In this digital age, there's temptation to engage in an arms race to build out your digital infrastructure, to spend a lot on your digital technology. The fact is organizations around the world are spending north of six trillion US dollars per year on technology infrastructure. But is that spending worth it? Is it really leading to a competitive advantage for the organizations investing in technology/ We'll consider Solow's paradox. The fact is, over the last 40 years there has been a 20-fold increase in IT spending, investing in that digital infrastructure. During the same time period, we've only seen a three times increase in productivity. Robert Solow the Nobel Prize-winning economist once said, ''You can see the computer age all around us except in the productivities statistics.'' Why is that? There's a number of challenges of competing on technology itself. First and foremost, the impacts from your technology spend might be diffuse or complex. Think about the Internet and search. On one level it can create incredible efficiencies, you can get any factor data right at the tip of your fingertips. Also, these might create distractions. Things that keep you from being your most productive self. Technology has often a positive side but it can also have a negative side. Complicating matters, is that sometimes these benefits from technology are delayed. It is true of almost any new technology that there's a learning curve you have to move down. At first, you might incur the expense of the technology but you're not getting any of the benefits, may be efficiency gains or the like. It's only over time as you've learned more how to incorporate the technology that you start to see a benefit associated with it. Last but not least, the benefits could be simply competed away. At the heart of what we're trying to achieve here, is to have a competitive advantage. Competitive advantage by its very title implies having an advantage over your competitors or peers. It's not about doing something well, it's about doing it better than others. This relates to what we refer to as The Fundamental Principle of Business Strategy. Colloquially, if everyone can do it, it's difficult to create and capture value from it. Again, it's not to say that your technology spend is unimportant, but it's very hard to differentiate what you might do versus others. To put this a little more technically here, in a perfectly competitive market, no firm realizes economic profits or what we sometimes call economic rents. By this we mean if everyone has access to the same technology or the same bandwidth, then it's going to be very hard for that to be the source of your competitive advantage. It reminds me of an old story that we often reference in strategy circles. It's called the Red Queen Effect and it's in reference to the story Alice in Wonderland. If you're familiar with the story, you might remember at one point, Alice visits the queen of hearts and the queen of hearts laments that they're always running but staying in the same place. In the strategy world, the way we think about the Red Queen Effect is the idea that even as you are improving, if others are improving faster than you, you're actually falling behind and therein lies the challenge of technology in the digital age. If all you're doing is spending more and more and more on your infrastructure, it might be very hard to get a competitive advantage if all your peers are doing exactly the same, which brings us to what we refer to as The Strategist Challenge. Even in the digital age The Strategist Challenge still applies. The key to competitive success is to look for valuable competitive positions that differentiate your products and services, creates a competitive advantage. Those emerge at the intersection of three fundamental domains. First and foremost your values, your mission, what are you trying to achieve as an organization. Second, the opportunities that your competitive environment presents to yourself. That includes what your competitors are doing, what some of the environmental trends are within the industry, and then last but not least we have capabilities. What can you do well and where might you have a competitive advantage that would be hard for others to imitate what you do? These three things together help define where a valuable competitive position lies. It is not to say that investments in technology are not important, they're absolutely critical but you have to ask yourself, will it provide that competitive advantage? Where do we find ourselves with respect to this strategist challenge? This is one of the core issues that companies are facing as they face their digital transformation
