Future Soft

Pro

Irish software developers have been nimble about spotting planet sized niches in global markets – such as wireless technology and e-learning – that gave indigenous companies the chance to lead. Emerging standards such as XML, new methodologies such as XP and agile programming, and technologies such as web services have been adopted early and hard by Irish developers, and this gave competitive advantage to a relatively small industry on a small island.

But nimbleness is no longer enough, as we face hungry new competition from central Europe and Asia. And there are threats from within – the dot bomb downturn heralded a worrying downturn in the pipeline of IT graduates, on top of an established and even more worrying dip in students taking on scientific studies. It’s also worth asking if it’s all about computer science: are we producing the calibre of sales and marketing professionals who are needed to build global businesses?

Approach

We approached some of the leaders of the Irish software industry, representatives of global companies who do business here, and industry groups such as the ISA. Our questions addressed four areas:

• In the past few years, you’ve made some strategic technology choices with a view to the future success of the company. Describe the technologies you skilled up in, and why you regard them as strategically important.
• With regards to the overall sector, what steps should be taken – whether by industry, industry associations, government or academia – to copper fasten the continued success of the Irish software sector?
• What future threats to the sector have you identified, and what should be the directions taken to avoid them?
• Given that Ireland is a small economy, and the only way to grow is outwards, what are the opportunities in markets outside of Ireland that Irish companies should tackle more aggressively?

Tech choices

On the subject of technology choice, the move to open systems seems to have swept the board. As Piero Tintori, managing director of Irish enterprise content management vendor, Terminalfour, put it: “The use of open technology platforms, such as open database technologies and XML, has been a very important technology decision for us. An open platform environment really extends the capability of a solution to add value to a business, as it allows straightforward integration with existing and legacy systems. In fact, by choosing a system based on an open platform, firms can multiply the expected return on investment.” In short, open platforms ultimately give end users the freedom to select their platform of choice, rather than having it forced upon them.

According to Tom O’Connor, Director at Irish IT services and consulting company Version 1, “there is an increasing acceptance and willingness within all sectors, and particularly the public sector, that open source options should always be considered.”

Conor McWade, Director, System Dynamics Group, sees open source as one strand of an increasingly diverse computing environment: “System Dynamics have invested heavily over the last number of years in a range of capabilities – Java, web services, open source, database and integration technologies. Although we are IBM’s largest software partner, we have also invested in the major software vendors such as Microsoft and Oracle. This is driven by the fact that our customers do not have homogenous IBM, Microsoft or Oracle environments. Every solution will have a mixture of vendor technologies.”

System Dynamics can point to an array of new technologies which they have brought into the company over the last few years: an impressive indicator of just how diverse the customer environment has become, but with common themes: web services, Java, Linux, Domino, .NET, Oracle.

Productivity

For some, the move to mobile technologies is the most obvious shift in strategy. As Shane Hayes CEO, EPC Technologies puts it: “Over the past ten years, IT has focussed on improving productivity within the four walls of a company. We believe the future will be about improving productivity outside physical constraints of a company’s premises. Various researchers predict that the majority of workers in the future will be mobile. Mobile working means that the way we work, and the way IT works, is in the process of undergoing a fundamental change.”

Frank Kennedy, country manager for Ireland at Computer Associates, believes that IT “will continue to use a number of different technology platforms, like Windows, Unix and Linux; a number of different environments, including both mainframe and distributed environments; and a number of different technologies, with both wireless and open source technologies creeping slowly into the organisation.”

Striking a contrarian note, Colm O’Toole, Managing Director of IBT Solutions, suggests that the business perspective is what needs overhauling, not the IT. At IBT, “the choice made was not to skill up on operational technologies but rather in the management (via an infrastructure library) of our operational technology. The reason behind this decision is quite simple; we believe that, given our high dependency on technology, if our management of IT is not directly linked to and regularly reviewed with our business goals then we will never fully meet our objectives.”

