Only a few years ago, companies put a high priority on coming up with innovations in information technology. A new solution, software program or piece of hardware could almost guarantee these companies a competitive advantage, at least in the foreseeable future.
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. By 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.
When information technology was in its early stages of adoption, it tended to be very expensive. At that time, it was hard to create new software, expertise had not yet diffused throughout the industry, and it was difficult for competitors to copy innovations. However, as gradually the IT innovations started to be replicated in every sphere and they became widely available. The innovation in IT started to loose its competitiveness as the competitors and vendors started to reproduce those very quickly. Reuters, the news and financial information service provider was the first to come out with a big computerized network. Now every local newspaper is on the Internet. So it is no longer about information technology itself in the modern company, but about how companies function overall.
The companies started to realize that information technology was becoming a necessary part of their businesses but the IT innovation has started to loose its edge. As IT innovation became easily duplicated, it began to look like just another commodity. When a resource becomes essential to competition but insignificant to strategy, the risks sometimes become more visible than the advantage it creates.
A resource will be truly strategic when it will provide advantages over other competitors. Now the core functions of IT – data storage, data processing, and data transport have become available and affordable to all. Thus IT has transformed 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 used by all organizations. Where is the competitive advantage? So business investments demands IT strategy and purchases to be carefully chosen.