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Saturday, March 18, 2006

 

Lousy Businesses and Technology

Nick Carr made some great insights into 'justification' of technology expenditures in a recent post. Of particular interest is his quotation of Charles Munger (Warren's Buffett's sidekick for many years) about investment in 'lousy businesses' - i.e. businesses with high competition and/or low profit margins: in essence, lousy businesses remain lousy despite technology investments, particularly if the technology is available to all players in a given market.

Quite a few of us work for or consult to such 'lousy' businesses. Oftentimes we (as IT) evangelize that the path away from lousy (short of selling out or closing down) is the implementation of new technology schemes. The mistake often made in these cases is that implementation and use of the technology itself will right the organization and lift it from lousy to good, or even great.

The mistake in thinking this is that these initiatives fail to provide the business with any competitive advantage in its markets or against its competitors. If IT is going to enable a shift away from lousy, any technology investment must:

No amount of agility, SOA, SaaS, open-source anything, 'community,' Ajax, or Web 2.0 are going to vault lousy businesess over competitors unless it enables competitive differentiation or market disruption to the sole advantage of the business. The business rightly demands a fair return on its investments without passing all of the gains to customers, and the next time you hear a pitch that any technology du jour will provide substantial financial returns, ask yourself "...returns...to whom?"

And depending on the circumstances of your business and the marketplaces you serve, apply the above criteria liberally before issuing any purchase orders.

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