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Developingthe Future

A report on the challenges and opportunitiesfacing the UK software development industry2007

Foreword 3

G O R D O N F R A Z E R

MANAGING DIRECTOR, MICROSOFT UKVP, MICROSOFT INTERNATIONAL

Imagine it is 2015 and the trends outlined inthis report have come to fruition.

The City of London will have overtaken New York as the world’s financial hub, also rivalling Silicon Valley in the number of internet-based start-ups being launched. The revolution in information technology willhave transformed the world of entertainment.London’s Soho will have the biggest moviedigital effects industry outside Hollywood and the convergence of television and theinternet will bring about a renaissance in visual entertainment. The UK will lead theworld in the production of video games.

But the boom will not be confined to Londonor even to clusters of excellence such asCambridge or Scotland’s Silicon Glen. The industrial wastelands of the north will now be transformed by the informationindustries as the phenomenon described in this report as ‘knowledge services’ sweepsacross the whole of Britain. Well over half the UK’s gross domestic product (GDP) will be accounted for by knowledge services,a category which includes financial services,creative services and IT.

The process of off-shoring will have alsobreathed new life into the regions. Globalisationhas long since migrated the old manufacturingindustries abroad. But the second wave of off-shoring will involve locating routine backoffice functions to developing countries such as India and China, enabling UKcompanies to concentrate on the research and development needed to bring world-beatingnew products and services to market first.Cities like Liverpool and Newcastle will wininternational reputations as a result of their thriving multimedia industries.

In order to attract the cream of the IT graduatesstarting to stream out of Britain’s universities,these regional cities will be working overtimeto improve their quality of life. This is provingto be even more important than ever before as technology will enable professionals towork from wherever they wish.

In the summer, many people will prefer to workfrom home, running their global office from alaptop on the garden table.

But for those who do make the journey intowork, the surroundings will be need to beequally convivial. Anxious to attract the bestminds and give them the most productiveenvironments in which to collaborate with one another, companies will increasinglyoccupy Silicon Valley style campus locations.Abandoned or run-down industrial estates on the edges of provincial cities will rapidly be transformed into green landscapedCalifornian-style campuses.

If the trends highlighted in this, the secondedition of the Developing the Future report,are allowed to blossom, then this attractivevision of the Britain of tomorrow can then bethe new reality. But what needs to be done to make this change?

This report outlines the challenges that lieahead if Britain is to make this happen.

Chief amongst these is ensuring that the UK’s skills match the speed of technologicalchange now taking place. The supply of ITgraduates must increase to reflect the UK’sshift to a Knowledge Economy. Schools mustalso ensure that crucial computing skills aremade available to all at GCSE level as well asat A-level and beyond. Industry must also workin concert with academia and government toensure that UK citizens can constantly refreshtheir skills throughout their working lives.

The second edition of Developing the Future not only comprises original researchcommissioned by Microsoft on these fascinatingthemes, it also includes independent articlesfrom luminaries such as Will Hutton, outliningunique perspectives on the massive changenow taking place in Britain.

I hope that this document will not only sparkdebate but also ignite action to ensure thatthe UK takes full advantage of the fantasticopportunities that are now in our grasp.

“I HOPE THAT THIS DOCUMENT WILL NOT ONLY SPARKDEBATE BUT ALSO IGNITE ACTION TO ENSURE THAT THE UKTAKES FULL ADVANTAGE OF THE FANTASTIC OPPORTUNITIESTHAT ARE NOW IN OUR GRASP.”

Sponsors4

D R A N D R E W T U S O N

CITY UNIVERSITY, LONDON

London is at the hub of the UK's KnowledgeEconomy, key to our prosperity. Such activityis by its very nature IT-intensive. IT professionalsare not only engaging in developing theunderlying technology, but in using it to makeUK businesses more effective in a globallycompetitive marketplace.

Underpinning this is the talent of the UK’s ITprofessionals. This is an important challengefor the UK. IT professionals are at the forefrontof change and are charged not only withunderstanding the technology but also thebusiness environment as the IT industry movesfrom being a provider of technical services toa provider of business services; the demands on them have never been greater.

This has implications for Higher Education.The drop in applications to computing degreesis of concern. The changing nature of theindustry requires us to look hard at what we areteaching at schools and universities, and how.We need to work with our stakeholders toprovide graduates with the qualities to succeed,both for themselves and for society. We alsoneed to produce the high-quality research that underpins innovation.

The rewards for getting this right are great:greater prosperity for all, a dynamic, inclusive IT profession that offers real challenge and jobsatisfaction, interesting and stimulating schooland university curricula, and a university sectorthat can provide world-class research andeducation in computing.

M I K E R O D D

THE BRITISH COMPUTER SOCIETY

This second DtF report has moved ourunderstanding forward on the challenges andopportunities we collectively face. The UK iswell positioned, but there are changes to theglobal economic environment that demandadaptation. Globalisation in IT is not thedeath-knell that received wisdom portrays. In fact, the potential global opportunities that are open to us are tremendous. However that does not mean success isassured, or that the road will be easy.

For business, the challenge is two-fold. Firstly, to take advantage of new models for IT services and software, making knowledgeservices an integral part of their overall strategyand mission. The second challenge is to helpstaff transition as job roles change by supportingcontinued education and skills development.For that to take place, our industry needs tocollectively lift its eyes from short-term problemsand act together for the long term.

For government, the challenge is to create the right frameworks for an agile workforce.Without structures and support in place,businesses will simply be unable to makethese transitions; they will be left without theright skills, and our citizens will be adrift in the international job market. This will requirereal delivery on the promise of lifelong learningand support, and at this point the route to that delivery is uncertain. There is much to be done!

There are also challenges in education. There is a misunderstanding at all levels about the difference between ICT user skillsand the discipline of computing that fuels the Knowledge Economy. We fear this misunderstanding is turning off studentsand teachers, and may be behind some of theeducational pipeline problems. Students needto be inspired and informed of the opportunitiesand excitement that a career in computing offers,and yet collectively we have convinced themneither exists.

Fundamentally, the issue is the pace of change.Today’s 16 year-olds were born at the sametime as the web. They are the first generationof natives in our digital, web-enabled world.Providing a competitive education for themand those that follow will require us to adaptquickly to this new environment. This reportsheds light on how we can make thattransition, and confirms that the benefits are there for us to reap if we succeed.

TO M W I L L S - S A N D F O R D

INTELLECT

Intellect is pleased to contribute to the secondedition of Developing the Future, a report wehope will stimulate the debate and actionneeded to drive innovation in the UK.

There is currently a trans-Atlantic innovationdivide. The UK does not spawn start-ups and fast-growth new companies in the sameway as Silicon Valley solely because of adifference in business philosophy, as is oftensupposed. It is as much to do with publicsector attitudes to encouraging growth andinnovation. In the US, for example, a large part of public procurement expenditure is ring-fenced for small and medium sizedenterprises (SMEs). In the US, 23% of primefederal government contracts and 40% ofsubcontracts must go to SMEs. It has beenestimated that if the UK Government were to adopt a similar strategy, it would injectalmost £8 billion into British SMEs. This couldbe combined with research and developmenttax credits to encourage SMEs to developinnovative new products and services.

Were the UK Government to support Britishinnovation in this way, it is not only the SMEswhich would benefit. The public sector wouldalso find itself repaid with the kind of solutionsneeded to support a 21st century democracy.

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Contents

Introduction and key points 6

G LO B A L I S AT I O N

Why Globalisation is Good For Us 10

Meeting the Challenge:Professional Education and the HE Perspective 11

Globalisation 12

Innovation and Globalisation 18

China to Catch Up with UK in Five Years 19

I N N O VAT I O N

Emerging Trends and Technologies 22

The Bard of Whitehall 23

Innovation 24

The State of Entrepreneurship in the UK in 2007:Lead, Follow or Get Out of the Way 34

S K I L L S

Shoring Up the Foundation 38

Imminent Demise of Computer Science is Greatly Exaggerated 39

Lessons in Learning 40

Professional Education: The Role of Work-based Learning 41

The China Syndrome 42

To Succeed in the Global Economy the UK Must Commit to the Technology Skills 43

Knowledge Transfer: Linking HE with the IT Industry 44

Skills 46

T H E F U T U R E

How Today’s Teenage Kicks Will Turn IntoTomorrow’s Best Business Practices 62

Futures Emerging Technologies 64

Value Chain Snapped Asunder 68

1. The UK economy is fast approaching a point where the Knowledge Economywill soon contribute 50% of UK GrossDomestic Product (GDP).

The ‘Knowledge Economy’ includes sectorssuch as financial services, IT, business servicesand creative services and today employs 41%of all workers by occupational classificationand 40% of GDP by industry classification –expected to rise to 50% by 2010. The fastestgrowing component of the UK economy, it ispredicted to have a 40% graduate workforceby 2020.

This report also reveals that the software sectoris the most significant contributor to the growthand prosperity for the creative industries, andshows the greatest contribution to the UKNational Accounts for the creative sectors.

(SEE PAGE 25)

2. London’s growing role as an innovationhub and the emergence of new globalmarkets will drive economic growth in the UK.

With its unique overlap of financial services,technology, media, venture capital, andgovernment interests, London is rapidlybecoming a global hub for a new class ofentrepreneur as well as being an internationalcapital for creative industries such as digitaleffects for the film industry and video games.

The emergence of rapidly expanding economiesin developing countries such as China andIndia are simultaneously creating new businessopportunities for UK-based enterprises.

