ahead and do that here. Now, so we have that within the PlaceWare client, and then all we have to do is say, here's the link you need to click. You can just kind of ignore these other links down here. So you can do things like that.

Now if I actually wanted to show someone a live demo of something going on, let's say we want to have an Excel spreadsheet that we're working with, OK, I can actually just bring it up here, and then do an application-sharing slide that we can do with PlaceWare. I'm going to do that. So, I just position the frame, and then press Play, and this entire anything that's in the frame -- will be shown up in the lower left-hand corner. Now, the cool thing about that is that I can, of course, have my e-mail client over to the side here and be doing things, knowing that it's not actually being shared with anyone else.

I can also show live technology demos, saying here's the way you can modify Excel pie charts and such.

The other thing is, I can also give other people control of this spreadsheet. So, if I wanted to, and someone else had newer numbers up here, they could go there and I could give them control to modify the numbers within here.

Now, PlaceWare also has a bunch of other tools. And one of the kind of most fun tools we can do is ask questions of people who are in the room. So, let's say that I have all of you in this PlaceWare room here, and I went to ask you a question. All I have to do is press the polling slide, and I could ask you a question like, how about, what should Microsoft's next dividend be? So, I could say zero, I could say the same thing it was last time, or a little wild thing, what you do think, $1.50. You can vote here, and you get a live update of how people are voting. We can look at that person's vote, so we can see how people are voting from the presenter's view over here. So, polls are very easy to create. And the other cool thing is that all of these poll answers are kept for me later on. So, actually the presenter will get all the poll answers later on. So, you can imagine even being able to use this to grade students if you had them in a class in PlaceWare.

And I also get a list of all the attendees who showed up. So that way, if I knew 100 people were supposed to show up, and only 95 did, I could actually go back to those five people and say, hey, if you want to look at the recording, it would be great if you could do that, because with PlaceWare that's as easy as bringing up the recording control panel and pressing start here if you want to record any meetings. Now, the other nice thing is that the meeting rooms that you use within PlaceWare all persist. So, if you want to go back and visit them afterwards, you can do that.

So, PlaceWare is something that we're very excited about here at Microsoft. The last fiscal year we actually spent over $3 million on tools like PlaceWare to help our employees cooperate, and now that we have PlaceWare, we're using it in a variety of settings, including regular meetings between employees and field offices, and employees here at Redmond. We are using it to present to customers. And even at one of the last board meetings, where not all board members were able to attend, we actually had them attend remotely using PlaceWare, so there are a lot of great examples of methods that you can use PlaceWare for out there.

Now, what I would like to do is change gears and switch to a second demo that also has to do with real-time collaboration, and it has to do with a real-time collaboration tool that all of us are probably very familiar with, and that's this thing sitting right here, the common telephone that all of you probably have on your desk. Now, the telephone is a very powerful real-time collaboration tool, but it doesn't right now interact at all with the PCs that we also have sitting on our desks.

So, the enhanced telephony demo is all about how can we help bring together PCs and telephones to create a powerful user experience for people. So, I'm going to bring up the Enhanced Telephony client here. And the way we have this set up is that integrating with kind of existing systems, so we're not trying to turn the PC into a telephone or replace existing telephone systems, but rather integrate the systems that are currently out there.

So, let's get the music going here, that will be part of the demo. And when we talk about helping the PC and the telephone to be better together, what do I mean? Well, I mean kind of two specific things I'm going to show you, and the first thing is that it should be really easy to dial someone. Any time I see someone's name or phone number on the PC screen, I should be able to dial it. And, of course, it sure would help me when I'm receiving calls as well.

Let's go ahead and do the scenario where I want to call Bill. So, here's my favorite list of people to call, and so I'm going to call Bill. Now, what just happened there? First of all, notice that the music isn't playing, right, so the PC knows that I'm using the telephone, so it can mute the music any time that I'm using the telephone. We have a phone set up here to be me, and we have that phone set up to be Bill. So, when I click the link, what happened is that the phone went off hook, it actually went to speaker-phone mode, and then dialed that phone sitting over there.

Now, once I'm in the phone call here with Bill, you know, I can take notes here, you can imagine these being ink notes if it's on your Tablet PC over there. I can so do easy conference calls and transferring of calls because the interface on the phone right now sometimes kind of makes that difficult. So, when I transfer calls I forget how to use the transfer button on the phone here. I can share my screen with Bill using PlaceWare type technology. And, then once we're ready to hang up, we can actually just press the hang up button here, and then we go back to where we started from.

The other cool thing about merging together phones and PCs is I can allow people to search across the entire corporate directory as well as their personal directories for phone numbers. So, if I went to look for Laura C., not only would it show the Laura Cadiz, who is in my personal address book and all her phone numbers, but also all the Laura Cs in the Microsoft Corporation, OK, and I can dial them just by clicking them.

That's how we make things easy to dial, and how to make people easy to dial. So, again, imagine anywhere in the operating system where you see a person or a phone number, you can just click it and dial it.

Now, let's talk about the incoming calls here, all right. What happens if Bill calls me. Let's go ahead and do that. Okay. So, there are two different things that are going on there. One is that you might have heard faintly in the background that the PC can actually act as the ringer. The other thing is, notice that I didn't actually answer that call. And because I didn't answer that call, ET automatically sent me an e-mail that says, hey, Bill Gates just tried to call you. That way, if I wasn't sitting in front of the exact PC where I was running ET, I could tell that people were trying to call me.