Technologies

Technologies that constantly crop up in conversation include: XML – now adopted in many sectors as “the universal interchange format”; .NET, which due to the sheer might of Microsoft is certain to play a prominent role in distributed solutions for years to come; and web services, which has emerged as a multi-tiered model – great for keeping the core logic where it belongs, rolling out the functionality through the ubiquitous browser, and flexibly meeting the needs of sectors as varied as telcos, e-government, and financial services.

Three or four years ago, XP and related “agile” programming disciplines were flavour of the month. Now they are well established as a great set of tools for avoiding hide-bound, contract-blinkered customer relations. Pools of excellence, such as Exoftware, have had considerable success is winning converts, and agile programming looks well dug in for the duration.

Faced with the question of what more can be done by governmental and industry associations, the responses were much less unanimous – while agreeing that indeed much more could be done.

Government

IBT’s O’Toole voiced what one suspects, is often thought in the IT industry but seldom said: government should avoid being distracted by the lure of the biochemical industry and its promises of economic El Dorado. The nightmare scenario according to O’Toole:  “Ireland gives up its current high status in the ICT world in favour of chasing the biochemistry industry. Yes, I agree, we should be looking at new growth areas but let us not forget that ICT is not going to go away.”

When it comes to regulation, striking the balance is a concern for Raomal Perera, CEO of Valista: “Government needs to be careful that it does not stifle our entrepreneurial culture with bureaucracy and red tape. While we need to protect our reputation as a country which is well regulated, there is a danger of over-regulation making it difficult and unattractive to establish new enterprises here.”

Brian Hanley, founder and director of Exoftware, points the finger at public tender policy, which is far from helpful to indigenous companies in the early stages of development. “What happens when a public sector contract for a new document management system goes out to tender? Typically one of the larger consultancies wins the contract, builds the system and provides all the consultancy associated with it. These consultancies are usually large multinationals whose main aim is not necessarily the building of the system – but rather owning the IP rights to that system so it can be sold on to other governments. At the end of the day, Ireland Inc, gets no benefit from footing the bill – except a system that usually doesn’t work the way it should anyway.”

Hanley makes a number of excellent suggestions well worthy of government consideration: ring-fencing smaller projects for smaller firms, providing incentives to the big fish to sub-contract and work with smaller companies (thereby building up the Ireland Inc. pool of skills) and a license fee paid to Ireland Inc. when international companies sell on products for which we, the Irish taxpayers, stumped up.

Threats

Threats have a way of focussing the mind, and industry contacts had plenty to say on the subject. On the O word, Exoftware’s Hanley is succinct on the mix of threat and opportunity in off-shoring: “Off-shoring is a reality. While there has been a mix of good and bad experiences with it, offshore companies are learning – and getting better. When set up properly, off-shoring can be excellent, alleviating resourcing issues and allowing companies to focus on high value work. While there are still issues such as poor quality in off-shoring – if another downturn occurs, Ireland could suffer, unless we can re-brand ourselves quickly and work on mission critical work. Irish companies should begin to form closer collaborations with offshore companies, as well as look at how to source R&D to support this.”

Valista’s Perera is not the only one to highlight the threat of losing our IT gene pool: “There is a lack of people entering engineering courses in Ireland’s universities even though the bar is fairly low in terms of entry level points. Something needs to be done here or Ireland will run out of the engineering talent that it has boasted for so long. The IEI (Institution of Engineers of Ireland) STEPS programme is one initiative which is attempting to encourage more young people to enter engineering courses, but industry must take a stronger lead, perhaps developing links with local primary and secondary schools, to promote the opportunities within our sector.”

Shane Hayes, CEO, EPC Technologies is pragmatic on the realities of investment and entrepreneurship: “One of the biggest threats is the attraction of alternative investments. Why work 14 hours a day to build an IT business when you can incur a lot less risk and get a guaranteed return by relaxing and hiring an architect to manage a building project?”

Infrastructure

The paltry state of our communications infrastructure aroused universal feelings of frustration. Version 1’s O’Connor strikes the prevailing note of baffled rage: “Broadband is such a talked about subject, but it really is still obscene that so many areas of the country cannot get quality broadband connections. The latest IMD report on international competitiveness ranked Ireland only 44th out of the 60 countries surveyed in basic infrastructure, well behind our main competitors. Such a situation is clearly not sustainable.”