(SEE PAGE 34)

3. Private sector investment of £127 billiona year on intangible assets now equalsthat in tangible assets.

According to the most recent available figures,investment from the private sector in intangibles,such as software, research and developmentand brand value, is approximately £127 billion.Comparing the USA with the UK, recentexpenditure on intangibles is 11% of UK GDPversus 13% of US GDP. This contribution isabout the same contribution that investment in tangible assets has on GDP.

The importance of this to the IT sector issignificant. Of the £127 billion, 15% is spent on software (£19 billion); 10% on scientific R&D (£12.7 billion) and 20% (£25.4 billion)on non-scientific R&D.

(SEE PAGE 25)

Introduction:D E V E LO P I N G T H E F U T U R E 2 0 07

This is the second report in the ‘Developing the Future’ (DtF 2007) series commissioned by Microsoft® that researches the UK software development sector in the UK. The report reveals that the UK economy is fast approaching a point where the Knowledge Economy will contribute 50% of UK Gross Domestic Product (GDP). The report also reveals that the software sector is the most significant contributor to growth and prosperity for the creative industries and shows the greatest contribution to the UK National Accounts for the creative sectors.

There are several key recommendations within DtF 2007 that must be acted on now to address the widening skills gap(breadth and depth of skills), stimulate excitement and interest in ICT/computing education from age 11 and activelysupport innovation and growth within the SME software development sector.

K E Y F I N D I N G S F R O M D E V E LO P I N G T H E F U T U R E 2 0 07 :

4. IT industry faces potential skills shortage.

In 2005/6 the number of graduates from IT related degrees that chose to enter careersin the IT professions was only 30%. This is set against the UK IT workforce averaging156,000 – 179,000 per annum that coversboth new jobs created from growth andreplacement demand. Put another way, 70% of IT graduates chose or found alternativeactivities or jobs outside of the IT profession in 2005/6, with 10.1% going on to study for higher degrees or other qualifications,10.3% are unemployed, 4.3% are engaged in other activities and 3.8% are not availablefor employment, study or training. Of those finding employment 6 months after graduationa proportion may be classified as IT workerswithin other industry sectors based on thecurrent government careers taxonomy andsome may be in interim jobs.

The question facing the UK is whether therewill be enough people working in the primary IT sector to develop the tools, applications and technologies that will be needed in othersectors that are heavily IT dependent such as financial services.

Despite numerous industry initiatives, currentlyonly around 20% of the UK’s IT workforce isfemale. If it is to fill its skills gap, the IT industryneeds to recruit from the entire talent, not merelythe masculine half. Currently, only 17% of thoseundertaking IT-related courses are women.

(SEE PAGE 46)

5. There is growing pressure on the UK Government to reform the NationalCurriculum to allow students to studycomputing at GCSE level.

There is a call from several bodies (includingacademia) for the Government to begin toreform the National Curriculum in a way that will provide an opportunity for students to study computing at GCSE in an innovative and exciting way. This is coupled with a callfrom many agencies including e-skills to putexcitement for Computing and science back into the curriculum. GCSE ICT is not currentlyabout providing the specific skills for Computingbut offers a means by which students gain skillsin computer and software use.

(SEE PAGE 56)

6. There is a loud clear call for the UK Government to develop appropriateIntellectual Property Rights (IPR) forthe ‘digital age’ to support innovation.

By adopting the pragmatic recommendationsfrom the Gowers Review, the Government hasan opportunity to stimulate the growth in theinformation and communication technology(ICT) sector that is now required to supportUK’s future wealth and prosperity.

There is also a specific call for the UKGovernment to examine how it might emulatethe USA small-to-medium sized enterprise(SME) development strategy that earmarks25% of public expenditure for innovation andgrowth in the SME sector. Growth in wealthand prosperity will come from growth in theSME sector.

(SEE PAGE 27)

9globalisation

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There is a growing perception that the processof globalisation in general, and the practice of off-shoring in particular, represent a massivethreat not only to jobs in the UK but also tothe British economy as a whole.

It is not only manufacturing jobs that are nowdisappearing to China, the argument goes, but increasingly also white-collar jobs ininnovative sectors such as technologicalresearch and development. The prophets of doom say that unless the tide of off-shoringcan be somehow stopped, Britain will soon be overtaken by the developing economies of Asia and the Far East.

This widely-held view could not be more wrong.Globalisation offers Britain its best chance ofsustained economic growth since the start ofthe industrial revolution over 200 years ago.The practice of off-shoring and the rapidgrowth of developing economies such as India and China will help drive this growth.

Underpinning Britain’s future success is its leadership in what have come to be broadly referred to as ‘knowledge services’.These include financial services, IT, businessservices and creative and cultural services. In these rapidly growing markets, Britain is the undisputed European leader. The EurostatEuropean Union International Trade in Services2006 edition reports that Britain is currently thebiggest European exporter of services, providingover 25% of the total, easily outstripping itsclosest rival, Germany. Knowledge-basedservices increasingly underpin the domestic UK economy, currently accounting for 40% of Britain’s GDP.

According to the Office for National Statistics,the past decade has also seen a massive boom in the UK exports of services associatedwith the Knowledge Economy: financialservices, computing services, businessservices, royalties and licence fees. In the tenyears to 2005, exports of these services grewby over 100% compared with just over 50% for more traditional services such as transportand travel.

The critics of globalisation say that Britain haspaid a heavy price for this growth with jobsdisappearing to the Far East as companiesstrive to cut costs by reducing wages. The evidence does not bear this out.

Far from globalisation being a threat to theUK, it is its saviour. Globalisation is the chiefreason why the UK is not in the throes of abalance of payments crisis. Globalisation canalso take much of the credit for the fact thatunemployment is at its lowest level for anytimesince the 1970s and that Britain is not seeingthe kind of inflation that caused the crash at the end of the 1980s.

It is also widely but inaccurately argued thatthe flip side of the globalisation coin is the way in which the developed countries are now

being flooded by cheap goods from emergingeconomies such as China. But it is difficult to see how Britain has been disadvantaged by having its competitiveness bolstered byglobalisation.

In the bad old days before the global marketsof the 21st century, British firms faced withrising salaries would simply raise the price of their products, resulting in the inevitableinflationary spiral. In the current era, competitionfrom overseas manufacturers makes itimpossible for UK companies to raise pricesarbitrarily. Even the huge rise in energy costshas done little to increase prices in the era of globalisation.

In any case, there is little foundation to claimsthat the UK is being flooded with cheap importsfrom China and that this is resulting in lowwages and unemployment. The big exportersto the UK by a considerable margin areGermany and Japan. China accounts forroughly the same level of exports into the UKas Belgium and there is no cry that Britain isbeing flooded with imports from Belgium.

But there is now a growing danger that the blizzard of negative press surroundingglobalisation could blind Britain to the incredibleopportunity now facing it. The UK is in a strongposition to become a world leader in knowledgeservices. Today’s global economy has alreadycreated a robust international market in sectorssuch as IT and financial services. But the scaleof today’s knowledge-based industries is likelyto be dwarfed by their future growth.

According to the World Bank, the growth of the world’s middle class, the market forknowledge services, will become exponentialover the next two decades. In its report,Global Economic Prospects, the World Bankhas forecast the emergence of what it terms a global middle class within the developingworld that will number around 1.2 billion by2030. The World Bank believes that thisrapidly growing group will participate activelyin the global marketplace, demand world-classproducts and aspire to international standardsof education.

This development of a worldwide middle classwill provide a ready market for the knowledge-based products and services now beingdeveloped in the UK. For example, the UKnow has the biggest video games industry in the world. Video games conceived anddeveloped in the UK are played on consolesand computers everywhere from Beijing toBirmingham, Alabama.

As the 21st Century progresses, the growth of overseas markets in countries like India and China will provide massive growth forsectors such as the video games industry. The off-shoring of key skills in IT and financialservices will only drive the growth of the newmiddle class in these rapidly developing regions.

The real danger is not that China will overtakethe West, as many doom merchants warn, but that it will lag too far behind. Without asustained influx of Western skills, China could start to retreat away from its increasinglydemocratic business model and revert to its more traditional and totalitarian state. Over $800 million has already been spent on screening the internet and blockingwebsites that include the word ‘democracy’.

Another potential brake on the rapid accelerationof Britain’s knowledge management servicescould be a skills shortage. The UK already has to import many of its IT workers and thissituation is likely to worsen as the populationcontinues to age. In developed countries likethe US, around 40% of PhDs in the US areawarded to people from outside the US, as companies are finding it harder and harderto recruit from their own country. As othermarkets develop, it is likely that many of these bright people will either return to theirown rapidly developing economies or neverleave them in the first place.

But, in the medium term, it is likely that brightyoung professionals with the appropriate skills will continue to be drawn to clusters of excellence such as the City of London or Cambridge and that Britain will increase its leadership in knowledge services. The real test may be if the UK can accomplish thistransformation without the kind of socialdisruption that accompanies the industrialrevolution.

The other side of the skills coin is the questionof how to handle people who find their skillsbecoming redundant in the switch from traditionalmanufacturing to knowledge services. This timearound, it is the factory workers who rapidlyshed their value in the labour market of the 21stCentury. For example, after Rover closed it wasfound that many of the people who had beenemployed in the factory were unable to findnew employment at anything like their formersalary levels.

If the UK is to meet the challenge ofglobalisation fully, it must ensure that theworkforce is helped to re-equip itself with the IT and communications skills needed to makethe transition from 20th Century factory handsto 21st Century knowledge workers.