The other cool thing is that, notice that the only thing coming out of the phone here is a normal phone cord. There are no other actual wires. That means I can actually receive notifications of people trying to call me no matter where I am. So, let's say I have the common cell phone sitting here with me, and I'm sitting in a Florida hotel room like I was a few weeks ago, and I get a notification of an incoming call. I can actually set the transfer button here, I can attach this to my cell phone, and that way even though I'm in a completely other state, and I'm not next to my phone I can still take calls. Now, because ET can also programmatically transfer phone calls you can imagine setting up a variety of rich rules, for example, things like any time I'm not at my computer forward all my calls to my cell phone during business hours, and during work hours rather during home hours, go ahead and forward them to my home phone, but only if one of my coworkers calls me, not if any other random person calls me.

Now, the cool thing about ET, if we could go back to the main slide, is that ET is not actually just a demo that we bring out on the stage every once in a while, it's actually something that's deployed throughout the entire Puget Sound Microsoft campus. We first made it available on January 9th, and only told about 150 people, and didn't do any advertising, and we relied on just word of mouth to spread the word about ET, and right now we have over 5,000 people who have installed ET on the Puget Sound Microsoft Campus. It's also an excellent example of a technology that can be available using .NET, over 90 percent of ET is built completely using .NET.

Now, the feedback on ET has also been very good from our users. We've had a few unsolicited feedback emails that people sent us, saying a variety of things, like just because ET is able to make me more available it saves me often on several big issues. And actually, I especially like the second quote where Alice talks about the fact that one time she was sitting in a meeting, not next to her phone, and saw that one of the managers tried to call her, and she wasn't able to excuse herself, but she was on e-mail, because of her laptop, and was able to resolve the manger's issue there immediately.

These are two examples of real-time collaboration tools that we're working on for you, and the enhanced telephony demo specifically, that's working right now within Microsoft. We're going to need a lot of help from companies represented here in this audience to make it a reality for everyone else, and we very much look forward to partnering with those companies.

Thank you very much.

(Applause.)

BILL GATES: It's interesting, that getting the phone and PC to work together; a lot of people thought about that as requiring you to change the whole telephony infrastructure to work across the Internet, so-called IP-based approach. But it turns out that that example is a traditional PBX, it's a fairly simple piece of software, that talks between the network, the computer network, and the PBX network. And so even without changing out any of the existing infrastructure you can start to get these benefits. Likewise with PlaceWare, what most people do, because the Internet telephony, also called voice over IP, isn't high enough quality yet, they're placing a traditional phone call in parallel with that screen connection. And so they're the best of both worlds, they're getting the screen interaction, and yet the voice quality and all that is the same. And yet, it all gets set up, when you click to join Net Meeting, in one simple step.

I'm going to quickly talk about some applications that our IT group has built. This is along the lines of... there really are those things that were exploding in the late '90s, there have been some really concrete benefits that have come out of those things, procurement benefits, purchasing all purchasing being done electronically, making that a paperless process, invoicing a paperless process, expense reports a paperless process, where you can see the history of what somebody has done on expense reports, and simply approve those things electronically. This is pretty straightforward stuff, you can see the time between starting the project and rolling it out is in these cases on the order of six months. The actual volume of these systems, because the servers have so much capacity, the idea of handling 400,000 orders, or a million invoices, or 200,000 expense reports, a single server is not overloaded running those applications, and that's a $20,000 piece of hardware to do it. So really the software is the key element here. I'd expect if we surveyed your companies, about half would have done what's described here, that is, created a very straightforward user interface, and moved these processes into a paperless fashion. These other two examples I don't think we'd see quite at that same level of usage at this point.

We have another thing that's been very important for us, which is taking all our information about customers and bringing it into one place, the Siebel information, the SAP information, the Ad Hoc information, and letting you navigate that in one way. This is a classic problem, and it's one where the Web services approach is very apt, because every one of those major applications lets you pull the data out, and then create the user interfaces that make sense for the various people. And depending on their role, that user interface is going to be very different, you want to be able to refine that, you don't want that locked in by somebody outside the company, you simply want the data sourcing out of their rich applications into the single user interface front end. And so I think, although only about 20 percent of companies have done this, this will become pretty standard stuff.

We've also taken most of the processes and said, OK, we're going to create a SharePoint portal for every one of these processes, the task activities where they found savings opportunities by seeing what could be done in different venues that were pretty dramatic, paying contingent staff, employee self service, we had a lot of paper forms related to these things. One way to find the opportunities is to go where the paper is, and although that's been said over the years, I think that's still really the best way to see where things can be done better.

Now, these are administrative systems. The actual biggest benefit to us, the collaboration software, is in our product development process. That's harder to benchmark, because we're doing unique products, it's not like there's some other company there. But, our use of Web services and sharing, the impact of these typical back-end systems I'm certain here is outweighed by more than an order of magnitude by how it relates to our basic product design, product testing, product collaboration, on those different product issues.

We mentioned that the Tablet is something that we've embraced pretty extensively. The Tablet launched late last year, I think the first unit shipped in November. Those of you who were here last year got a chance to use the early Acer prototypes; actually that machine is now moving to a second version that's even faster, and a really very fine piece of work. There's an HP Tablet that has a convertibility thing that's really great. There's a Toshiba, sort of a no-compromise in terms of its rich portability. There's a Gateway machine. There's quite a few of these with different design points in mind.

