What Nicholas Carr Is Saying Now

By Ellen Pearlman







Strategic Thinker: Nicholas Carr

Credentials: Author of "Does IT Matter" and former executive editor of the Harvard Business Review, frequent writer for the New York Times, Financial Times, Wired and other publications.

Big Idea: Computing is turning into a utility and that is both good news and bad news for individuals and corporations

Book: The Big Switch: Rewiring the World, From Edison to Google, published by W.W. Norton & Co., January 2008,

Blog: Rough Type


In May 2003 the Harvard Business Review published an article by executive editor Nicholas Carr called "IT Doesn't Matter" A firestorm broke out immediately with the sides clearly defined: Some in IT were greatly offended by the article's very premise that since IT is now ubiquitous it no longer offers companies a strategic advantage. But others felt his article opened the door to serious discussion of the true role of IT in business.


Almost five years later, Carr has published a new book-"The Big Switch"-that takes his argument to a new level as he paints a mixed picture of the consequences of utility computing on individuals and businesses. This shift, he argues in his book, "promises not only to change the nature of corporate IT departments but to shake up the entire computer industry."


In order to understand fully the implications for CIOs, IT departments and the IT industry, I spoke to Nicholas Carr to get some more answers for CIOZone members.


Next Page: THE TRANSITION TO UTILITY COMPUTING


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THE TRANSITION TO UTILITY COMPUTING


CIOZone: In your book "The Big Switch," you lay out your vision for the transformation of computing from individual PCs and locally installed and maintained software to a utility computing model. How long do you think this transformation will take and where are we now in this process?


CARR: I think it'll take at least a decade and probably two until we can say that the utility model is mature. I think we're a good way into it. What's happening is that different groups are moving at different speeds to adopt it.


So if you look, for instance, at individuals, most of us are well on our way to the cloud computing model where we're probably using more software and data that resides out on the Internet than we are relying on software and data on our own PCs hard drive. And I think that's particularly true of young people. They're rarely buying and installing software. They're using the new Web 2.0 services. So at an individual level I think it's well advanced.


Then the second level-mid-sized businesses-is smaller. And I think those companies will move quickly to adopt the new utility services, whether it's the software or computing and data storage services. And there's a good reason for that. They just don't have the capital to invest in building up very sophisticated, modern IT systems on their own and so being able to pay a monthly fee for this stuff is extremely attractive to smaller companies.


The slowest movers will be larger companies, I think, and we're in the very early stages of that shift. Obviously, big companies have millions of dollars of investment in their own local IT gear and IT capabilities. And so they'll probably pursue a hybrid model for many years running a good deal of their IT locally but also bringing in more and more capabilities from the grid or the utility network as those services improve and expand. So for larger companies we're probably talking about a slow and steady transition over at least a decade.


What is the responsibility of the CIO, and in these larger companies, how does the CIO prepare the company for change and the potential pain of being in a hybrid model?


Well, I think the first key is not to resist it. There certainly will be pain in some areas of IT as we make this switch, but I think it's really good news for corporations because at the simplest level it means a whole lot more choices. You're no longer restricted to the computers and other gear you can install in-house, and the software you can license and also install in-house. Suddenly, you have these services that expand your options in fulfilling your IT needs. So the first key is to embrace the change and see it as a way to ultimately get more, better, cheaper IT. But on the other hand, it does mean struggling with a lot of difficult issues from the staffing requirements of your in-house IT shop to very real concerns about security and reliability as you become more dependent on outside suppliers.


The smart CIO will be an advocate for this switch and stay educated on the new capabilities but will move in a deliberate fashion to experiment with and ultimately adopt more and more utility style capabilities and, importantly, will begin to incorporate the new technologies that net-based computing represents-things like virtualization-in their own data centers and in-house IT operations.


In one sense you could probably say that the transition from traditional corporate IT to the utility model will probably have as an important stage for large companies the building of, in essence, an in-house utility. So you're taking the virtualization and using that to consolidate and automate the delivery of IT and building kind of an internal Internet utility that serves your own business, and then that also allows you to begin to more easily bring in outside services as well.


What economical repercussions do you see during this period of transition-do you think continuous layoffs are likely to happen over the next decade as a result of this shift?


