Introduction

If you are overseeing a budget for information technology (IT), you are probably being cautious, and for good reason. At this writing, the economic downturn is global and severe, the worst since the Great Depression. When you review your company's need for software in light of financial constraint, you'll likely ask, "How do we minimize change, and how do we better handle the change that is unavoidable?"

Your answer depends on the importance of new software in your company's operation. For example, a firm that uses only long-standing applications might place a moratorium on new software development. In the opposite case, a firm that differentiates itself by adding new function might upgrade systems immediately. The use of software for differentiation might involve any of several benefits such as improved internal processes, better exchange of data with suppliers, or a more compelling outreach to potential customers.

We'll review the extent to which different companies rely on software. We use a set of categories — modes of reliance — to suggest how your company might respond to the current situation.

Modes of Reliance on IT

To categorize the different ways that a company uses IT, analysts Nolan and McFarlan suggest a grid whose axes represent first, "how much [a] company relies on ... smoothly operating technology systems" and second, "how much [a] company relies on IT for its competitive edge." We illustrate the four modes of reliance and describe them in relation to software (Figure 1.1).

Support Mode

A company in support mode uses software defensively to help employees fulfill activities that are internal to the company. The company accepts relatively poor online performance and uses manual processes as needed to make up for deficiencies in automated systems. The systems are not for customers or suppliers.

A clothing manufacturer that handles its own design, production, and distribution might be in support mode. In this case, developers focus on maintenance, and the guiding principle for IT personnel is "Don't waste money."

If your company is in support mode, consider incremental changes that add value, along with pilot projects that give your company experience in software technologies that might be of interest in the future.

Factory Mode

A company in factory mode also uses software defensively, but in this case the software is fast and reliable and is central to operational success, much as a set of conveyor belts is central to a manufacturing plant. "If the ... belts fail, production stops."

For example, an airline that has a sophisticated reservation system is in factory mode. Customers and suppliers access the system, and the guiding principle for IT is "Don't cut corners."

If your company is in factory mode, consider adopting innovations that are proven and that respond to a specific need. "Typically, factory-mode organizations are not interested in being the first to implement a new technology, but their top management ... monitor[s] the competitive landscape for any change that would require a more aggressive use of IT."

Turnaround Mode

A company in turnaround mode is on offense, retaining old systems for a time, but upgrading to a considerably new level of software for "major process and service improvements, cost reductions, and a competitive edge."

An insurance firm might be in turnaround mode when implementing an online system to address customers directly. The new effort is an expensive gamble, and the guiding principle is "Don't fail."

Almost any company must consider how to protect its current investment in software. However, if your company is in turnaround mode, you need to be particularly concerned with limiting the company's vulnerability. Enterprise modernization implies both technological upgrades and the integration of pre-existing systems.

A firm in turnaround mode often makes changes so profound that even temporary reversion to manual systems is not possible. The firm moves either to factory mode or to a state of continual upgrade, as described next.

Strategic Mode

A company in strategic mode is nearly always on offense and requires that systems be highly reliable even during innovation.

An example company is a defense contractor that receives components for ever-changing equipment from multiple locations and then assembles the product within days. The component-integration software requires continual upgrade, and the project-management software requires attention, too.

The guiding principle is "Spend as needed, and monitor results intently." If your company is in strategic mode, you'll want to retain the option of using the full range of capabilities provided by a given technology, and you want to have the flexibility of using additional technologies in the future.

IT as a Commodity

Our educated guess is that the majority of large- and medium-size companies in the industrial world are — or soon will be — in factory mode. Our guess is educated by the likes of analyst Nicholas Carr, who writes as follows: "By now, the core functions of IT — data storage, data processing, and data transport — have become available and affordable. ... They are becoming costs of doing business that must be paid by all but provide distinctions to no one."

Carr argues that IT is following the lead of other infrastructure technologies such as railroad transport and electric generation, which provide economic value by virtue of being shared rather than being wholly proprietary. For example, little wealth would have been created by miles of one-company track laid only to transport material to specific suppliers and customers. The greater wealth came from miles of shared and standardized track.

The later equivalent of either transit on a rail or electricity on a grid is data on a network.

For Carr, IT is becoming a commodity like the older technologies. Even a short-term lack of electric power can weaken a company, yet the presence of electricity gives no one firm a competitive advantage. Similarly, even a short-term need for manual processes can weaken a company in factory or strategic mode, yet traditional types of automation do not offer a competitive advantage to any one firm.

Whether IT is best seen as a commodity, companies will continue to spend much on information technology. In relation to business logic, a prudent manager asks

• How do we gain access to inexpensive software that fulfills its role?

• Is it still possible...