We've got over 5,000 now, and if you go to a meeting, it's typical now, people are taking their notes, sharing their notes, we don't even bring Power Point print outs to a lot of meetings, because it's a lot better if you have the PowerPoint where you can take sales figures, and dive in and say, what was that by country, or time period, or product, which if you have it on paper, if somebody wants more detail, maybe you anticipated that and slide 200 in the appendix, you say, aha, I knew you'd ask that, I have the Japanese expansion on slide 200, so you flip to the paper. So that means you have to hand out something that anticipated every possible question that the executive might ask. It's a lot better simply navigable in a live presentation that's connected up to that data. So there's no doubt we are being a pioneer on the Tablet. There is no other corporation that has 5,000 Tablets in use today. And yet we see this over the years to come. But, all portables work this way, and even more of these machines will be portable type devices. You've probably seen the speed in terms of reducing the thickness of the device, and making it an attractive reading device has been pretty substantial there.

I thought I'd do one last thing, which is just to give you a sense of how I work in a typical day, using these tools; what am I doing sitting in my office. I've got here a pretty nice system, this is a 23-inch LCD, you can see it's got an interesting aspect ratio to let you see lots of information across like this. This is still a pretty expensive display, they're about $2,500, they've just come out, it's a Sony display. These will come down in price over the next three years, we think, to about a third of that, to $700 or $800. So even though today, maybe only the executive staff should have these things, these are going to be commonplace. You've probably seen a rapid shift in your company from CRTs and desktops to LCDs because the 15- and 17-inch LCDs are already at that $600-700 price point. So we're reached crossover where for any new system the LCD is superior, partly because of the text readability, partly because it requires less desk space. But as those LCDs get larger you'll see a couple of cases where that extra screen area really is very helpful in terms of that productivity you get out of it.

So the computer is getting smaller, while the display is actually getting bigger. I'll just go into e-mail... I'd say that of my time sitting in my office, that is, time outside of meetings, which is a couple of hours, two-thirds of that is sitting in e-mail. E-mail is really my primary application, because that's where I'm getting notifications of new things, that's where I'm stirring up trouble by sending mail out to lots of different groups. So it's a fundamental application. And I think that's probably true for most knowledge workers, that the e-mail is the one they sit in the most. Inside those e-mails they get spreadsheets, they get Word documents, they get PowerPoints, so they navigate out to those things, but the center is e-mail.

So here you can see I've got a lot of different e-mails. I'm in my Inbox here, and you can see I've got a bunch these are different folders here, these are actually the e-mails, and I'm using this three-pane view, so that when I navigate to different e-mails I'm automatically seeing the e-mail there. And that works, because I have this big screen, so I'm not having to go in and out of the e-mail a lot, I can navigate around with a lot of speed. Now, let's say, I have an e-mail here, there's a classic question when you get e-mail, is it something you can just read and say, OK, I'm done with that, that's very satisfying, you just delete it, and never think about it again, but often it will be something where you'll send a reply, and expect a follow up, or you think, oh boy, I'd better read that more in-depth. What you want to do is just flag it, you'd want to just right-click and pick some kind of flag, I picked a blue flag there, and then have that indicated, and then be able to see all the mail that you've flagged. So what we have here is a thing called For Follow Up, and it sorts it according to which things I put into the different categories, the blue, the yellow, the green, and that's just a view on the e-mail. I didn't have to move things into different folders. Moving things into folders is a lot of trouble, because then you have to navigate all those folders to see what's in there. It's easier if they're all still available in one place, and yet you just do this simple flagging. Although you can also move them down into those different folders.

One thing that you often want to do is look for your unread e-mail. Typically, if I see something and I think, gosh, I don't have time for that, I remark it as unread, but then I want to navigate those things. Here we just have automatically a place where you can click and see all those unread items, and navigate through all the different things that are unread, and decide exactly what you want to do about those things, do you want to forward them off to someone, or what might make sense. And you can group it, you can do it by time, you can group it by the people involved, that's a pretty interesting thing. You can see the way it's displaying this e-mail, it's a lot more terse than it's been in the past, and the reason is that it understands that this is the mail from today. I hope the font is big enough to read that. So this group here is mail from today, so it doesn't go and put, take up a lot of space, describing that, it's just the mail from today, this is the mail from yesterday, this is the mail from Monday. And so when you squeeze these things down to use less space, it knows that it doesn't need to display that date information, because it's today, you just need the time information, and that's why you can see it in such a succinct fashion. And having things organized that way is pretty natural. I think, OK, that was yesterday, and if you go down here you'll see Monday, and then it starts to group it into bigger things, last week, so this is everything that's in that group. And then you can select all of those different things.

One of the problems you get with e-mail a lot is, there will be an issue that's a controversial issue, and so one person will send that mail to 20 people, saying, we should do it this way. And somebody will respond and say, no, we shouldn't do it this way, we should do it this other way, and then somebody will decide we should add some more people to this discussion, and people start disagreeing. And say you've been gone in a meeting for three or four hours, you can come back and your e-mail box can have 20 messages that are all on this one thread, where people are pingponging back and forth. Maybe people try not to expose the CEOs to that too much, but that is life in e-mail, that you get those things going back and forth. So sometimes what you want to do is collapse things so that it's mail that all relates to each other, you just want to see it as one item, and see a conversation. And so you can just use this view button here, which is what you use to control whether you have this right pane, you can just say, do I want to group conversations together? And so you can have different folders that you've set up to show things that way. So here we have people talking about a hot controversial topic, user interface discussion. And instead of seeing the individual mails you just have them so you see the most recent, and then you can go down and just see the ones you haven't read, or see all the different ones that relate to that. You can see this topic, people going back and forth, an immense amount, and yet you can just see the most recent, you can just see what's there. So having conversations as something that e-mail understands is very helpful.