I do think so, and I think that's always been the case when you have new automation technologies, whether they were physical machines or whether they're computers. So I think we'll see a cycle of layoffs in many industries. The big question is will the traditional pattern of automation take place again? The traditional pattern is that more jobs ultimately are created than are lost, so you'd expect that as the layoffs happen the increased productivity will lead to more hiring in different areas.


What I talk about in "The Big Switch" is that we haven't seen that pattern happen so far with computerization. Computers are able to automate not only physical jobs but also knowledge work, and even though they certainly create new jobs in software engineering and IT-related work and Web design, they're not creating the huge categories of new jobs that we saw with the industrial revolution. So what scares me is that we may be in for waves of job losses as this new level of computer automation takes hold without offsetting gains in jobs in other areas.


If that scenario comes true, what do you think it means for U.S. companies and U.S. workers?


Well, in the short term I think it's probably good news for U.S. companies and other companies because it implies that they'll be able to operate more productively and probably at higher levels of productivity and may, in fact, be considerably more profitable. When you look out over the longer term, you start to see some darker scenarios where you have a continuation of the trend toward a concentration of wealth in a very thin slice of the population and stagnation or worse among the middle class, perhaps even an erosion of the middle class. It's hard to predict how that will play out, but it certainly would be a destabilizing force, both economically and socially. So it's something that we should all be very attentive to both as individuals and as policymakers.


Next: What will the IT shop of the future look like?


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IT SHOP OF THE FUTURE


What does the IT shop of the future look like? Is there an IT shop in larger companies? Does it continue to be the organization's gatekeeper around technology strategy or does that change?


I think that the nature of corporate IT is going to change fairly dramatically over the next 10 years or certainly over the next 20 years. We can talk a lot about information strategy and IT strategy in broad terms, and certainly those are important roles for IT organizations, but I think it's clear that most of the IT budget and most of the IT workers today are focused on running the internal IT systems-running the data centers, the applications, and everything else necessary to keep in-house IT up and running-and many of those jobs will shift outside of companies to the supply community or will disappear entirely as the delivery of IT becomes much more automated.


So purely at the level of what IT departments focus on, I think we're going to see a fairly radical shift. Certainly what you might call the higher-level functions of IT-thinking strategically about how you automate processes or activities with software and how you think about the information needs flowing across an entire company-those roles will probably get more important as computer costs continue to go down and you can apply computers to many more functions.


Will those skills continue to be housed in "the IT department" or will they shift more into traditional business units or other traditional business departments or will the IT department continue as a separate corporate entity but take on a new name and really a new set of roles?


It seems to me that any or all of those eventualities are possible and in different companies will probably take place. So some companies will operate, in essence, without what we think of as an IT department. Others will continue to have centralized departments focused on managing information and connecting information technology to business processes, but they might be called something different than IT departments and staffed in a different way.


This is a long-term trend, and I think the IT department is going to play an incredibly important role in making sure that companies go through the transition successfully over the next 10 years or even more. But ultimately, when we look at the end game, we'll probably have something very different than we have today.


And when you say different, is it likely that it is a smaller IT department?


Yes.


Dramatically smaller, would you say, or will that just depend on the company?


If you're just talking about how we think of IT departments today, then I think the jobs and the investment in them is going to shrink and shrink fairly dramatically.


Now on the other hand, what this switch to utility computing into kind of a ubiquitous computing grid is going to mean is that IT-in the form of software or in the form of centrally supplied data-is going to be incorporated into many, many more consumer goods and services, and that's going to take a lot of very smart IT professionals, very smart software designers and Web designers as well. Those jobs will probably proliferate and will focus more on how do we incorporate these capabilities into our products and services rather than on how we use them to run our businesses.


Where those people are in the corporation, whether it's in the IT department or product-development department or business unit, is hard to say. So we'll see the loss of some IT-related jobs, probably growth in other IT-related jobs, but who those people report to and what organization they're in is hard to tell.


Next: Why CIOs can never feel safe about security


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SECURITY AND PRIVACY CONCERNS


The Internet has many potential dangers-its infrastructure and botnets-how does the CIO deal with that and can companies, big companies in particular, global multinationals, ever feel secure relying on the Internet?


