So rather than a factory, I would propose a more basic substance – Steel for instance. We may both have access to steel from the same supplier. But what we each build with it and how we augment it will be company and even industry specific. And if steel offers competitive advantage over iron then steel then it becomes the baseline raw material that I must have just to compete.

Competitive advantage of technology changes over time. In the early days of steel, competitive advantage was gained by direct partnership with suppliers, and in some cases even ownership of suppliers and the ‘transit’ links (see Carnegie). Over time as costs decrease and steel becomes a commodity prices plummet and competition is driven by being able to have the lowest cost supply of steel (See collapse of US Steel to cheap importers). Competitive advantage to companies using steel is then through either having the lowest cost of raw material or adding the highest value to that raw material (and thus making the most profit).

Getting back to IT – Most technology is only a raw material that lets you deliver a valuable product to your customers. Common mistake to assume IT is a factory that will build your companies value automagically.

Basically I was trying to hint if Google’s recent success in building massive data centers and scalable software business (very capital intensive) is in anyway reducing the possibility of new software start ups to profitably grow up.

Not sure if Saunders studied Google in that light but it would make for a fascinating study.

Large firms (hopefully) have solved the change-management problem enough times that they are good at it. They may not have the best ideas, nor the best execution, but they embody a system that knows how to evolve and survive. Some fast change, some slow change… its never ideal, but in the long term they change into “what’s next” without destroying “what they are.”

In contrast… Small firms have better ideas, and possibly better execution… but sometimes going in the right direction too quickly leads to disaster. Why? Because you overshoot the “equilibrium” that you need to hit to survive long term.

Thus, brilliant people with brilliant ideas form brilliant companies that die horribly. Unless they truly “get” how to evolve a business.

I think that is what Andy is saying – “cause” is good ideas and good execution. So perhaps IT is what allows the separation to happen much faster – and to a greater extent – than in the past.