Another thing that's painful, has been painful, is dealing with calendars. Here I can see my calendar, I can see that as seven days, five days, today's calendar, but I may want to see other people's calendars. Now you can just click on the different people and it will bring in their calendars, and you can see the different things they have going on. It uses different colors, so it's kind of nice. Now the system can automatically try and find free dates, but, in a way, you often want to see the calendar; assuming they've marked it, you can see their calendar. They can choose either to share nothing, they can choose to share busy, or they can choose, in this case, these are workers who have said, at least for this colleague, I'm willing to share the whole calendar. So you see that all there, side by side. And you can actually take events, like I can take the CEO calendar and publish it, so it will show up here as one of these things I can show up side by side, or you can take your regular executive meeting calendar, and have that be one of these calendars, so you can always see that, and either copy it onto your calendar, or have it there by itself.

Junk mail is a big deal. We do have a lot, but we're getting smarter at automatically moving things. And you see here, there's this junk mail folder; things are automatically put in there. Right now the junk mail people are getting smarter as we get smarter, but we have a few tricks that we don't think they'll have any counter tricks to get around. So that's something we can't defeat, even though it's at a pretty high level right now.

JJ talked about being able to call people, or connect up a PlaceWare. Any place I see a name, I can click on that name and choose whether I want to call them, send mail to them, do a PlaceWare with them, any one of those things is an option that I can get into. Another complaint that we have about mail is the fact that when you send mail out to people, it's very typical that somebody gets something, and thinks, well, this is kind of interesting, I think I'll forward this on to somebody else. And then they think, well, yes, it's really interesting. Let me forward it to someone. And sometimes when we send mail, we have the sense of, well, I might as well publish it in the newspaper the way this stuff gets out there. What we've done with mail is, when you create a piece of mail now, what you'll be able to do is pick a mail template. So, you'll have a mail template, say, for attorney-client mail, or mail that's only for people who see the early financial results, and so you pick one of those templates. And what it's doing is controlling that mail; you set up the templates to decide who can receive it, can they print it, and you can also make it expire. So, if you send information out that, say, gets out of date, you can tell it that, OK, after that date, the information is no longer viewable. And so people know to go and get the most recent information instead of the thing that's out of date.

So, this information-rights management, where you have a sense that you can control the spread of that e-mail, and the software is helping you do that, we think that's a fairly important thing, because otherwise people think of e-mail as something that's just simply got no boundaries. E-mail is the biggest thing.

The other thing that I do is I go to these shared Web sites. Each of our product groups or project groups will have a Web site, and at that Web site you have information about the documents those people work on together, the calendars that those people have, and so it's a way of working together. And it's a shared Web site that's got all the different information that's available up there. These are the things I talked about people being able to set up on a very straightforward basis. They typically this one here, you know, is a CEO thing, you can see the calendar is here. I used the standard template for this one, if I ask for the contacts, it's just going to show me all the different people who are attendees to the meeting, so that comes up pretty well. I can put so-called Web parts in here, where you have information from business systems. This is too small, I should grow the text up. So, here I have stock prices from various people here at the meeting, and it's live. I hope that doesn't shock anybody. And I've got live news coming in from MSNBC. And you can have these Web parts that, say, connect to your project management system and show the current schedule for things, or show the sales results, are they at forecast, below forecast, and different Web parts belong on different pages that people have.

I've got a document library, and people can check things out, and check things back in here. Let me just finish up with two quick documents that are in here. One is a little spreadsheet that I have, and I just created this, it's almost a kind of a humorous thing. But what I did is, I created a spreadsheet that connects out actually to Amazon, and looks at which books are important. Amazon actually has one of these Web services. And so you can go in, and for any book, you can ask how well it's selling. And so here and it didn't take long at all -- I created a spreadsheet that shows, for people who sell computer books, which Microsoft is one through Microsoft Press, exactly what the best-selling books are, and exactly what rank they are. And so because of one of these pivot-table things, I can just take this and I can restrict it to a different publisher, or I can just go back and show everybody, and sort this in different ways. And so it's a live view. Typically this is used for sales-type data. Here is the pivot table that just shows who's got the most top-sellers. I can click in to drill down on that.

I've also created a live connection where I can type in any author and see how well their books are selling. So, I can type in...my books are really old, so I'm sure they're not selling that well. I just click Go, and what it's doing is, it's going out to the Amazon web site, and seeing everything that's got my name associated with it. I just have the ones that I directly authored, and I see here, OK, I've got one that's the 138,000th most popular, 88,000th, oh, 400th, that's not too bad. And honestly I didn't go out to buy any this morning to try and make this thing work better.

And I can even do some comparative things here. Let's see how Michael Dell is doing as an author. And so this is live information that's up on the Web site. At any time you can go do this, and typically you could hook this into internal systems. I don't know if the Internet connection is defeating me here or what. Did I not hit Return? Oh, that was my mistake, sorry, I didn't hit Return.

So, I'm a little bit ahead, his is the 401st best seller. It looks like Michael and I need to come out with a new book to move up on the charts there.

Let me just show you one other document here and this is to talk about reading off the screen. If ,as soon as you print a document out then, of course, you've had to pick not only what sales information but you've also had to pick the fact that if you make comments on it, then getting those comments back to the person is fairly inefficient, and yet reading off the screen has been very painful, and it's been a Holy Grail for us, and you've heard us talk about this over the years, making screen reading something that's very comfortable, even for fairly long documents. And so here I have a document, and you can see it's noticed that I have a wide display. So, if I scroll through this, it's showing, side-by-side, two pages. At any time I could say, well, this text isn't big enough, and I can say, OK, I want to make the text bigger here, and just click this and make it as big as I want. So, if your eyesight is not as good as it used to be, and you like to read it a certain way, you're doing that. You're not affecting the document, you're not re-editing the document, it's just doing this dynamic layout, and it goes down in size.