I'm not sure they can ever feel totally secure. I don't think they can feel secure today. Botnets don't target centralized utilities. They target individual users because they're the most vulnerable. So you could argue, and I think this will actually become clearer in the years ahead, that the utility model will actually be more secure than our current model, which is very fragmented and puts a lot of vulnerabilities at the level of the end user or the individual IT shop. And, frankly, there are some companies that are extremely attentive to and extremely good at providing security, and there are other companies that are less good at it because it isn't their main business.


Ultimately the utility model will probably improve overall security because for those companies that are supplying these services, security will be essential to their core business. That said, I think the onus is on the suppliers to prove that they can be trusted and that they do offer the kind of security that corporations demand and for good reason. I think we've already seen that companies are open to sharing very sensitive data with suppliers when they can trust those suppliers. Payroll has been outsourced to ADP and other essentially service companies for many years. Salesforce.com has had a lot of success with customer relationship management service, which also involves very sensitive information.


So I think it's wrong to think that companies won't do this. I think they've proven in the past that they're happy to do it as long as they can trust their supplier. And as technologies like encryption improve, I think we'll see more and more corporations become comfortable with outsourcing the storage of their sensitive data.


There have been so many well-publicized privacy breaches in the last several years, do you think that companies are still moving up the learning curve on how to deal with protecting customer information? Will that have to accelerate dramatically in this new model?


Corporations are moving up the learning curve, but, unfortunately, the bad guys are also moving up the learning curve. It's a constant cat and mouse game where each are getting more sophisticated. It's a constant arms race between the companies that need to protect information and those that want to get illicit access to it. And I don't see that ending. But if you look at most of the security lapses we've seen, they're a result of lapses within companies or with suppliers. And a lot of it comes down to sloppiness, and, as I said, I don't think that moving toward a more centralized, more tightly controlled system of supply of IT will make that less secure. Ultimately it'll make it more secure. And for corporations it offers a relief in some ways of not having to be in this constant cat and mouse game, of letting suppliers who have more sophisticated resources to throw at the problem, or at least much more money to throw at the problem, take over that role.


Next: Which vendors are the winners...and which are the losers?


{mospagebreak title=WINNERS AND LOSERS}

WINNERS AND LOSERS


Which vendors are likely to be the winners and losers in this new model?


It's tough to predict the future of individual companies because they all can make smart moves or dumb moves, and there's no way I can predict what they'll do. But I think ultimately we'll see a mix of some of the traditional IT suppliers who make the shift to the new world successfully, and certainly they're all investing in this model, whether it's Microsoft or SAP or Oracle or, on the hardware side, EMC and IBM and Sun and HP. They all, I think, see the writing on the wall and want to be major suppliers. Some of them will succeed and others probably will falter.


In addition then to some of the traditional suppliers, I do think we'll probably see a wave of new vendors who focus from the start on this model, companies like Google and Salesforce.com and the service firms-even Amazon Web services, which now supplies utility computing to small companies or software developers, really is a pioneer of the new model. And then there are also the big telcos, companies like Deutsche Telecom, British Telecom, who have a lot of experience, obviously, operating sophisticated communications networks, and they're also going to have a lot of cash to invest in this new model. I think you'll see them as major players as well as this trend continues.


Will startup companies-you mention some in your book, the YouTubes, PlentyOf Fish, companies like that and perhaps companies we've never heard of in developing countries-have an advantage over established companies in the global economy because they don't have a huge investment in legacy technology?


I think it does give them a leg up. What we see with this new computing infrastructure is that if your product or service can be delivered digitally or at least delivered in large part digitally, then you can take advantage of this incredibly efficient new infrastructure and achieve levels of automation that just haven't been possible before. And if you look at companies like YouTube or Skype or Craig's List, they serve millions of customers with extraordinarily few employees, and this does give them a massive cost advantage that will be difficult for traditional companies, that tend to employ lots of people and make big capital investments in their business, to compete. And to compete successfully, I think they'll have to begin to shift to the new highly automated model. The good news is that they may be able to operate much more efficiently. The bad news is they probably won't employ as many people.


Tomorrow: Carr discusses the coming technology disruptions, the shift in IT priorities, and the future role of the CIO.

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