With a thriving and innovative technology sector, the UK IT industry could be a world beater again. But those holding the purse strings stand accused of a lack of vision. Liz Warren reports.
UK industry is failing to use IT to achieve competitive advantage and deliver business success. The sort of innovation in the UK software and services sector that could deliver those benefits is being stifled because UK businesses are stuck in a rut, implementing standardised packages from overseas suppliers. And the UK economy as a whole is suffering as a consequence.
That, at least, is the view of Michael Gough, chief executive of the National Computing Centre.
The NCC is the UK's largest membership organisation for the IT end-user community, representing 80% of IT spend in the UK with an even mix of private and public sector members. The mission Gough has laid out for the NCC in 2004 is to get UK organisations using IT more effectively and to encourage them to use UK software and services so that the country's IT industry can start to compete globally and produce market-leading products.
Gough says several factors have plunged the UK IT industry and its end-users into the doldrums. First, he says, NCC surveys show that only 20% of UK companies have an IT person on the main board. "The under-representation of IT at board level is causing UK companies to be slow at thinking how IT can be used as a competitive weapon," he says. "People running companies are more likely to see IT as a cost and to be focused on reducing that cost."
Austin Ambrose, a partner in Integrate Software, a UK-based developer providing customer relationship management solutions to clients including the NCC, says that although boards can see the need for systems to support core business needs such as accounts, they often lack the time and money to understand what else is available. They also face a shortage of funds and technical skills to develop or implement products that would give them a competitive edge. This is particularly true of small and medium-sized enterprises, which make up more than 95% of companies in the UK, he says.
Jane Short, who acts as a freelance IT director for a range of organisations, including Ashridge Management College, says that an IT manager should not necessarily expect to have a seat on the board. "They should only do so if they can contribute," she says.
"IT people need development in leadership so they can create the relationships that get them invited to board meetings, and they then need to be able to deliver light but bottom-line oriented presentations that have an impact."
Short is a board member of Certus, NCC's leadership development programme for the IT industry. One of its aims is to equip IT professionals with the range of skills and experience necessary to move into general management and leadership positions.
It is important that UK bosses take responsibility for understanding the impact of IT on their businesses, says Short. "A lot of boards are passive," she says. "Boards take a huge interest in areas such as finance and marketing, but IT has not achieved the same role and needs to. Every board member - especially the chief executive - has to understand IT, otherwise they cannot make sound decisions."
The resistance on the part of senior business managers to investing in IT is not surprising, says Ambrose, when the constant push by suppliers to upgrade means companies feel they are not getting value for money out of their existing investments.
But the pursuit of value for money and lower risk is leading companies to use two strategies - implementing packages and outsourcing - which Gough feels are further undermining UK industry's ability to exploit innovative IT for business benefit.
"If you outsource to a third party, you are not in a good position to drive your business forward, because you are not fully in control of your IT or agile enough to take advantage of opportunities," Gough says.
"Tightly specified contracts stifle innovation at a business level, especially if the emphasis is on cost containment rather than application development," he says.
Short agrees. To retain flexibility you need to look for outsourcers which will offer an iterative contract, she says. "You will pay a bit more up front, but can vary the terms without huge penalties," she says. "You also should not outsource unless you are clear about how it works - and even if something works in house, it may not work when you outsource."
Simon Linsley, head of IT at Philips Lighting and, like Short, a Certus board member, also disputes that outsourcing saves money over the longer term - especially if the outsourcing deal is obscuring process flaws elsewhere in the company.
"You might outsource your call centre to another country to reduce the cost of handling an increasing number of calls but, are you actually getting all the calls because of another problem in the business that needs to be sorted out?" he asks.
Short adds, "Lots of boards of big companies leap into cost savings by outsourcing - increasingly overseas - but there is a huge on-cost in understanding the business."
Gough also says that outsourcing to overseas companies erodes the UK skills base, but Linsley thinks the risk is even greater. "One of the dangers of outsourcing is that you are outsourcing knowledge," he says. "One of the prerequisites of a flexible organisation is that it manages its knowledge well."
Linsley warns that developing and supporting everything in-house can be as poor a strategy as implementing only standard packages and outsourcing everything. "Packaged software may look like a good bet, but it is not always the right choice and you have to be careful about how you implement it, he says. "But in-house development is only appropriate if you have the right quantity of work and people to do it."