Over here, I turn over what are called thumbnails, you can see the different pages and what they look like. And I can just click. And I click on a page, it's a thumbnail over here, then it navigates to that part of the document.

Now, before we had this, when you were reading online, you had to sit and scroll with the scroll button on the mouse, you had to scroll line by line. And all usability testing showed that was a really terrible way to read documents. You really want to read it page by page. And so here, as you roll the scroller, it's just going page by page. So you don't get things spread across the pages in a very strange way. It's a very nice way to see a document. You can see the document outline here, if you want, instead of the thumbnails. Now, we're using the quality of this LCD, and the fact that we have clear type capability in order to make this work very well. Another thing, since it's online reading, at any time you can point to a word and just click on it, and we go out and we find you information. Here I clicked on the word diagram, and so I'll see in the dictionary the definition, I'll see the thesaurus. I can pick any language and translate that word into Japanese, or I can pick French, and see what it is in French. I can also do this so that when I pick a term it goes out and looks at a web site. So, for example, if you subscribe to Dow Jones Factiva, you can take something like a company name and ask to go and do a search on that, and make sure that one of the sources it looks at is the Factiva news search. And so I picked NEC; I could have clicked on that in the document search, and it would go out and see all the latest news and information about NEC.

We often have code names for products, so I'll see documents that have these code names, and I don't even know what the code name refers to. So I just click on the document and I say for it to search, and I pick the Microsoft Web site, all of our different Web sites, and I can see exactly what's going on with that. And so the fact that you can take any of this text, and use it to navigate and get information, is another thing that you only get with online reading.

Hopefully that gives you a little bit of a sense of, during those hours I'm not in meetings, what I'm doing. Both with your direct Tablet experience -- and Jeff Raikes a little bit tomorrow is going to talk about when you're in the meeting and you've got the Tablet note taking -- how that changes that part of the job, which, I'm sure for a lot of us, sitting in meetings is actually even more hours than it is sitting in front of the terminal.

There are a lot of breakthroughs coming, I won't dive into these, the ease of developing applications, that's been very hard for corporations, because they're duplicating a lot of things, and the code is being written at a very low level. The idea of being able to navigate business data in terms that you understand, by division, to really have schemas that let you navigate not just at the cells of the spreadsheet, but the terminology that makes sense to you. There are some big software breakthroughs coming on that will turn this into sort of a low-volume specialized market, where every worker has these rich views of profitability and sales, and things like that. Speech is coming along; it's not mature like handwriting is, but it's within a few years of that, so that making voice annotations, of course, that's easy, it doesn't require recognition, but even giving your commands and navigating with speech will be possible. And the connection of the phone and the PC, we're going to see some dramatic things there, where the phone right now is a challenge for IT departments to manage, because people are downloading information onto it. By doing integration we can allow that scenario, but still have the connectivity that people expect.

So the conclusion for me, in terms of how you should think about IT investments, and where it's probably most effective, and making a difference, is it's important to see that although those harsh realities are there, how is the industry responding to that, software advances are the key breakthrough that turn back those realities. There's a lot that can be done in empowerment. And as long as these breakthroughs are coming along, it's worth it to give those people the best tools. And one great thing is that there are many best practices; for any one of these things that I've talked about, there are pioneering companies and Web services, and how they're using e-mail, how they're using SharePoint, they are doing pretty neat things. And so it's not like people are off on their own. They can move out with some certainty, seeing what the pioneers have done.

So we're pretty excited, obviously we must be, we're still increasing our R&D budget, up from the $5 billion level, and I think that will be fully justified. So we look forward to working with you on putting some of these things into practice.

Thank you.

(Applause.)

EE Times - Intel's Barrett fires back in IT relevance debate

Referring to the current debate about IT's efficacy, and specifically to the HBR article which he said "best articulates the pseudo-populist theory," Barrett said Carr's suggestion that "IT is a commodity infrastructure like roads, the internal combustion engine and electricity," absolutely misses the point.

All of those common infrastructures are infrastructural elements that allow you to make or move material; they don't allow you to put intellectual content or value into what you are doing

IT, Barrettt rejoined, "is the vehicle to put value in what you are doing. Therefore, if you want to have a high standard of living, if you want to have a progressive economy and if you want to be competitive around the world, you either have that infrastructure or you don't. If you don't have it the jobs will go somewhere else, which is why I have said you have the possibility of a jobless recovery [in the U.S., western Europe and Japan] if you don't have that IT infrastructure upgrade.

Barrett went on to say that "economies today are measured in terms of intellectual content that is embedded in the products they sell. IT is the vehicle by which you take information and data and turn it into intellect content. Either the U.S., western Europe and Japan invest and upgrade or they will see a somewhat devastating jobless recovery and the job will go to where the educated people are and where the tools and infrastructure are.