Computer Associate’s Kennedy notes the frail nature of IP ownership, especially of digital, easily copied products: “Software piracy and under-licensing is damaging the software industry and estimated figures from Ireland do not make pleasant reading. The industry must do more to protect copyright and ensure that software is appropriately licensed.”

Global markets

On the general issue of reaching global markets, a survey from the Irish Software Association (ISA) points out the good news: Ireland has a healthy and promising indigenous software sector which currently employs 16,000 people and has the potential to employ 50,000 people and deliver annual revenues of EUR*7. 5bn to the economy by 2010 if properly nurtured.

However, results from the survey show that many indigenous companies are small and experiencing difficulties in growing revenues at a rate needed to compete in global markets. Only 10 per cent of the companies surveyed have annual revenues of EUR*10m or more and half of all companies surveyed have revenues of less than EUR*2m.

Furthermore, most companies are modest in their outlooks. Of the 90 per cent with revenues less than EUR*10m, only 48 per cent expect to break the EUR*10m barrier within three years. Only two companies expect to grow their revenues to more than €100m over the same period.

 “To achieve true international scale, companies need to have revenues approaching the EUR*50m mark,” said Bernie Cullinan, chairperson of the ISA. The ISA has recently issued a report highlighting the challenges that companies face in achieving this goal especially with regard to funding and partner strategies.” The report (Barriers to Growth – Opportunities to Scale) provides a blueprint to address these issues and others that Irish software companies face if they are to achieve the necessary critical mass. Despite Ireland’s spectacular success at attracting inward investment from multinational software companies, the ability of indigenous companies to become major international players themselves is vital for the continued success of the local software industry.

Marketing

Some CEOs make the point that we need a wide-angle view of the skills the industry requires. We tend to over-focus on feeding the hunger for top gun techies. According to Valista’s Perera, “Ireland also needs to grow more sales and marketing professionals. In this area we are not as strong as our US or European colleagues. In particular the lack of languages is a big disadvantage. We need to look again at the formalised teaching of these skills to our young people.”

Enterprise Ireland is widely lauded by many of the VC-driven start-ups as an excellent bridge builder between an island economy and the rest of the world. But some of the more well-established enterprises like System Dynamics perceive that they are falling into a gap between the internationals looked after by the IDA and the start-ups tended by EI.

System Dynamics’ Tony McGuire has made a valid point in noting the need for scale – even the most enterprising start-up requires long pockets to meet a world market, and more could wisely be done for the mid-size, established enterprise. McGuire notes that “of 700 IT companies in Ireland 50% have revenues of less than EUR*2 million and only 10% have revenue in excess of EUR*10 million. Most of the companies with revenue over €10 million are reselling products.” Put simply, this is a cottage industry, not the building of scale. Where is the IT version of Kerry Group, Ryanair or CRH?

M & A

Computer Associate’s Kennedy observes a shortfall in our ability to facilitate the mergers and acquisitions needed for consolidation to meet global markets, and provides a suggestion: “In order to encourage and accelerate successful mergers and acquisitions of complementary businesses, a formalised infrastructure would be of considerable benefit.”

Version 1’s O’Connor echoes the impression of a lack of governmental vision: “In relation to government policy, whilst they have recognised the need for consolidation in some of our more traditional agricultural markets, they have not made the same leap or invested the same amount of research in the software sector, where it could be said that a similar level of consolidation is required to build companies of sustainable international scale.”

Terminalfour’s Tintori echoes the point: “We are increasingly seeing a scenario develop whereby only vendors with international models will have the necessary scale to compete effectively and grow strongly. Without scale, it’s not possible to fund sufficient development to maintain an internationally competitive product.”

Key

The keynote for the Irish software industry’s view of the future is best expressed by Michele Quinn, director of the ISA: “Our future is one that we must build ourselves”. Underneath the caveats and caution of our respondents is a clear sense of what we have, we must hold – and build on. We must not lose sight of what IT has allowed Ireland to become – nor lose focus on dealing with the barriers to growth.

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