Will Hutton is the former editor of The Observer and author of The Writing on The Wall. Ian Brinkley is KnowledgeEconomy Programme Director at the WorkFoundation.

Why Globalisation is Good For UsBY W I L L H U T TO N A N D I A N B R I N K L E Y

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Computing in Higher Education (HE) plays akey role in the IT industry, both in workforceeducation and in providing an underpinningscience base. The changes in the IT industrydescribed in Developing the Future come at a time when HE in the UK faces its ownchallenges. This is fuelling a healthy debateabout the extent to which market forcesshould determine the nature of computing HE provision in the UK.

Universities are competing in a global educationand research market and recognise thatgaining funds from additional sources isessential. Government policy is moving firmlyto a skills and knowledge exploitation agenda(e.g. the Lambert and Leitch reports) at a timewhen other pressures such as the ResearchAssessment Exercise have to be addressed.

Furthermore, funding changes three years agofrom the Higher Education Funding Council inEngland resulted in computing being assignedto a lower price group, lowering per-studentfunding, and increasing the squeeze on alreadyhard-pressed university computing departments.With economies of scale favouring fewer, larger departments, and a falling computingundergraduate intake nationwide, the end result has been downsizing or closure for some departments.

In contrast, the City University’s School ofInformatics has risen to these challenges. The numbers and quality of the computingundergraduate intake has been retained since 2001 and postgraduate numbers have risen by over one-third in just two years.Research productivity and funding have alsoincreased strongly. A focus on dependablesocio-technical systems and active links withindustry underpin a vibrant research culture,enabling research-led teaching.

We believe that fundamental to our success is the way in which we view and engage withIT as a profession, aligning ourselves with the University’s mission to provide rigorousresearch and education for the world of work.

We have forged strong IT industry links over the past 20 years, enabling us to deliverintegrated in-depth placement experience and in-demand professional skills to bothundergraduate and masters students, makingthem highly employable. Moreover, this focusis central to the marketing of the courses,positioning us as a professionally-led Universityand securing high quality students attractedby courses which reflect their career aspirations.

Our experience points to the need for HEcomputing departments to engage more closely with the demands of the IT profession if they wish to flourish. We are moving to apost-disciplinary world where traditionalknowledge boundaries are being supplanted by a career and industry-led HE market, and where teaching and research become ever more linked to the needs of externalstakeholders.

In short, we are seeing a reinvention ofprofessional identity that will transformcomputing in HE. Long term, the most effectiveoutcomes will be delivered by engagement in a two-way process. While HE must develop a more professional focus, the IT professionand industry also need to work in partnershipwith HE to develop a better understanding of their roles. The British Computer Society as well as other national professional andindustry organisations will play an increasinglyimportant part in this process.

Meeting the Challenge: Professional Education and the HE PerspectiveBY P R O F E S S O R D AV I D B O LTO N ,D E A N , S C H O O L O F I N F O R M AT I C S , T H E C I T Y U N I V E R S I T Y

“Our experience points to the need for HEcomputing departmentsto engage more closelywith the demands of theIT profession if they wish to flourish.”PROFESSOR DAVID BOLTON,DEAN, SCHOOL OF INFORMATICS,THE CITY UNIVERSITY

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GlobalisationTHE CREATION OF OPPORTUNITY

For many, globalisation means ‘off-shoring’and the threat of large numbers of jobsmoving overseas. Although this is the view implicit in many newspaper headlinesabout jobs leaving Britain never to return,the reality is far more complex.

The economic benefits of globalisation may be felt in different ways across society.Some economists state: “In the rich world,labour’s share of GDP has fallen to historiclows, while profits are soaring.”1

The issue of protectionism is not just talkedabout in the UK, The German MarshallFund found last year that, although mostpeople still say they favour trade, morethan half of Americans want to protectcompanies from foreign competition even if that slows growth.1

But protectionist policies could potentiallyjeopardise the benefits of off-shoring.2

In the absence of real data about thelong-term effects of off-shoring andoutsourcing, the negative public perceptionis partly a reaction to the perceived threatof globalisation rather than a consideredrational response. The danger is that theperception is seen as the reality, and policiesare developed on the basis of receivedwisdom and not hard evidence.

Research has shown that in reality, the process of global economic integration,of which off-shore outsourcing is a highlyvisible component, diffuses the bestbusiness ideas and management tools,intensifies competition, and sparksinnovation. It therefore ultimately leads to lower prices and higher wages as well as bigger profits that companies canreinvest in new business opportunities.2

This is explored further in the section on Innovation within this report.

THE IMPACT OF OFF-SHORING

Little research has been carried out todate regarding the productivity benefits of off-shoring, and this seems surprisinggiven how great a perceived impact thephenomenon of off-shoring is as a threatto jobs and opportunities in this country.

There is also currently no accurate and objective measure of the impact of off-shoring on jobs in the UK or theextent to which this affects IT and softwareemployment. The UK Government doesnot monitor what is happening and has no up-to-date evidence. At the very least,there is a need for the Government andthe Department of Trade and Industry(DTI) to monitor the impact of off-shoring on employment and the economy. With accurate indicators it might besimpler to plan meaningful policies and strategies for the future.

In order to try and gain some insight as to the potential for off-shoring and thepossible implications on labour markets,we have looked at research begun in2005. This is a contentious area and one which generates considerable anxietyand disagreement. The available researchanalyses the potential availability of off-shore talent in 28 low-wage nationsand the likely demand for it in service jobs across eight of the developed world’ssectors; automotive, financial services,healthcare, insurance, IT services, packagedsoftware, pharmaceuticals and retailing.3

This analysis offers two conclusions:

• Off-shoring will probably continue tocreate a relatively small global labourmarket without sudden discontinuities in overall levels of employment andwages in developed countries.

• Demand for off-shore labour bycompanies in the developed world will increasingly push up wage rates for some occupations in countries withdeveloping economies, but not as high as current wage levels for thoseoccupations in developed ones.

Developing the Future | Phase 2-07

1 The Economist (January 20th 2007)2 McKinsey Governing Globalisation Diana Farrell 2004 Number 33 McKinsey Sizing The Emerging Global Labor Market Diana Farrell,

Martha A. Laboissière and Jaeson Rosenfeld

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These conclusions suggest that the threat of loss of jobs and lower wagesdue to off-shoring in developed countriesmay not, over the longer term, be ascatastrophic as currently perceived.

This is an area which is continually evolvingand requires further accurate monitoring.Without accurate information, the ‘perceived’threat or ‘fear factor’ has the potential to drive the development of protectionistpolicies which could ultimately damage the competitiveness of the economy. This makes it vital that up-to-date data iscollected and analysed so that informedpolicies can be developed.

WHAT ARE THE REAL IMPLICATIONSOF OFF-SHORING?

The research that has been undertakensuggests that the productivity benefits of off-shoring are most evident in theservice sector.4

But it is difficult to paint a true andaccurate picture within any given industryas productivity gains from off-shoring arenot fully recorded across industry sectors.This makes press stories of the impact ofoff-shoring more stressful for employeesthan they would be if a more realisticpicture were available.

According to the Organisation for EconomicCo-Operation and Development (OECD),information and communicationstechnology (ICT) industry growth isforecast to increase5 and the technicallymore complex tasks such as design andtesting and research and development(R&D) are increasingly being shifted to China. But most Chinese ICT firms are small compared to their US and EU competitors.

RESEARCH, SKILLS ANDTECHNOLOGY INVESTMENT –INNOVATION DRIVES COMPETITIVEADVANTAGE

Today, off-shoring is occurring primarily toreduce costs and to boost productivity.But how will it develop in the future?

Automation and innovation are drivinggrowth, with technology taking over moreresponsibility for undemanding humantasks. Off-shoring mundane work is just a transitional step to reduce the cost base when a business process movesfrom innovative to mainstream beforebecoming automated. With Moore’s Law (the observation that the power ofcomputers doubles every 18-24 months)delivering increasing computer power,computers are taking more and moreroutine functions, as well as manyadvanced knowledge functions frompeople. Therefore, the place to invest is in the creation of new tools andtechnologies that fuel this process.

There is an argument that organisationsgoing overseas and off-shoring many of their services including softwaredevelopment, see an initial productivity gain.But as other firms within the industrywhich off-shore accrue the same gains,the original competitive advantageinevitably reduces. The pressure is thenon to find the next competitive advantageso more firms will look to innovation,either in product or business processes.Demand to innovate will therefore befirmly at the forefront of most firms’agendas. The Government commissionedCox Review6 published in 2005 looks atthe threat posed by emerging economiesand highlights the need for innovation and creativity in developing UK industryso that we remain competitive in the face of growing overseas competition.

Automation andinnovation are drivinggrowth, with technologytaking over moreresponsibility forundemanding humantasks. Off-shoringmundane work is just a transitional step to reduce the cost base when a businessprocess moves frominnovative to mainstreambefore becomingautomated.