"Intel can't design a next generation chip without IT infrastructure, Boeing can't design an airplane and GM can't design a new automobile without an advanced IT and communications infrastructure. And you can't index the human genome or tailor drugs on individual DNA makeup without IT infrastructure. To me it's a no-brainer. The only question is when do we start to invest?

johnhagel.com Where Business meets IT

IT Does Matter
(written in Collaboration with John Seely Brown)

For those of you who have not seen it, the latest (May 2003) issue of Harvard Business Review has an article that will have significant impact in the business world. The article, by Nicholas Carr, an Editor at Large for HBR, is provocatively, but somewhat inaccurately, titled "IT DoesnТt Matter". Carr doesnТt actually say that in the article Ц instead, he argues that the opportunity for strategic differentiation through IT is rapidly diminishing. While he acknowledges that IT is essential for business operations, he makes the case that IT should be managed as a commodity input, squeezing cost out of IT budgets while at the same time ensuring that IT platforms deliver the necessary reliability and security to avoid business disruptions.

We believe this is an important article because it very effectively captures the backlash sweeping through executive suites against IT spending. Certainly much of what Carr writes is spot on: companies have spent too much on IT in the past with only minimal (if any returns) and there is a need to focus on the increasing vulnerabilities we face as we become more dependent on automated operations. But CarrТs article is also dangerous because it endorses the growing view that IT offers only limited potential for strategic differentiation.

We ended up writing an extensive rebuttal to CarrТs article that will be published in the July 2003 issue of Harvard Business Review. In the meantime, we thought we would briefly recap the three key points we made in this rebuttal, so that we could at least make our voices heard earlier in the debate that is sure to develop around this article:

Carr refers to previous technology innovations like the railroad and electricity to make the claim that rapid early investment in the technology is soon followed by commoditization. We argue that IT differs fundamentally from these other technology innovations in two key respects. First, performance improvements in the underlying technology components has proceeded at a faster and more sustained pace than any of these previous technologies. Second, the performance improvements in the technology components have enabled a series of architectural shifts from centralized mainframe architectures to client-server architectures and, more recently, to three tier architectures. Each of these shifts has amplified the power of the underlying technology components, in part by creating more flexibility in the deployment of these resources. In contrast, previous technology innovations began to stabilize and commoditize as a dominant architecture emerged (e.g., think about the standard railway gauges that helped to connect tracks and establish a national railway system). We have yet to see a dominant architecture for IT emerge. In fact, we believe we are on the cusp of another major shift toward a true distributed service architecture that will represent a qualitative breakthrough in terms of delivering more flexibility and fluidity to businesses.

In other contexts, John Seely Brown has championed a perspective he describes as radical incrementalism. This perspective emphasizes the role of architecture in facilitating the ability to rapidly build and deploy radical new components. With an appropriate architecture, radical individual components can significantly amplify their impact. We believe that distributed service architectures will be exactly this kind of architecture in terms of amplifying the innovative potential of individual technology components. But it wonТt stop there.

Distributed service architectures have the potential to create a powerful virtuous cycle when coupled with the FAST strategy outlined below. By amplifying the potential of individual technology components, these technology architectures will expand the range of options available to business executives in terms of how they organize and run their companies. The FAST strategy approach helps business executives to innovate business practices in rapid increments, focused by a longer-term view of the opportunities and requirements for business success. Thus, the technology architecture will amplify options for business innovation and the FAST strategy approach will accelerate the innovation process Ц giving businesses powerful tools to build and deepen strategic advantage.

Bottom line, far from believing that the potential for strategic differentiation through IT is diminishing, we would maintain that the potential is increasing, given the growing gap between IT potential and realized business value. For the more detailed development of this position, you will unfortunately need to wait until the July issue to read the full letter.

IHT Article Print Page

He makes two critical points that are sometimes being lost in the current debate: ". . . it is possible to agree that technology can deliver broad productivity gains without necessarily delivering higher profits or competitive gains for individual companies, a point made by Mr. Carr. It is also possible to agree that the technology industry continues to be innovative and important, without also accepting that it will be a growth industry as it has been in the past."

Ringing the death knell on tech's high-growth era
Steve Lohr NYT
Monday, May 5, 2003

Martin Pichinson is one of Silicon Valley's undertakers. His company, Sherwood Partners, has carved out a prosperous niche as an expert in shutting down failed technology start-ups - 150 in the past two years, and Pichinson figures that thousands more are destined to fold.

"We're doctors of reality," he said.

The winnowing of the corporate population is just one sign that the information technology industry is maturing in ways that will affect technology companies, their customers and investors for years to come. But what is painful for Silicon Valley is beneficial for those who use the stuff it produces.

The industry, according to Irving Wladawsky-Berger, a strategy executive at International Business Machines Corp., has entered "the post-technology era." It is not that technology itself no longer matters, he said; but steady advances in chips, disk storage and software mean that the focus is no longer on the technology itself - with its arcane language of processing speeds and gigabytes - but on what people and companies can do with it.

As a result, industry executives and analysts say, the balance of power is shifting away from technology suppliers and toward their corporate customers. At the same time, the use of lower-cost building blocks of computer hardware and software is spreading, making it easier for companies and individuals to share data and work together using industry standards rather than remain dependent on one or two key suppliers.

These trends, they say, point to increased pressure on prices and profits for most technology companies, a good deal for corporate customers and a very tricky time for investors.

This is more than a backlash against the bubble years, a mere pendulum swing in attitudes and practices. The technology itself will still deliver waves of innovation in the future, but the industry that has risen to account for 10 percent of the economy and nearly 60 percent of business capital spending can no longer play by its own rules.

"I don't see a loss of faith in technology, but gravity has been turned back on," said Dick Lampman, the director of research laboratories at Hewlett-Packard Co.

Yet an article published last week in The Harvard Business Review does question corporate America's faith in the value of technology.

