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RADICAL SPECIALIZATION KILLS
A contrarian advice from Nicholas Carr

«Focusing narrowly on "what we do best" and outsourcing the rest is a recipe for undermining strategic advantages, which are often built on complex sets of capabilities. The danger lies in rushing to become overly specialized. As I said, you may end up destroying the complex connections that give you or may give you a competitive edge.»

Site of Nicholas Carr
Does it matter? Information Technology and the Corrosion of Competitive Advantage, Harvard Business School Press, 2004
Nobel Prize Ronald Coase' famous article of 1937 (The Nature of the Firm, Economica, n4, November 1937

Interview by Jorge Nascimento Rodrigues, editor of Gurusonline.tv, June 2004

Nicholas Carr strikes again. The former executive editor of Harvard Business Review, and the well known author of a very provocative last year article redefining information technology as a quasi-commodity (Do you remember "IT Doesn't matter!"), just published "Does it Matter? Information Technology and The Corrosion of Competitive Advantage", a book at Harvard Business School Press. In a summary of the book, Nick wrote a short piece at HBR, titled "In Praise of Walls" (Spring 2004 edition). The idea is simple: in excess, focalisation and radical specialization is a bad idea for the longevity of the firm. The Web revolution reduced the so-called "transaction costs" (making outsourcing and business process off shoring a frenzy mania), but at the same time reduced also coordination costs within companies. So, be prudent and practical.

What's the main purpose of this new book?

The book examines how the evolution of information technology is influencing companies - not just in the way they manage IT but also the way they think about organization and strategy. Computerization has improved productivity but it's also led to increasing homogenisation of corporate capabilities and processes. I think managing that tension is one of the greatest challenges facing today's managers.

Do you say that vertically integrated company is coming back? Focalisation, diversification, conglomeration and "federations" went wrong?

I'm not sure that vertical integration is coming back. But I do think that the kind of radical specialization advocated by "business web" thinkers - those who put the interests of broad enterprise networks ahead of the interests of individual companies - is dangerous and is being rejected by executives. As always, companies need to carefully assess which roles they play in their industry's value chain. Focusing narrowly on "what we do best" and outsourcing the rest is a recipe for
undermining strategic advantages, which are often built on complex sets of capabilities.

What's wrong in the present "reading" of Nobel Prize Ronald Coase theory about transaction costs?

It's one-sided. It says that because the Internet is reducing transaction costs, companies will automatically find it economical to outsource more activities and processes. They'll let the external
market, in other words, provide more of the functions that they traditionally kept inside. But, as Coase pointed out, new communication technologies can reduce internal management costs as well as external transaction costs. So it may become more economical to actually bring more activities inside. The assumption that Coase's work argues for greater specialization of firms in the wake of the Internet is incorrect.

Recently, Reilly and Tushman wrote at HBR about the ambidextrous organization - centralized at the top management, decentralized at the business or capabilities units. Something that is integrated but flexible. What do you think?

I thought it was a good article. I think they showed that it is possible for one company to pioneer disruptive technologies even as it makes incremental advances in its existing business. That doesn't mean it's easy, of course, but with the right structure and management it is possible.

«It's been argued recently that "sustainable advantage" is an outdated concept in today's fast-changing world. I completely disagree.»

Competitive advantage was a new concept launched by Porter in the 80's. It has been used and misused those last 20 years. What's your present evaluation?

Porter's work has stood the test of time. It's been argued recently that "sustainable advantage" is an outdated concept in todays fast-changing world. I completely disagree. What are companies like
Wal-Mart, Dell, and Microsoft if not examples of sustainable competitive advantage? That said, companies do need to think about advantages both in the short run and the long run. As I argue in my
book, I think the best companies seek sustainable advantages as well as more temporary "leverageable advantages." But even the short-term leverageable advantages are built on the distinctive capabilities inherent in sustainable advantages.

Why death of distance (the myth created by journalist Frances Cairncross) and virtual value chains (or business webs, coined by Don Tapscott) are dangerous concepts?

They're not dangerous in themselves. They're only dangerous when misinterpreted and misapplied. The danger lies in rushing to become overly specialized. As I said, you may end up destroying the complex
connections that give you or may give you a competitive edge.


e-mail of Nick Carr: ncarr@mac.com

© Gurusonline.tv

 
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