4 Olsen, K. B. (2006), “Productivity Impacts of Off-shoring and Outsourcing:A Review”, OECD Science, Technology and Industry Working Papers,2006/1, OECD Publishing

5 OECD – article – ICT Industry growth set to increase by 6% in 2006 can be found at http://www.oecd.org/document/34/0,2340,en_2649_33723_37487522_1_1_1_1,00.html

6 Cox Review of Creativity in Business: building on the UK’s strengths,2005 can be found at http://www.hm-treasury.gov.uk/independent_reviews/cox_review/coxreview_index.cfm

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The emerging economies’ investment in new technology-based industries isalready resulting in impressive capabilitiesin scientific research and they are investingmassively in education, technical skills andcreative capabilities. As a consequence, it is now the high-skilled jobs in thehitherto leading economies that arecoming under threat.6

The OECD says: “What is impressive, and worrying about the emergingeconomies is not where they stand todaybut how they are positioning themselvesfor the future.”6

In the early 1990s, companies in North America and Europe startedcommissioning software from Indiansources, mainly for routine applications,on the grounds of cost. Today, it is foradvanced applications on the grounds of capability. In the first half of 2005,Indian exports of software and IT-relatedservices are estimated to be worth over $5.5 billion.6

But the rapid growth of China as an off-shoring rival to India has led the Chineseto conclude that, as its economy grows,the cost advantage it currently has will goto the next emergent economy. It thereforeneeds to develop new skills and services.Over the last two years, it is China whichhas had the fastest global rate of increasein R&D, now estimated to have reached1.5% of GDP. As a result of this, the capability that is being built-up is one of high investment, high-level skills and a low cost base.6

Initial analysis shows that it is currentlymore difficult for smaller small-to-mediumsized enterprises (SMEs) to take advantageof cost reduction strategies fromglobalisation than it is for largercompanies. Larger businesses haveestablished operational centres inemerging economies such as Asia,lowering the cost of production of goods and services. But this may begin to change as more SMEs become aware of how off-shoring can improve their speed to market (see Sally Ernst’sarticle on page 19).

The growth of the Knowledge Economyand the efficient deployment of off-shoringis dependent upon the success of the IT and software development industrieswithin this country.7 Much of the futureprosperity of the UK therefore dependsupon the health and growth of the IT sector.

THE SOCIAL IMPLICATIONS OF OFF-SHORING

Although many organisations arecontinuing to experience huge financialgains from their current off-shoringpolicies, there are concerns over its widersocial impact.

A recent speech given by Joseph Stiglitz,Professor at Columbia University, NewYork and winner of the Nobel Prize forEconomics, highlights both the difficultiesand opportunities of globalisation.

Stiglitz recognises that globalisation offers tremendous financial rewards thatbenefit the overall economy. But if we do not manage the negative impacts ofglobalisation then we could see abacklash. What we are seeing at present,he believes, are reduced wages forunskilled workers in the developedcountries which exacerbate the trendswhich already exist from the changes in technology and computerisation ofmany unskilled jobs.

“In the North, global competition hashelped drive down wages of unskilledworkers, exacerbating similar trendscoming from changes in technology and the weakening of labour unions.”8

He believes what we are actually seeingis that globalisation is in some casesbeing used as an excuse to take awaysocial protections for individuals.

“When last spring, young workers inFrance went on protest concerning theirlow wages and weakening job protectionsthey were told globalisation demands it.”8


“What is impressive, and worrying about the emergingeconomies is not where they stand today but howthey are positioning themselves for the future.”OECD

6 Cox Review of Creativity in Business: building on the UK strengths Nov 2005

7 Interim report on the 2007 green paper on the creative and Knowledge Economy

8 Making Globalisation Work – J Stiglitz. The Times Feb 18 2007

15


RECOMMENDATIONS

• Increased investment in skills, educationand knowledge by the Government andemployers is vital over the long term. A highly skilled workforce is essentialfor the Knowledge Economy and allemployees need to have access toopportunities and incentives to developtheir skills.

• Actions: UK Government should put in place some robust incentives forimplementation of the skills agenda7 withparticular emphasis on SMEs. An action-oriented pilot with the DTI and othersthat would determine a best practicemodel for incentives for up-skill/cross-skill development within this sector iscrucial; this should be considered firstlyas a consultative report and secondly as a plan for policy change should theresearch point to the need for change in policy direction.

• Actions: for academia and industryfacilitated by Government to provide a debate and working paper on skillsdevelopment and industry liaison where UK Higher Education Institutes(HEI) can begin to meet the needs for short/medium term educationobjectives for industry.

• IT and technological skills are requiredacross the whole economy. All industrysectors, not just the IT industry in isolation,need to collaborate to ensure that thetransferable skills required aredeveloped within our education system.Actions: for academia and industryfacilitated by Government to provide a debate and working paper on skillsdevelopment and industry liaison whereUK HEIs can begin to meet the needsfor short/medium term educationobjectives for industry.

• We need to understand the ‘social’ and ‘cultural’ requirements of society in order to understand how to motivateindividuals to continue to learn anddevelop new skills. Action: for a key company in the UK ITsector to analyse and report oninitiatives that have (and could) bedeveloped to support an integrated skillsagenda framework across all sub-sectors. The report could then be usedto help inform policy or Governmentdecision making that could furtherprovide incentives for a collaborativeapproach to ensuring that CPD/life-longlearning becomes the responsibility ofthe citizen but with full support andguidance from Government and industrysupported wholly by UK HEIs.

• Communicating the benefits of learningand education is vital to changingbehaviours and creating the will ofindividuals to commit to their ownpersonal development. Action: from UK Government andindustry consortium to provide acommunications programme to driveincremental changes in behaviour.

• Strategies and policies to foster growthand economic development can only be based on accurate data. It is a priority to understand the real drivers for off-shoring and the potential gains both to corporations and to society. Action: for Government agencies,academia and industry to initiateresearch that will provide the initialscorecard and statistics for theeconomic drivers behind globalisationstrategies adopted by business.

• It is also important to monitor theinvestment and development strategiesof other countries, in order to understandhow they benefit and to forecast how they may affect our economicperformance and ability to compete in the future. Action: for industry and Governmentagencies to collaborate on an analysisof strategies and outcomes frommodern globalisation initiatives toprovide a mechanism to begin toforecast the impact on UK economicperformance.

7 Interim report on the 2007 green paper on the creative and Knowledge Economy

16

SUMMARY

Contrary to press reports that off-shoringis creating unemployment in the UK, it isenabling UK companies to grow and take on more staff.

At the same time, globalisation means that low-wage economies are benefitingfrom companies in developed economiessuch as the UK and the US off-shoringback-office operations. Globalisation offerscompanies in the UK the prospect offantastic financial rewards as markets such as China and India increasinglyhunger for goods and services fromdeveloped countries.

The fastest growing part of the UKeconomy is the Knowledge Economy. This is also true for many other countries.Currently, depending upon the definitionused, the Knowledge Economy in the UK makes up around 40% of GDP. Its contribution to UK prosperity is essentialand profound. It is included here becausethe growth of the UK Knowledge Economyis underpinned by the software developmentand IT industries. The challenges facingthe IT sector will affect the UK economysubstantially, and this makes it vital thatthose challenges are understood andaddressed effectively as the success ofthe IT sector affects the entire country.

In this section we have examined the hard facts; what it will take to succeed.Skills and education are vital to theKnowledge Economy, and without continualinvestment in these sectors there are realsocial dangers, both in terms of socialunrest and a polarised society.

Additionally this section examines theareas of investment which have a majorimpact upon economic growth of theKnowledge Economy. It shows that the UK lags many other nations in terms of itsinvestment in research and development,education and information technology.This is important because there is a highcorrelation between economic growth and investment in these areas.

Both China and India have invested heavilyin these areas and as a result are enjoyingconsiderable growth in their knowledgebased economies. Levels of skills aregrowing in these economies and it ispossible, even likely, that they willcompete with the UK for research,innovation and highly skilled work. The report suggests that if Britain looksat the investment strategies of thesecountries it will begin to see how they are positioning themselves for the future.This makes it vital that the UK increasesits investment in these areas. Whilst thereport acknowledges the need forGovernment investment, it states thatemployers also need to recognise thatthey too should invest in their workforceskills and in research and innovation ifthey are to continue to prosper.

The UK must remain aware of the socialimplications of globalisation. The benefitsof increased profits and prosperity mustbe across society, and both the Governmentand employers must invest in our workforceso they too can ensure they have a futurerole in the developing economy, otherwisethere is huge potential for social unrestand inequality.


The challenges facing the IT sector will affectthe UK economysubstantially, and thismakes it vital that those challenges areunderstood andaddressed effectively as the success of the IT sector affects the entire country.

17


Off-shoring is examined both from the point of view of industry but also theindividual. There is evidence to suggestthat ‘ordinary workers’ may not be benefitingfrom global trade. The implications of thisare considered. If workers feel threatenedand perceive no benefits then there is the possibility of a backlash against global competition, in terms of a call for‘protectionist’ policies and a dis-incentiveto re-skill and compete, both of whichwould be harmful for the UK economy.

Off-shoring may give economic benefitscurrently, but there is a question as towhether they can be sustained over thelong term. Therefore UK organisationsmust look to other ways to maintain theircompetitive advantage, such as innovationand new developments either in productsand services or in business processes andthe creative application of new knowledgeand skills.9

Globalisation may have the benefit ofstimulating innovation as the UK seeks to remain competitive.

The report argues that we need to investand develop strategies to ensure our futurecompetitive role in the global economy.However, it is important, that these arebased on accurate information, and notperceived threats and ‘headline’ storieswhich do not give the full picture. The dataon which we need to plan is not availableand the collection and analysis of thisneeds to be made a priority.

Finally, the report looks at some of theactions, labour policies and investmentstrategies which would increase our abilityto compete and offer possible solutionsfor many individuals confronted by thethreat of the loss of their livelihoodsthrough globalisation.

Globalisation may have the benefit of stimulatinginnovation as the UK seeks to remain competitive.

