The End of Corporate Computing - Article Example

The End of Corporate Computing Nicholas G. Carr Introduction The article The End of Corporate Computing was published in MIT Sloan Management Review, in its Spring 2005 issue; this article was a continuation in the series of an article IT Doesn’t Matter, which became a part of the Harvard Business Review. Nicholas G. Carr (Carr), as an author has his expertise in writing articles and books on technology, business and culture. These two articles focus on Supply and Demand side of Information Technology (IT) respectively. In the article The End of Corporate Computing, Carr analyzes the fundamental shift in how the technology industry is organized to supply IT to the corporate world. Particularly, he challenges the sustainability of the contemporary business model, which he has very timely and evidently compared to the evolution of power generation companies that generate electricity on a large scale, centralized basis, taking advantage of economies of scale; This lead to a shift from power generation being a corporate function of business to simply purchase of electricity from these utility companies (Nye, 1992). In the digital future, Carr foresees that IT will make such a shift, where fragmented model will move towards centralized IT utility companies. Concise body In the earlier years of businesses, production of electricity was an integral business function for mills and factories, so they had their own privately run power plants. With the passage of time, some corporate came up with a central power generating systems, using wires for power distribution. Electricity, since then became another commodity that could be purchased and hence utility companies emerged. Electricity was required by all kinds of businesses, its nature was a very general purpose, and thus could take advantage of economies of scale. Similar to the earlier electricity utilization model by companies, where supply of electricity was fragmented (in the sense, each company was maintaining its individual power unit), IT supply was fragmented, companies individually required to house huge infrastructure, maintain their working systems; moreover, this could not be done by themselves – they required technology specialists. This required these firms to make heavy sunk investment in infrastructures and recurring fixed costs; there was loads of overcapacity in the system and the labor as well. This might pay off to the companies in the very long term – but this long term, that was being talked about was not a definite time period. From the supplier point of view the model of selling was not sustainable either. As the time went by, IT industry came to transformation; the phenomenon might not be totally comparable to the analogy of the electric utility industry, but great lessons to be learned. Going to vendors for the purchase of computers, storage devices, networks switches, various softwares etc. and housing this into their huge personal data centers, this was same as running and maintenance of an own power plant. This led to lost focus of business executives from their core business functions; they were always preoccupied with the running of IT infrastructure smoothly, as they had made huge investments in it. But these independent data centers were underutilized, as the statistics in the article reveal. This short sightedness towards expansion of private data centers was because there was no large scale data utility model. A sudden shift is visible though, like IBM and HP are providing emergency back up plans to their customers, in case their data centre needs a back up plan. In addition, new business models in the internet service industry related to business processes is coming up, on the software side even (Computer Weekly, 2005). To assist businesses in these areas, IT companies have come up with solutions by hosting applications for their procurement, supply chain, financial accounting, sales management, plant operations etc. According to Carr, the advancement in areas of virtualization, gird computing, and web services is helping in build up of the utility companies. Virtualization eliminates the ownership of computing platforms, but at the same time allows usage of applications on the systems not deployed with own self, this has led to the demand for newer and more sophisticated solutions. This virtualization led to development of cloud computing – some of the examples come from Google’s pre-enterprise applications, Amazon’s services etc (Sperling, 2008). Cluster computing and parallel processing, with the emergence of grid computing facilitated distribution of computing power to as many as myriad of computers. This gained popularity because it allowed cost effective usage of the computer resources, it could afford a huge computing power, and synergies could be achieved. Another new business model that emerged for IT service providers was provision of services via web. It helped interaction over the network. Firms didn’t have to have applications on their own systems. The developers infrastructure maintains the entire load, whereas, the customers are required just to log on to the website; this provided an easy interface for the user. Carr shares his concern on the emergence of the IT utility companies, and he thinks the major hindrance to their development will not come from any limitations in the technology itself, but from the behavior of the managers; maintenance of status quo, long time affiliation with the legacy system and not stepping out of the comfort zone will pose the challenge. For the businesses to accept the services of such IT company’s services will also take some time until they prove their maturity. The new model that will emerge out of this new phenomenon of IT Utility Companies, according to the author will devise of three players on the supply side of the services, viz. IT utilities, component suppliers and the network operators. These integral parts may or may not operate simultaneously in all of these areas. This provides significant opportunities for IT companies like IBM, HP, and SunMicrosystems, who are already running complex business systems. The other firms include specialized hosting service providers including VeriCenter Inc. and MCI Digex. Internet based businesses such as Google and Amazon, who already have huge and sophisticated computing networks. Other than these there is potential for new entrants, who can totally revolutionize beyond that of what is conceived in this article. This innovation can otherwise prove to be disruptive for companies that have sold directly to corporations. Conclusion I think transition to the ultimate IT utility companies, will eventually occur; but, it is not happening any time in such a short run. The costs of setting up a huge utility is eventually quite high and it will take some time to mature and justify the investments and the concept. The maturity of the model will develop with experience. Recommendations But there are many questions that remained unanswered, when the author was blinded by his obsession to the development of IT utility companies. Data and data transmission is not as general purpose as electric current and its distribution via wires. The transference of bits of data may lead to security concerns, which cannot be used by any and every one. Data send or received over the network is private and confidential and in the time period, where businesses and economies are knowledge based, it is the main source of competitive advantage, which companies cannot risk. They are obligated to their customer’s privacy. Moreover, when the transmission speed be shared, how the companies will ensure that none of their customers benefit over the other, the major problem faced with broadband. The author failed to differentiate between softwares and applications that are used as utilities and others that are deemed as competitive advantage for companies; one size fits all does not justify the fulfillment of the needs of all kinds of companies. Besides, companies trying to gain advantage from IT will have no control and flexibility in making their own decisions, if they hire and purchase IT computing services from the utility companies (Perez, 2005). Therefore, I believe that the data centralized model of IT service provision, may yet to have to prove it self. It depends on whether the advantages, outclass the disadvantages in the future. But, still there might be some need of private and flexible networks. And instead, of utility computing of IT, more trust and reliance on outsourced partners is a viable strategy for many business users. Executive Summary The emerging business model for the suppliers of IT services is a thought provoking phenomenon that can provide insights into further deliberations for the new systems and areas of potential interest for IT companies, be it the network service providers, the internet service providers, the part sellers or the software solution providers. It will be a transition similar from independently maintained and runned power generation system by mills and factories once, to the services obtained from the power generation utility companies, that gained from the economies of scale – by generating power at much lower costs and ease. According to Carr, this change is taking place in the IT industry as well, which will open up doors for the IT utility companies. This is possible mainly because of the necessity that derived from the high investment costs in infrastructure that required additional maintenance and lost focus of the managers from their core business functions. Therefore, it is rightly said, necessity is the mother of invention. This is highlighted in the article. Whereas, there are still some fears that have to be taken care of before this model is fully accepted. References Computer Weekly. (2005). Retrieved October 9, 2009, from Computer Weekly. Website: http://www.computerweekly.com/Articles/2005/05/06/209818/corporate-computing-predicted-to-shift-to-centralised.htm Nye, D.E. (1992). Electrifying America: Social Meanings of a New Technology, 1880-1940. Massachusetts: MIT Press Perez, J.C. (2005). Security concerns will stunt e-commerce. IDG News Service Sperling, E. (2008). Peeking Inside Cloud Computing. Forbes Read More