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Part - II

Then came the dotcom bust.

Companies now started revisiting their IT budgets. Massive cuts were made. The cartoon shown above is one of the classics to appear in the New York Times during the year 2002.

From Boom to Bust

Before we move onto the issue of IT investments, it is essential to understand what really drove firms into reducing their IT budgets. What was it that led to the massive cost cutting and slashing of IT projects?

Traditionally, there are two types of technologies. One is proprietary and another is infrastructural. What do we mean by these?

Proprietary: A Proprietary technology is a technology that is exclusive to a firm. In other words, it is owned, actually or effectively, by a single firm and other firms do not have access to it. A patent is an example of such a technology.

In the case of IT, most firms bought the technology. Majority of the firms have obtained their IT needs from third party vendors. The simple reason for this was that most firms realized that IT was not their core competency. So it became essential to outsource their IT needs to software companies who specialized in these services. As a result, IT never ended up emerging as a proprietary technology.

Also what happened was that while a few firms like Capital One in the credit card industry or FedEx in the courier industry did have the First Mover Advantage, these advantages did not last long. Other firms in the same industry followed suit by setting up their own IT infrastructure. Therefore IT could no longer be a differentiator.

In a nutshell, IT became what is known as an Infrastructure Technology.

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* Contributed by -
Mrugendra Shintre,
Manoj Kumar Gaddam,
II Year,
IIM Lucknow.