Titled "IT Doesn't Matter," it argues that information technology is inevitably headed in the same direction as the railroads, the telegraph, electricity and the internal combustion engine. All of these industrial technologies aged from their boom-time youth to become, in economic terms, ordinary factors of production, or "commodity inputs," the article said.

"From a strategic standpoint, they became invisible; they no longer mattered," wrote Nicholas Carr, editor at large. "That is exactly what is happening to information technology today."

Most corporate executives say there is a lot they can do now with technology to give themselves an edge. Glen Salow, chief information officer of American Express Co., sees the recent trends in the industry as working to his advantage.

First, he said, the hard times in the technology business have increasingly meant that big corporate customers hold the upper hand in their dealings with suppliers. That shift, Salow said, has given him not only more bargaining power on price but also more influence in the development of products and services.

With their new power, customers are also pressing for greater flexibility in how they buy computing resources, including paying only for as much product as they use, as if they were buying electricity.

The widespread use of software standards, Salow said, enables the thousands of internal programmers at American Express to build applications almost as if snapping together Lego blocks, reducing the amount of code that has to be written by hand. A result, he said, is that the software for, say, a new credit card offering or a fraud-detection feature can be built and put in use in about two weeks; five years ago, this might have taken six months.

"It all frees you up to take more gambles because each risk is not so costly and you can move a lot faster," Salow said.

The push toward utility computing, according to Wladawsky-Berger of IBM, fits neatly into his concept of a post-technology era.

"In the last few years," he said, "the underlying components have become so powerful, reliable and inexpensive that you don't have to worry so much about the underlying engine, and you can move up to higher-level concerns."

IBM has moved more and more toward becoming a provider not only of technology but also of business expertise in 17 industries from banking to electronics and transportation.

Each successive wave of computing - from mainframes to minicomputers to personal computers to the Internet - has opened the door to new users and created new problems. Each of those, in turn, must be addressed if the industry is to move ahead. The Internet brought an explosion of computing complexity. And while many dot-coms are gone, Internet technology has spread, is used by most people and has become mainstream within corporations.

Marc Andreessen, a co-founder of Netscape Communications, whose software introduced Web browsing to millions and touched off the Internet boom, is now chairman of Opsware, whose data-center software is intended to tackle the complexity crisis. "At Netscape, we were building all the software components that made this possible and created the problem, and we didn't grasp the implications," he said.

Larry Ellison, the chairman of Oracle Corp., has been one of the most vocal proponents of the view that the technology industry is graying. "Thousands of companies are on life support that just have to die," he said. "Our industry is in the inevitable process of maturing."

But Ellison's concept of a maturing industry is not exactly a listless old age. There will be fewer companies and slower growth, he said, but still plenty of leeway for entrepreneurial creativity.

"There will continue to be very cool new computing technologies," Ellison said. Unlike many industrial technologies the stored-program computer is a general-purpose tool, animated by software, a medium without material constraints. The unrelenting pace of improvement in processing speeds, data storage and miniaturization means the tools get more powerful and smaller, and then people find things to do with them.

And innovation is continuing apace despite the downturn. Advances are evident in a range of technologies: wireless, data center automation, speech recognition, intelligent software, sensors, natural language processing and on and on.

Jim Gray, a computer scientist, has worked in the industry for more than 30 years. His research on databases and transaction processing at IBM and elsewhere won Gray the 1999 A.M. Turing Award, sometimes called the Nobel prize of computer science. "I've seen the 'end' at least twice in my career - only to be surprised by the next wave," Gray observed. "My guess is that this computer thing has just gotten started."

The New York Times

Get Over Yourself - Computerworld

IT Does Matter - Computerworld

InformationWeek Bob Evans Business Technology IT Doesn't Matter May 12, 2003

Whichever ancient sage who first divined that the gods do not always smile upon us surely knew of which he spoketh. I need to cut my shaggy grass, but it keeps raining; my beloved but bungling Pittsburgh Pirates have lost six in a row; the drain trap below my shower is leaking; and on top of all that comes word that the Harvard Business Review has decided that IT doesn't matter.

Yep, that's what they say in the table of contents, in the headline, and at the top of each page in the lengthy article: "IT Doesn't Matter" (HBR, May 2003, p. 41). And here I was, fussing about leaks and losing streaks when IT was just stopping mattering. Can it be so?

The article is thoughtful and sweeping and quite interesting to read. I'd heartily recommend it. But that doesn't make it either accurate in its conclusions or even properly focused, and that's the problem I have with it. Written by HBR editor-at-large Nicholas Carr, the article is intent on proving the thesis that because IT has become widespread, then it must perforce become a commodity, as happened to other one-time breakthrough and industry-jarring innovations, such as steam engines and railroads, telephones and telegraphs, electric generators and internal-combustion engines. And Carr's unshakable belief in that inevitability leads him to a conclusion that's no doubt provocative, which I think was his primary intent, but also profoundly shortsighted and dangerous.

Now, please allow me a brief digression to the Full Disclosure Department: I will certainly admit that given my position with a publication like InformationWeek, I have a vested interest in the ongoing relevance, growth, and vitality of what I believe Carr is referring to as the IT industry. And I can certainly say that my view of the future that lies ahead for you readers could not possibly be in more extreme opposition to what Carr forecasts in the final paragraph of his article: "IT management should, frankly, become boring. The key to success, for the vast majority of companies, is no longer to seek advantage aggressively but to manage costs and risks meticulously." So, yes, I am a bit subjective on this topic, but I also feel that while the jobs of Randy Mott and Ralph Szygenda and Rob Carter and many tens of thousands of others in top IT management positions will be many things, one thing they will must assuredly not be is boring.

