It’s Like This…

A little while back interviewer extraordinaire Charlie Rose invited me and SAP co-CEO Leo Apotheker to talk with him about IT, particularly enterprise software, and its impact on business and competition. The segment aired this past Tuesday (January 6) following an interview with Joseph Stiglitz and Martin Feldstein about our parlous economy and approaches for stimulating it (talk about a tough act to follow!). Video of our segment is available here.

Charlie is not a time-waster; his first questions were around the big issue of IT’s impact on competition. And he immediately hit on an apparent paradox: how can universally available technology contribute to competitive differentiation?  Doesn’t something have to be scarce in order for it to be competitively valuable?

To address this excellent question I used an analogy that had occured to me only a short time before. Here it is, taken from a transcript of the interview (available from Factiva ) that I’ve lightly edited in order to make myself sound more intelligent:

CHARLIE ROSE: …Here is a piece that you wrote called, in "Harvard Business Review," "Investing in IT that Makes a Competitive Difference." It`s all out there for everybody.

ANDREW MCAFEE: Yes.

CHARLIE ROSE: So how does it make a competitive difference?

ANDREW MCAFEE: How could it possibly make a competitive difference if we can all buy it?

CHARLIE ROSE: Exactly.

ANDREW MCAFEE: Leo is happy to sell it to you and me if we`re direct competitors.

CHARLIE ROSE: Right, right.

ANDREW MCAFEE: The analogy I like to use is that — pick a manufacturing industry. Cell phones, lawn mowers, cars, doesn’t matter which. And let`s say that you and I were both inventors in that industry, and we had access to identical factories. Now, does anyone think that because we have access to identical factories, we`d have to turn out identical products? That doesn’t make any sense to me.

What Leo and his colleagues in the enterprise software industry do is build process factories. So instead of turning out products, we [use these digital factories to] turn out business processes — [sequences of interdependent activities that span many different people, groups, business units, geographies, etc.].

[These digital process factories] are very flexible, they are very configurable. So even if you and I buy the same basic factory from [Leo], we`re going to do very different things with it. If I do smarter things than you, I will get ahead over time.

I like this analogy, and plan to continue to use it.  It conveys the idea that today’s digital process factories don’t completely specify or pre-define all possible business processes, just like product factories don’t specify or pre-define all possible products. Instead, they both provide environments thatinventors and innovators use to bring their ideas to life.

So my question is, do you like this analogy? Do you find it helpful? More fundamentally, do you find it valid? In other words, is it missing or glossing over something important?  Is it inherently misleading? Does it need to be tweaked, modified, discarded?

I’ve done a fair amount of looking at and thinking about enterprise IT, and I think the analogy holds up.  But I’d love to hear your thoughts about it. So leave a comment, please, and let us know.