9 The Relationship Between Publicly Funded Basic Research AndEconomic Performance a SPRU Review Ben Martin and Ammon SalterWith Diana Hicks, Keith Pavitt, Jacky Senker, Margaret Sharp and Nick von Tunzelmann Science Policy Research Unit University of Sussex Falmer, Brighton BN1 9RF, UK

18

Traditionally, innovation in the IT services andenterprise software sectors (and much of the packaged software sector too) has beendriven by large companies who, with significantpurchasing power, have forced the globalisationof the supply side as they themselves havefaced increasing international competitionacross the board. Suppliers have off-shored todevelop and maintain competitive advantagesbased largely on costs. The economic benefitsof off-shoring and economies of scale have,however, while accessible by multi-nationals,been less appreciated by and available to SMEs.

While large users have driven the off-shoringagenda, suppliers’ competitive advantages ofdoing so are now tending towards equilibriumas the cost advantages of doing so arebecoming eroded over time.

The UK SME segment is therefore vital; it iswhere margins still exist and where innovationwill help ensure competitive advantage. Many large companies engage with SME’s in their supply chains, and the application oruse of ICT within SMEs are key generators of overall economic growth and employment.SME’s are often the fastest growing part ofmost developed and developing countries,and where significant value-adding occurs.This of course depends upon the type ofSME. But smaller companies are often more dynamic than large ones because they’re driven by entrepreneurs to whom large corporations can’t offer sufficient reward or flexibility. Smaller companies are also often able to connect with localcustomers better than large corporations – an important attribute in high wealthyeconomies where personalisation of products and services is important.

Some of the most dynamic SMEs may noweven be able to operate on something of aglobal scale, offering products to niche globalcustomer segments using the internet. But thecost reductions of doing so are generally less important if you’re able to provide highly customised or innovative products to high value customers, as markets are less competitive and economies of scale less vital to margin maintenance.

However, barriers currently exist towidespread and deep adoption of IT servicesby SMEs. First, they are often concernedabout having suppliers and their productsclose at hand and designed according to therequirements of their business operations.Being designed initially for large companies,many applications and systems need to be re-configured for the needs of smaller ones.This can be costly for suppliers, but SMEs arevery wary of being sold a technology ratherthan a solution and are loathe to makeinvestments unless they are vital for businesssuccess. To grab the opportunities foreconomic prosperity, inward investment andcontinued support is required from suppliers.

Second, the skills required in computing or IT change more rapidly than in other science-based subjects, and this makes it particularlydifficult for SMEs to exploit the advantages of technological innovation. This makesprofessional development and updating skills vitally important to SMEs. Only bycollaborative development can we ensure that the sector can access relevantprogrammes in ways which benefit them.

A new approach to accommodate flexiblelearning is needed. The acquisition of higherlevel skills and access to these skills is vital to all sectors of the economy and they canonly be developed through the continuedcollaboration between industry and academia/educational organisations. One way toaccelerate innovation is to radically re-thinkHE/industry engagement and collaboration so that the SME sector can benefit fully fromknowledge transfer programmes and accessgovernment support and other initiatives. This should be developed in consultation with all business sectors and academia, to promote the formation of HEI and privatesector hybrids to develop ContinuingProfessional Development (CPD)/life-longlearning and other professional developmentand skilling initiatives

Harnessing the innovative potential of SMEsuppliers is not beyond the reach of largesuppliers. Large users are increasinglyoutsourcing supply to consortia usually led by large prime contractors who augment in-house skills by buying in specialist SMEtechnical competence or niche marketcustomer relationships. The design skillsadopted in such consortia can be adoptedand refined for more general service migration from large to small users.

Innovation and GlobalisationD R J E R E M Y B E A L E , C B I

“A new approach to accommodate flexible learning is needed. The acquisition of higher level skills and access to these skills is vital to all sectors of the economy…”DR JEREMY BEALE, CBI

19

When developed nations first began off-shoringsoftware development to India, the IT industryhad a 15-20 year window in which to createrapidly growing, highly competitive companiesthrough right-shoring.

Unfortunately for the laggards, the 15-20 yearwindow has now closed, and many missed the boat. India has developed a powerful rivalsoftware industry of its own, competing veryeffectively with UK firms both on-shore and in its own market.

However, UK technology firms can learn from this experience and find new marketswith which to right-shore such as the new off-shore destination of choice, China. The challenge for UK firms today is theacceleration of affordable travel, ease ofimmigration, free trade agreements, and robust enabling technology. These phenomenahave shrunk the window of opportunity for UK firms to realise the benefits of right-shoring their skills base to 3-8 years.

Laggards won’t just miss the boat this timearound, they’ll be dead in the water as thelarge commodity skills base in developingnations becomes quickly saturated byinnovative technology companies who are then empowered through their right-shoringstrategy to lock out competitors in local and foreign markets.

Much of the work that would have, until recently,been off-shored to India is already coming to China. The cost of off-shoring softwaredevelopment to India has been rising by 15-20% a year and has now reached a pointwhere most Indian software developmentcompanies now have large hubs in China or plans to develop them. China is growing as a destination of choice, with off-shoringincreasing at an annual growth rate of 8% in2003 to 11% in 2006. By contrast, India as a destination is in decline, falling from 42% to 39%.

All the evidence points to China developing its own national software industry even fasterthan was the case in India. The Chinese literacyrate is over 90% contrasted with India’s,which is less than 65%. China currently has35 national training schools and aims to train800,000 software engineers versus India’s600,000. Crucially, China has enforceableintellectual property (IP) protection laws aspart of its agreement with the World TradeOrganisation (WTO).

The situation is particularly urgent for smallerplayers which have far slimmer resources thanlarger organisations. Small and medium sizedenterprises (SMEs) do not have the cashto pay teams of London programmers £100 an hour, support non-productive staff or cope with rapid staff turnover.

Developers who ignore the opportunity to off-shore in China not only face higher coststhan they need but also risk cutting themselvesoff from the world’s fastest growing andpotentially largest market.

China to Catch Up with UK in Five YearsBY S A L LY E R N S T, C H I E F E X E C U T I V E , S I N O C O D E

“Laggards won’t just missthe boat this time around,they’ll be dead in thewater as the largecommodity skills base in developing nationsbecomes quicklysaturated by innovativetechnology companieswho are then empoweredthrough their right-shoring strategy to lockout competitors in localand foreign markets.”SALLY ERNST,CHIEF EXECUTIVE, SINOCODE

21innovation

22

I have just attended a meeting with educationalcolleagues from around the world (from HongKong to Argentina), on an idyllic island.Unfortunately for me, the island was not real;the meeting was in a Multi User VirtualEnvironment (MUVE). The meeting happenedbecause someone I know, through a Communityof Practice, was online at the same time as acolleague and I were trying out a new product.My acquaintance invited us to join him andsome others he knew and we were able tolearn about the product together.

The experience reflects a number of emergingtrends and technologies. It could be classedas informal learning. There was no schedule or agenda; we wanted to learn and so we did.There were examples of what can be calledpresumption; all of us were producing some ofthe learning material we used and sharing thatprovided by others. No one took the role ofthe teacher. The technologies that supportedthe experience included: a grid of computersproviding the MUVE, our internet connections,the provision of internet voice (VoIP) fortelephone conversations, and online texttranslation between our different languages.

This is just one example of what emergingtrends and technologies can offer. There aremany other things that are now possible, that were not only five years ago, and thereare many more changes to come. From thepoint of view of the educationalist there are a number of challenges:

• Having an awareness of emerging trendsand technologies;

• Ensuring that these new things feature in the syllabus;

• Exploiting new opportunities for developingeducational material;

• Recognising the competition betweendifferent technologies and trends. For examplethe conflicts between discussion forums and blogs.

From the point of view of the researcher, there are the obvious challenges of developingthe technologies and recognising the trends,but there is also the need to develop:standards, interoperability frameworks, toolsfor interactions, understanding the semantics,automating processes.

For industry the challenges exist in recognisingwhat to adopt and when; but perhaps thebiggest challenge comes with the students:

• Some of the trends and technologies thatmiddle aged academics see as new andexciting are everyday and mundane to the younger students.

• Students (certainly from the UK) are verymotivated by marks, and they expect toparticipate in formal learning; anything less formal can cause them to be worried.

• Some people believe when students graduatethey should know everything that they needto know.

Emerging Trends and TechnologiesBY D R . S H I R L E Y W I L L I A M S , H E A D O F I N F O R M AT I O N SYS T E M S ;T H E U N I V E R S I T Y O F R E A D I N G

N E C E S S I T Y I S T H E M OT H E R O F I N N O VAT I O N

INTERVIEW WITH BT’S ANDY GREEN

Sometimes, it is only when a company hasits back against the wall that it really startsto innovate. After BT span off its mobilebusiness BT Cellnet, now known as O2, in 2000, it found itself the only formernational incumbent telecoms operator inEurope without a mobile arm at a time when mobile phones were seen as the cash cows of telecoms. The former state-owned operator was also struggling undera £30 billion burden of debt.

Sheer necessity forced BT to innovate and to focus on the global potential offeredby the internet, particularly the way in which voice calls that were once sentacross traditional telephone networks arenow being routed via the internet usinginternet protocol (IP) software.

At a time when many traditional operatorswere in denial over the price revolutionwrought by new internet-based virtualtelecoms operators such as Skype andVonage, BT decided to embrace innovation.