Short, too, has reservations. In-house developments can result in support headaches and lock organisations into a tired solution as effectively as a package, because the investment in an internal system can make a company reluctant to ditch it, even when business need demands it.
However, she also warns that tailored applications can create almost as much trouble when the tailored elements turn out not to be supported by the next upgrade of the core product.
What is clear is that UK industry needs to think carefully about its strategy for software development. Gough advocates open source software as a low-cost route for developers to enter the market, providing cheaper products for UK businesses and allowing organisations to escape from the straitjacket of holding their information in proprietary formats such as Microsoft Word documents.
But although the consensus seems to be that open source has potential, it also appears to be too early for companies, whether large or small, to think seriously about adopting it.
"SMEs are not aware of open source and its benefits and do not have the resources or desire to invest in research. They see getting too involved in IT as a distraction," Ambrose says.
Short agrees that the semi-monopolies of the big suppliers in the UK need to be broken, but feels that most organisations do not want to get involved in the tweaking of application source code that open source platforms still seem to require.
For large organisations, too, the time is not yet ripe for open source, Linsley says. "Open source has not got the momentum. The IT market is controlled by suppliers and open source could lead to more competition and better and cheaper products." That would benefit all UK businesses.
Neglecting the UK's graduates?
A frequent complaint by UK companies is that universities are not turning out the right kind of graduates from computer science courses.
Gough feels it is industry that has got it wrong. "Universities are skilling people for a career over many years, but UK industry today does not seem able to use them," he says.
"Computer science graduates should know how to design and build software, but companies seem to be looking for people who can manage IT rather than do it. I would not encourage universities to change what they are doing, I would encourage companies to find out how to use those graduates to think out of the box. To think about how they can use IT to help them compete."
Short thinks university education should not necessarily be about vocational training. "That is the responsibility of industry," she says, "Universities should turn out people with a brain who can think and analyse and be creative and innovative."
She would prefer to employ graduates with a technical interest, but a degree in an academic discipline other than computer science is OK. "In Europe, a lot of IT directors are philosophy graduates who have the ability to reason clearly," she says.
She concedes, however, that universities need to work harder at turning out "people with common sense - I think that is what is sorely lacking at the moment".
Ambrose agrees. He suggests that new graduates of all disciplines typically lack the commercial understanding required by smaller software developers.
"Customers do not pay for stuff that is not delivered and we need to work to stringent timescales and create projects that deliver. The occasional graduate has those skills, but there is no substitute for commercial experience. We typically employ people with eight to 10 years' experience." He feels graduates are most likely to have the space to gain that commercial understanding in project teams in larger suppliers or consultancies.
Linsley agrees that graduates need to acquire business skills alongside technical expertise, but says it is up to industry to manage its people at a strategic level to achieve that goal, rather than for universities to change radically what they are teaching.
"Graduates are a way for companies to bring fresh ideas and insights into the knowledge base, while still maintaining the existing knowledge base," he says.
Marketing: where the UK falls down
The problem facing supplier Austin Ambrose is simply getting a chance to present ideas to business people.
He thinks many UK software houses are held back by insufficient marketing skills and small promotional budgets, and they are unable to establish brands that can compete with global players. "It is difficult to get a foothold," he says.
His company, Integrate Software, positions itself firmly as a UK software house, with the chance for users to influence development and deal directly with the supplier rather than distributors.
Freelance IT director Jane Short thinks UK software houses could also steal a march on their competitors - and especially their overseas rivals - by showing that they have embraced the people and process aspects of IT as well as being able to deliver technology. She also thinks they can help organisations to implement solutions that meet the needs of the business.
Michael Gough, chief executive of the National Computing Centre, believes effective marketing and exploitation of innovative products is one area neglected by venture capitalists and incubators sponsoring software start-ups.
"NCC is keen to take early, medium or even late-stage developments looking for early adopters and introduce them to the NCC member community, so we can help to develop markets for innovative ideas," he says.
Ambrose is also unimpressed by some of the support on offer from government agencies, such as BusinessLink, that are supposed to connect small and medium-sized enterprises with suppliers which could help them to run their businesses better.
"Their practical outworking as a prime point of contact should be simplified," he says. "Acquaintances, as well as our own experiences, confirm that if you are not part of the 'inner sanctum' as a supplier of a particular service, you will not see any benefit from offering your services through BusinessLink."