Ted Hoff

P. 1

Ted Hoff : 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 => that information technology has become the backbone of commerce.

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:

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

early 1980’s: that percentage rose to 15%

early 1990s: it had reached more than 30%

end of the 1990s: it had hit nearly 50%

Businesses around the world continue to spend well over $2 trillion a year on IT (may 2003).

P. 2

Shifting attitudes of top managers: 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 => Chief information officers & strategy consulting firms needed in order to provide fresh ideas on how to leverage their IT investments for differentiation and advantage.

Intuitive assumption: as lT's potency and ubiquity have increased, so too has its strategic value. 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.

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

=> 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.

=> The implications for corporate IT management are profound.

A distinction needs to be made between proprietary technologies and what might be called infrastructural technologies.

Proprietary technologies can be owned, actually or effectively, by a single company. As long as they remain protected, proprietary technologies can be the foundations for long- term strategic advantages, enabling companies to reap higher profits than their rivals.

Infrastructural technologies, in contrast, offer far more value when shared than when used in isolation. The characteristics and economics of infrastructural technologies, make it inevitable that they will be broadly shared - that they will become part of the general business infrastructure.

In the earliest phases of its buildout, however, an infrastructural technology can take the form of a proprietary technology. As long as access to the technology is restricted-through physical limitations, intellectual property rights, high costs, or a lack of standards-a company can use it to gain advantages over rivals.

P. 3

Companies can also steal a march on their competitors by having superior insight into the use of a new technology.

In addition to enabling new, more efficient operating methods, infrastructural technologies often lead to broader market changes.

E.g.: The greater speed, capacity, and reach of the railroads fundamentally changed the structure of American industry. It suddenly became economical to ship finished products, rather than just raw materials and industrial components, over great distances, and the mass consumer market came into being. Companies that were quick to recognize the broader opportunity rushed to build large-scale, mass-production factories. The resulting economies of scale allowed them to crush the small, local plants that until then had dominated manufacturing.

The window for gaining advantage from an infrastructural technology is open only briefly. When the technology's commercial potential begins to be broadly appreciated, huge amounts of cash are inevitably invested in it, and its buildout proceeds with extreme speed.

By the end of the buildout phase, the opportunities for individual advantage are largely gone. The rush to invest leads to more competition, greater capacity, and falling prices, making the technology broadly accessible and affordable. At the same time, the buildout forces users to adopt universal technical standards, rendering proprietary systems obsolete. Even the way the technology is used begins to become standardized, as best practices come to be widely understood and emulated. Often, in fact, the best practices end up being built into the infrastructure itself.

P. 4.

Not to say that infrastructural technologies don't continue to influence competition. They do, but their influence is felt at the macroeconomic level, not at the level of the individual company. If a particular country, for instance, lags in installing the technology - whether it's a national rail network, a power grid, or a communication infrastructure - its domestic industries will suffer heavily.

Commoditization of IT:

Although more complex and malleable than its predecessors, IT has all the hallmarks of an infrastructural technology. In fact, its mix of characteristics guarantees particularly rapid commoditization. IT is, first of all, a transport mechanism - it carries digital information just as railroads carry goods and power grids carry electricity. And like any transport mechanism, it is far more valuable when shared than when used in isolation. The history of IT in business has been a history of increased interconnectivity and interoperability, from mainframe time-sharing to minicomputer-based local area networks to broader Ethernet networks and on to the Internet. Each stage in that progression has involved greater standardization of the technology and, at least recently, greater homogenization of its functionality. For most business applications today, the benefits of

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