According to Andy Green, BT chiefexecutive of group strategy and operations:“BT was very early to realise that IP wouldrevolutionise the communications industry.We launched the first widely availablecommercial voice over IP (VoIP) service for business about six years ago. But our IP vision was based on the importance ofmore than just voice over IP. It’s about anymedia that needs to be in real time – voice, video and data.”

BT has also benefited from the fact its head office is based in the City of Londonat a time when the UK capital is fastbecoming the world’s leading financialcentre. BT now connects nearly 45 of theleading global stock exchanges, includingNew York, London and Tokyo. As theservice continues to grow the UK operatoris opening up new markets such as therecent additions of the Mexican DerivativesExchange and Taiwan Stock Exchange.

23

On Mark O’Neill’s desk sits a copy of thecomplete works of William Shakespeare. But it is not for reading.

O’Neill keeps the hefty tome handy in order to remind himself and his staff of a frighteningbureaucratic statistic. Two years ago, O’Neill’sdepartment used to generate the equivalent of the complete works of Shakespeare interms of paperwork every 1.5 days. Today, itgenerates the same colossal number of words every 1.5 hours. O’Neill predicts that, at current rates of growth, by next year it willgenerate the same number of words asShakespeare every 15 minutes.

This gives his department a deadline of lessthan 12 months to develop an informationmanagement system capable of handling this potentially overwhelming volume of data. But O’Neill wants to do more than merelymanage the data, he wants to be able to controlit in a way that would allow his department’sstaff to mine it from wherever they happen to be.

For the last year and a half, O’Neill has been trying to develop an IT project called the Information Management Programme. This would comprise an information managementsystem that will handle the huge volume of databeing generated while delivering the IT industry’sHoly Grail, commonly referred to as Any3, the ability to deliver any data anywhere anytime.This would enable his department’s staff towork flexibly, either from home or anywhereoutside the office. O’Neill also believes anotherpillar of the new system must be ease of useand flexibility, backed up by a robust virtualmanagement scheme.

But so far, O’Neill says that the IT industry hasfailed to meet his department’s requirements:“No part of our plan struck us as beingparticularly revolutionary. But we went to the marketplace eight months ago and found it a disappointing experience.”

“I have been out to the market with well-defined requirements, but have repeatedlybeen told by IT suppliers that they cannotmatch our needs,” said O’Neill. “I find itincredible that this should be the case at atime when the public sector is moving awayfrom office-based systems towardscommunity-based communications.”

O’Neill has little doubt that the IT industry has the technology to deliver the applicationsthe public sector needs but that, for a numberof reasons, it is failing large areas of the public sector.

“The technology needed to deliver preciselywhat we want is doubtless sitting on someone’sdesk in Silicon Valley but it has not been broughtto market,” said O’Neill.

He believes that many public bodies are beingforced to exist in a world where cutting edgetechnology is being offered to consumers,

but where organisations such as his are indanger of being left behind.

“The technology being provided to privateconsumers is becoming far more powerful and effective than that offered to organisationssuch as mine. For example, the internet voiceservices (VoIP) services offered by Skype oreven Tesco are far more powerful than 99% of corporate communications products on themarket.

“We live in a rapidly moving agile environmentin which innovation in IT is increasingly beingdriven by entrepreneurship. One of the problemsfrom the public sector viewpoint is that oursheer size as opposed to average small-to-medium sized enterprise (SME) means it canbe hard to partner with small agile companies.”

But, according to O’Neill, large IT corporationsare also failing to deliver as a result of not beingattuned to the specialised needs of large publicsector clients.

“The industry fails to grasp that an organisationlike ours has an absolutely vast customer basewhich comprises virtually everybody on theplanet. We are trying to sell tourism to the UKas a concept,” said O’Neill. “That means tryingto reach anybody on the globe who might one day consider coming to London.”

He added that instead of trying to work withclients such as his department to developfocused solutions to their problems, the ITindustry too frequently simply tries to sell themits latest stock products and applications.

“The real challenge for the IT industry is that it has developed a number of bad habits. It is, for instance, the most fashion consciousindustry there is. It is even worse than thefashion industry itself. The whole industry tendsto focus on selling one specific technology or buzz word at a given time, often to thedetriment of both itself and its clients,” said O’Neill.

He quotes the example of the way in whichthe industry furiously peddled solutions to thepredicted software problems that would resultfrom the switchover to the year 2000, commonlyreferred to as Y2K. At the time, the prophetsof doom were predicting that old computerprogrammes failing to account for the switchover to the year 2000 would be responsiblefor all manner of disasters, including planesliterally falling from the sky.

O’Neill says that Y2K was not an isolatedaberration but an example of the way the IT industry all too often likes to do business.Rather than building solutions fororganisations such as his, it likes to createnew technology and then market it in its own time and on its own terms.

According to O’Neill, a term like knowledgemanagement can be used to sell anythingfrom software to tape drives.

O’Neill is concerned that, unless public bodieslike his can establish a two-way dialogue withsuppliers, there is a real danger that governmentwill become increasingly distanced from apublic that is increasingly more technicallyliterate and expects the same from all itsservice providers, regardless of sector.

“It may not be a big thing at the moment, it isfar easier to buy books on Amazon than it is to do your taxes online. But if the rate ofchange increases, how are we to ensure thatpeople still regard the structure of publicservice as having value,” he said.

He admits that, in an era where teenagers spend much of their leisure timecommunicating via the internet using socialnetworking and messaging services rich indigital photography and video, public sectorcommunications are in danger of becomingoutmoded. But he added that the publicsector does have some isolated examples of it trying to drag itself into the 21st Century.

“At last we are starting to move forward, but it is incredibly slow. If things do notchange, we will be forced to end updeveloping our own technology. This is not really a path we want to go down,” said O’Neill.

But he acknowledges that the public sectorpresents a real challenge to the IT industrysimply because it inevitably moves far slowerthan the pace of technological change.

“One major problem for large public sectorbodies is that, by the time a feasibility studyhas been done, the technology underconsideration is often obsolete,” he said.

But he believes that, if the public and privatesectors can work together they will be able to use IT to transform the way governmentbodies communicate with the public.

“It is not about technology and buzz words but about constructing environments thatpeople want to be part of. That is thefundamental challenge,” said O’Neill.

The Bard of WhitehallI N T E R V I E W W I T H M A R K O ’ N E I L L , C I O D E PA R T M E N T F O R C U LT U R E , M E D I A A N D S P O R T

L E S S O N S L E A R N E D :

There are several key issues arising fromthis interview with the chief informationofficer (CIO) of the Department for Culture,Media and Sport experiences:

• Niche suppliers need access to the latestresearch in order to service public bodiesmore effectively.

• Government bodies should alter itsapproach to IT procurement so that it ismore of a partnership rather than merely aproject model.

• The IT industry as a whole should start to offer public bodies the same level ofinnovation currently directed at theconsumer market.

InnovationINTRODUCTION

The process of innovation and creativity is under the spotlight, particularly in thetechnology industries and the developingKnowledge Economy (KE). As technologicalchanges make new products and servicespossible, organisations that are able toinnovate quickest will gain a commercialadvantage if they launch their productseffectively into a demanding andtechnology-hungry world.

Research into innovative and successfulorganisations shows that there are anumber of factors which enable success.Those organisations which offer theirproducts or services in a way that is faster,cheaper and better than their competitorswill prosper over those which are slower.

“In today’s changing economy, the key tofaster, cheaper, and better is to bring thefull force of a company’s knowledge tobear on the effort. Knowledge – not land,labour and capital – is now the lifebloodof a corporation.”10

INNOVATION RAPID AMONG SMES

Innovation in the UK is increasing morerapidly in the small-to-medium sizedenterprise (SME) sector than any other.Additionally, we see that the proportion of ‘innovation active enterprises’ is around62% (2005), which is an increase of 14%from 2001 data. This includes a 15% rise for enterprises with fewer than 250employees and an eight percentage pointincrease to 75% for larger enterprises.

With knowledge services soon accountingfor half the UK’s gross domestic product(GDP), innovation in IT will drive growth infinancial services, technology and telecoms,travel, retailing, creative industries includingthe media and entertainment. All thesesectors increasing rely on internet-basedcommunications and IT to develop newproducts and services.

The Government has identified thatcomputing/IT/software constitutes thefastest growing section of the UK CreativeEconomy (CE). Not only is software orcomputing at the interface of all sections of the CE as the key enabler for growth, in its own right it also constitutes thelargest component of the CE. The CEcontributes around 7.3% of GDP with agrowth rate predicted to raise this to 10%,probably by 2010. The contribution thatsoftware and services makes is the largestof all sub-sections of the CE, showing a2.7% contribution to GDP.

The CE, which overlaps the KE, hasaround 41% of the UK workforce byoccupational classification.11 Analysisshows that the KE is the fastest growingcomponent of the economy in the UnitedKingdom and that it is expected to haveapproximately a 40% graduate workforceby 2020. In practical terms, this meansthat as we increase productivity, percapita income will increase, which willhave an impact on demand. There will bea cultural shift from ‘desire to demand’ asincreased wealth and status place greaterpressures for new products and services.In essence, the predicted growth rates willshape the demand for business innovationover the next 20 years and beyond.