Where the article should have gone, I think, is outside the realm of embedded infrastructure and applications and into some attempts to look at what the future might look like. Instead, it assumes that the futures that befell railroads and steam engines will, inexorably and inevitably, be the future of IT. And I think that's astonishingly shortsighted. Only 10 years ago, how many of you had heard of the World Wide Web? And today, we've all heard of Web services--heard too much and seen too little, some would say--but can any of us really imagine what business will be like when the potential of those new technologies begins to be expressed? Or when global and mobile get more stable, and true collaboration becomes less psychology and more process and software, and the recent focus on internal technology becomes redirected on customer-centered possibilities? If we've learned anything in the last several years, it's that the balance of power in the world of business has tipped to the buyer and they will continue to get more demanding, more fickle, more selective, and more willing to spend their bucks elsewhere unless businesses mold their efforts around those customers.

Will that be done with people? With paper? With singing telegrams? I don't think so; the key will continue to be technology.

The end of IT as we know it?
By Dan Farber, Tech Update
May 28, 2003 11:31 AM PT

An article appearing in the May edition of the Harvard Business Review by Nicolas Carr entitled "IT Doesn't Matter" stirred up a great deal of dialog in recent weeks. His title, implying that IT isn't strategically important, is aimed more at sparking controversy--which it did--than rational discourse. In fact, the title is the only reference to the notion that "IT doesn't matter," but he did get Microsoft Chairman Bill Gates and Intel CEO Craig Barrett to launch counterarguments to his title thesis.

Carr's real argument is that IT doesn't matter any more than electricity. It's essential for survival in business, but it's not a strategic advantage. IT, like electricity, has become a commodity, and should be viewed and managed as such.

The author posits that IT is following the same trajectory as the steam engine, railroad, telegraph, and electricity. Each seminal invention went through a disruptive period of rapid build out and industry transformation, affording the early adopters competitive edge and economic advantage. Over time, as the technology become more ubiquitous, innovation and proprietary schemes gave way to the commodity factors of production, Carr says. Today, according to Carr, IT is on track to become simply the cost of doing business, an invisible infrastructure layer, and about as exciting and complex as plugging an electrical adapter into the wall.

Carr writes that "while no one can say precisely when the build out of infrastructural technology has concluded, there are many signs that the IT build out is much closer to its end than its beginning." He bases his assessment on the affordability of IT, vendors positioning themselves as utility suppliers, an overabundance of fiber-optic capacity, and IT capabilities outstripping most business needs.

I agree that IT infrastructure as we know it today is heading toward a kind of commoditization, but the road is not well paved.

Industry consolidation will continue, with fewer players who are increasingly less differentiated in their product offerings. Most IT executives are more pragmatic today, looking at technology as a way to lower costs and increase efficiency-not to reinvent their businesses. "It's getting much harder to achieve a competitive advantage through an IT investment, but it is getting much easier to put your business at a cost disadvantage," Carr writes.

Embedded in the universal call to reduce the complexity of IT is a move toward more standards, such as Web services, and a more level playing field in terms of technology. Prepackaged server clusters, software suites, outsourcing, and the push toward on-demand computing by the industry heavyweights all signal a focus on lowering the cost to deploy and manage technology. New categories or niches of software and hardware will continue to spring up that bring proprietary advantages to the vendors and customers, but they will mostly be short-lived. Differentiation among companies delivering IT products and services will have more to do with support, security, availability, integration, and the trust factor. Technology as a competitive weapon is more about execution and competency than a secret sauce.

Does that make IT less visible, more of commodity? Yes and no. It's a commodity if the technology itself is built out of fairly standard components that don't vary greatly among vendors or provide truly unique advantages. However, the problem is that most software vendors have not figured out yet how to build reliable, easy-to-configure-and-use software, and IT organizations are often dysfunctional. While IT executives wish that building an IT solution were as easy as plugging servers, software, and end-user devices into a network grid, that's not the case. Carr's notion of the commoditization and homogenization of infrastructure gives too much credit to IT as a mature industry with an established base of technology and best practices that will evolve linearly.

Although IT is becoming ubiquitous, especially via the Internet and the declining pricing for increasingly powerful technology, it is also messed up. The Internet may be the equivalent of the U.S. standard railroad gauge, but delivering value along that track is often elusive. IT is absolutely a strategic and competitive advantage to companies that can implement and manage it effectively-even if the constituent parts are more universal and provide no distinct advantage themselves.

"IT management should, frankly, become boring," Carr writes. "The key to success, for the vast majority of companies, is no longer to seek advantage aggressively but to manage costs and risks meticulously." While boring isn't the word I would use (how about pragmatic?), what Carr articulates is good common sense. Investments in Web services, grid computing, self-healing systems, pay-as-you-go services, embedded business processes and other innovations designed to improve reliability and reduce the cost to deliver IT should be done with caution.

Perhaps 10 years from now, when the complexities of today's IT have been overcome, a true era of commodity computing will dawn. But tomorrow's IT will present new, possibly unforeseen branches of technology, and start a new cycle of creativity and innovation.

We know a lot about automating processes with computers, for example, but we are just at the beginning of automating computing itself, which is an essential next step in IT evolution. In that scenario, several layers of IT can be viewed as a commodity---as a common foundation upon which new, strategically important technology innovations will arise.

Recommended Links

Bill Gates' Web Site - Speech Transcript, CEO Summit 2003

Nicholas G Carr -- his personal blog; some interesting posts and a lot of interesting links

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