24

10 McKinsey Quarterly Review Creating A Knowledge Culture S HauschildT Licht and W Stein 2001 No 1

11 Work Foundation & preliminary report for the Green Paper on theCreative Economy/Industries 2007

25


Although there is still much debate overthe exact definition of the KnowledgeEconomy, we need some measure of how the UK is performing in comparisonto overseas competitors. The WorkFoundation takes a wide definition as it includes the ‘creative’ and ‘cultural’industries. Using this extended definitionof the Knowledge Economy we are ableto make cross country comparisons of howimportant this is to different economies.Using the Organisation for Economic Co-operation and Development (OECD)/Work Foundation definition and applying it to the UK economy, it shows that about 40% of GDP is accounted for by knowledge-based industries.

Ireland is the most knowledge basedeconomy in the OECD, with theseindustries accounting for 48% of GDPfollowed by the US, Germany, and Sweden,with around 43% and 40% of GDP in the UK and France. We see therefore the contribution of knowledge basedindustries to OECD countries is significantand set to increase. This section providesgreater detail into how this is brokendown and considers the impact thatcomputing/software and services on the rapidly growing creative economy.

INTANGIBLE ASSETS

Private sector investment of £127 billiona year on intangible assets now equalsthat in tangible assets.

According to the most recent availablefigures, investment from the private sectorin intangibles, such as software, researchand development and brand value, isapproximately £127 billion. Comparingthe USA with the UK, recent expenditureon intangibles is 11% of UK GDP versus13% of US GDP. This contribution is aboutthe same contribution that investment intangible assets has on GDP.

The importance of this to the IT sector issignificant. Of the £127 billion, 15% isspent on software (£19 billion); 10% onscientific R&D (£12.7 billion) and 20%(£25.4 billion) on non-scientific R&D.

INTELLECTUAL PROPERTY

Investment in intellectual property (IP) is acore part of software development andprotecting this investment is vital to businesssuccess.

New initiatives and legal frameworks are evolving which should protect newbusinesses and stimulate the spread ofcommercial ventures. The report suggestsrecommendations that could expandinnovation in the SME sector by additionsto the current set of Government policiesand compares the benefits this wouldbring with similar initiatives in the USA.

But while having robust IP networks is important, it is essential that IP isunderpinned by creative research and development and a true culture of innovation.

CURRENT INNOVATIVE ACTIVITY

Research undertaken by the UKDepartment of Trade and Industry(DTI)12 shows the number and type of organisations in the UK which areinvolved in innovative activity. Data from2002-04 shows that, 57% of enterpriseswere classed as being innovation activeduring this period (see figure 1) and thatlarge enterprises with more than 250employees were more likely to engagein some sort of innovation activity (72%)than smaller enterprises (57%).

Figure 1:Enterprises who were innovation ‘active’, by type of activity, 2002-04 Source Economic Trends 628 DTi/ONS

Size of Enterprise: Employees

10-250 250+ All 10+

Innovation Active 57 72 57

Product Innovator (share with new to market products)

25 (56) 39 (59) 25 (56)

Process Innovator (share with new to industry processes)

15 (30) 31 (31) 16 (30)

Ongoing or abandonedactivities

10 21 10

Innovation relatedexpenditure

54 68 54

Both product and process innovators

10 22 11

Either product or process innovators

30 48 30

12 First findings from the UK Innovation Survey, 2005 S Robson and L Ortman DTi Initial analysis of the UK 2005

Comparing these findings with similardata from the innovation survey in 2001(1998-2000) shows that the overallproportion of innovation-activeorganisations had increased.12

The proportion of innovation-activeenterprises in the 2005 survey is around62%, an increase of 14% on the previoussurvey. This includes a 15% increase forenterprises with fewer than 250employees and an 8% increase to 75%for larger enterprises. The proportion ofenterprises reporting product innovationincreased by 11% and the proportionreporting process innovation increased by 4% (see figure 2 below).

It is interesting here to note that thesmaller enterprises have shown a greaterproportional increase in innovationactivities over the larger organisations.

There are many factors influencinginnovation within the UK:13

• Past macro-economic instability hasgenerated cautious investment strategies

• Willingness to invest in ‘intangible assets’

• Organisations should generate a cultureto support innovation

• Organisations must monitor and react to external factors

• Appropriate intellectual property rights(IPR) for the ‘digital age’

• Competition drives innovation

• Skills and knowledge underpin innovation

• Networking, partnerships andcollaboration

PAST PERFORMANCE AFFECTS THE PRESENT

Past UK macro-economic instability hascreated a level of economic uncertainty,making organisations averse to high riskand thereby taking a cautious view oninvestment in new product developmentand research and development.

Past research has concluded that there is a very definite, positive, relationshipbetween economic performance andproductivity and investment in researchand development (R&D).9 Research alsoshows12 that the cost of investment ininnovative activities is commonly regardedas one of the most significant barriers to innovation. While there is a continuingrequirement for publicly-funded researchthere is also a need for the IT industry toinvest in new research and developmentas this underpins innovation which isessential to creating competitiveadvantage and sustainable prosperity.14


26

9 The Relationship Between Publicly Funded Basic Research AndEconomic Performance a SPRU Review Ben Martin and Ammon SalterWith Diana Hicks, Keith Pavitt, Jacky Senker, Margaret Sharp and Nick von Tunzelmann Science Policy Research Unit University of Sussex Falmer, Brighton BN1 9RF, UK


13 OECD report ‘Innovation Policy and Performance’ published in 200514 ‘Why British University Computing Research Deserves Better Funding

and Recognition’ BCS, UKCRC

Figure 2:Comparisons of 2001 & 2005 UK Innovation Surveys: Proportions of innovation EnterprisesSource: Source Economic Trends 628 DTi/ONS

0

Of which,new to industry

ProcessInnovator

ProductInnovator

WiderInnovator

InnovationActive

Any of below

Of which,new to market

Percentages

10 20 30 40 50 60 70

31

57

43

29

18

36

45

62

48

66

61

2001 Survey 2005 Survey

31

19

15

27


While investment of this kind could befinanced by larger corporations, it isincreasingly difficult for smallerorganisations within the SME sector tofund this sort of investment. Research has shown that smaller businesses findthe lack of qualified personnel one of the more important constraining factorson their ability to innovate.12 However,collaboration and networking with academiaalso allows the SMEs within the IT sectorto influence the future and to support itsown innovation through initiatives such as Knowledge Transfer Partnerships(KTP),15,16 and student internships.

As Silicon Valley in the US has shown,clusters are also important to developinginnovation. This why innovation in IT in theUK is frequently focused around locationssuch as Cambridge, the Thames Valleyand Scotland’s Silicon Glen.

CREATING A CULTURE OF INNOVATION

There are a whole range of cultural factorswhich also help determine organisationaltolerance for risk, employee empowerment,innovation, and a willingness to designnew and flexible organisational structuresand work processes.

There is also a relationship betweenorganisations that are seen to beresponsive to the needs of theircustomers and their staff, and theirattractiveness as a place to work. Recent research has shown that ‘e-enabling’ employees (implementingelectronic processes within an organisation)has multiple benefits, ranging from bettercommunications to increasing IT skill levelsamongst existing staff.17 This empowermentis a known factor in stimulating creativityand innovation within an organisation.

EXTERNAL FACTORS AFFECTINGINNOVATION

Organisations do not operate within avacuum, they respond to the legal andregulatory framework surrounding themand to their customers and competitors,and to their suppliers and employees.Research suggests that the lack ofrestrictive and complex trade regulationswithin the UK is an active encouragementto innovation, and a lure to inwardinvestment, although other surveys12

find that the impact of UK and EuropeanUnion (EU) regulations are a barrier toinnovation for smaller enterprises.

The Confederation of British Industry(CBI) concludes that the Governmentshould focus its strategic thinking onminimal regulation principles, and onencouraging a best practice culture to support e-business.17

DEVELOPING INTELLECTUALPROPERTY PROTECTION

Other incentives which currently exist to spur new innovations, however, do notseem to be fully understood. Intellectualproperty rights (IPR) for example weredesigned to provide incentives forinnovators and inventors, as they providea time period where new inventors canrecoup costs without the worry of being challenged by competitors.

However, formal IPR methods, such aspatents, can only be used if the knowledgeis able to be easily documented.Therefore, new innovative businessprocesses, even if they are bespoke and fundamental to the success of anorganisation, cannot be easily patented.Many firms therefore need to find ways to protect their competitive advantage but this cannot be done through anyformal method such as patents.

“Generally data for the UK indicates thatmost firms do not place a great deal ofemphasis on formal methods protectingintellectual property. They prefer to useinformal methods because they are more cost effective.”13

Research has also indicated thatuniversities tend to use more informalmethods of protecting their intellectualproperty. As the incentives for academicsto exploit become stronger, they arebecoming more sophisticated aboutprotecting exploitable IP while stillpublishing the basic research for peerreview. It would be much easier if thepatent system on this side of Atlantic was like the US system where academicshave up to 12 months after first disclosureto file a patent so academic publication(which has to be timely and competitive)can be done before patent filing.

As Silicon Valley in theUS has shown, clustersare also important todeveloping innovation.This why innovation in IT in the UK is frequentlyfocused around locationssuch as Cambridge, the Thames Valley andScotland’s Silicon Glen.


13 OECD ‘Innovation Policy and Performance’ published in 200515 KTP’s proven scheme for encouraging tech’ transfer partnerships

between universities and industry managed by the DTi16 KTP detail found at www.ktponline.org.uk17 e-value matters October 2005 ISBN 0-85201-614-X sponsored

by the DTi

Percentage of respondents

Size of enterprise: employees

10-250 250+ All 10+

Formal

Confidentiality agreements 11 22 11

Trade marks 6 16 6

Copyright 6 10 6

Patents 5 13 5

Registration of design 4 11 4

Strategic

Lead-time advantage on competitors 9 17 10

Secrecy 8 19 9

Complexity of design 5 9 5

Figure 3:“Rating different methods for protecting innovation” Source: First findings from the UK Innovation Survey 2005 ONS

While protecting intellectual property isconsidered vital for innovation and businesseconomic competitiveness, research shows12

that there is a difference in perceptionbetween larger and smaller companies.Initial investigations indicate that IPRprotection costs are more easily carriedby larger organisations and that SMEsfind the costs harder to meet andtherefore justify, although venture capitalists(VCs) look for a start up to have a patenton the core IP as a way of protectingtheir investment.

The UK Government recognises the needfor IPR and commissioned the GowersReview, which was published in December2006.18 The review recognises the needfor a modern IP scheme to support the ‘digital age’ and ensure the UK can stimulate creativity and innovation. This would enable Britain to compete inthe global, knowledge-based economy,recognising that IP acts as an incentive to both individuals and firms to innovateand create, knowing their investment is protected. The review makes a number of recommendations in terms ofstrengthening the existing systems andmaking these cost effective. However, it recommends, “greater balance andflexibility of IP rights to allow individuals,businesses and institutions to useinformation and ideas in ways consistentwith the digital age.”19

The lack of intellectual property protectionfor algorithms, software or enhancedbusiness processes are barriers toinnovation. While the Gower Reviewrecognises some of these issues, the UKGovernment could do more to assist smallcompanies in protecting their IP. Initiativessuch as extending the tax credit systemto cover the costs registering a patent, or other forms of IP, would assist manySMEs, as owning a strong IP portfolio canbe an incentive to financial investment.20

But, since the US is still the largest single market for software, the intelligententrepreneur would generally file a US patent first to protect the high ground and think about a UK or European patent second.

Companies also need to understand thatthere are alternative methods to supportinnovation protection other than obtaininglegal protection. The Gowers Reviewsurvey into alternative protection measuresshows how companies of varying sizesview differing practices.

Within the IT sector, the restrictions onlegally protecting software algorithms andprograms has led to the concept of the‘fast innovator’; a company that protectsits trade secrets and uses an acceleratedproduct to market business strategy.

There are often many different ways tosolve a software problem, so even if analgorithm is patented another companymay be able to invent a completelydifferent solution and bypass the IP. At the end of the day, out engineeringand out selling is really what matters.


28


18 Gower review can be found at www.hm-treasury.gov.uk/independent_reviews/gowers_review_intellectual_property/gowersreview_index.cfm

19 Gowers Review of Intellectual Property, December 2006, HMSO, ISBN: 978-0-11-84083-9

20 Information Age Partnership 2007 i2010 Working Group Ensuring the right conditions for an innovative, inclusive and competitive UK Knowledge Economy

29


6 Cox Review of Creativity in Business: building on the UK’s strengths,2005 can be found at http://www.hm-treasury.gov.uk/independent_reviews/cox_review/coxreview_index.cfm

13 OECD report ‘Innovation Policy and Performance’ published 200521 Research on global competition and innovation, Dialogic Consulting

2007, www.dialogic.co.uk

Initial investigations for this report showthat some innovators are using USA IPR protection for software systems andalgorithms; even though they may not beable to fully fund the costs of pursuingbreaches of infringement in the courts.The motivation behind the initial protectionof their innovations has more to do withthe potential for financial exit strategiesthan anything else. It is suggested that an organisation that wishes to exit via atrade sale arrangement to a larger USAcompany will gain more by having thisprotection in place than if it ignored it.

COMPETITION SPURS CREATIVITYAND INNOVATION

The cycle of innovation continues21 at an ever increasing pace. Research hasshown that there is a very positive linkbetween increased competition andincreased innovation. A review of theinternational empirical evidence suggeststhat the link between innovation andcompetition is positive.13

According to research byPricewaterhouseCoopers’ ‘InnovationSurvey’, top innovators generate over 75%of revenue from products not in existencefive years ago.6

The need to innovate, to create newproducts, goods, services and innovativeand effective new processes andoperations is critical to the UK’s future, so nurturing an innovative culture withinthe IT sector is essential.

KNOWLEDGE AND INNOVATION

Innovation depends heavily on knowledge,with science and technology being keyareas in the information technology (IT)industry. The UK has, despite lower levelsof funding when compared to other nations,a very successful and high-quality science base. “The UK leads the G7 (an international forum for the governmentsof Canada, France, Germany, Italy, Japan, the United Kingdom and theUnited States) in terms of citationsrelative to both population and grossexpenditure on R&D.”13

The OECD research shows that thebenefits from knowledge transfer aredirectly proportional to a firm’s owninvestment in innovation. It quotes“Relatively low levels of innovationinvestment therefore probably mean that UK businesses are, compared totheir major competitors, less well placedto exploit research carried out in the UK science base. Weaknesses in skills are another barrier to successfulknowledge transfer.”13

SUPPORTING NETWORKING ANDCOLLABORATION – SCALE-UPCOLLABORATION WITH ASIA

Networking and collaboration have aprofoundly positive impact on innovation.This is because organisations rarelyinnovate alone but rely on others foradditional knowledge and expertise aswell as access to additional resources andshared risk. According to OECD research13

the UK performs well in this area, althoughtoo often this networking pattern wasseen as intermittent and patchy.

Figure 4:Comparison of US SME ‘set aside program’ and a possible UK/EU program – Source: Intellect

HUBzones – Historically Underused Business ZonesSBA – Small Business AdministrationOGC – Office of Government CommerceWTO – World Trade OrganisationGPA – Government Procurement AgreementSBIR – Small Business Innovation Research


30

It has been recommended that the UKmust scale-up its collaboration with Asia’sinnovation hotspots if it wishes to exploitits science and technology industry withinthe global market. According to recentpress commentary in the Financial Times(FT)22, it is vital that the UK increases itscollaboration in Asia. The article statesthat “Top priority is for Britain to ‘unleashmass collaboration’ now while Chineseand Indian innovation is still developing,rather than in 10 years time when it willbe too late”. It says: “The centrepieceshould be a £100 million global researchand development collaboration to helpfund programmes with target countries on particular themes.”

DEMAND LED INNOVATION

Customer demand also affects innovation.It seems that customer demand for ‘high tech’ innovative products in the UK is strong. “UK imports of ‘high tech’goods account for roughly one third of all imports.”13

It has been suggested that one way ofpromoting innovation could be to amendthe procurement processes and criteria of major purchasers of high tech suppliessuch as the UK Government, “Solely relyingon cost as a criteria for evaluation intechnology intensive areas is not goodpractice.”13 It has been further suggestedthat the SME sector could benefitsubstantially if Government procurementsystems could be modified. A recent reportestimated that, if the UK Governmentwere to purchase goods and servicesfrom the UK SME sector, it would injectsomething approaching £8 billion intostimulating growth in this sector.23

A recent 2006 report by Intellect24 onpotential changes to public procurementpolicy highlights some interestingobservations. Some commentators reasonthat the level of public procurementexpenditure, ring-fenced for SMEs in the USA, drives innovation in a verysignificant way.

US EU/UK measure Comments

Eligibility Small and mediumsized enterprises(SMEs), Severalminority groups,women owned,HUBzones

SME only Much simpler andless prone to theexploitation ofloopholes

Overall % set aside goal

23% primes

40% sub contracts

10% – nodistinction betweenprimes and subs

It might de factoresult in sub-contracts only

Dept goals Set by SmallBusinessAdministration(SBA)

Set by SmallBusiness Service(SBS) or Office ofGovernmentCommerce (OGC)

Individual contract goals

Set by agencies Set by departmentsor OGC

Size eligibilitycriteria

100s and dependingon sector and sub-sector

EU SME definitiononly

Much simpler

Industry sectors All Would it be possibleto restrict it to hi-tech or possibly to start there?

Legal basis Opt out for US only in World TradeOrganisation (WTO).

Not permitted today – accordingto some. Do weneed EU lawchange?

There have beensuggestions thatSME set aside maynot be allowed undercurrent EU law

Innovation grants Small BusinessInnovation ResearchProgramme (SBIR)$2 billion each yearto small businessesfor innovation

Research anddevelopment (R&D)grants

Small BusinessInnovation ResearchProgramme (SBIR)has some similaritiesto the R&D Grantprogram, but ordersof magnitude larger

Small Business-UniversityCollaboration

Small BusinessTechnology TransferProgram (STTR)$200 million

Collaborative R&Dprogram

Some similarities to the DTI’sCollaborative R&D program. UK program is ofcomparable size

SME Mentoring The SBA Mentor-Protege Program

1. Princes Trust2. Business Link

Not the same scale

31


The French have been leading advocatesof an SME set-aside programme in Europe.Tom Wills-Sandford commented that he is surprised that the UK Government isnot also supporting the French initiative. In his view, the establishment of an SME set-aside programme would do as much for innovation in UK as any other government programme beingconsidered. It would also make the UKGovernment much more innovative.

The table (figure 4, left) provides acomparison between the USA and whatthe UK could do in a proposed ‘set-aside’programme of investment to supportinnovation by public sector procurementpolicy changes as detailed in the report by Tom Wills-Sandford.

The Deputy Director of Intellect, Tom Wills-Sandford believes that the UK could consider methods by which itprovided similar support to SMEs and has some pragmatic suggestions of howthis would be achieved. He says “I believean EU/UK programme could be based on the US model but with the followingcharacteristics, many of which streamlinethe process:

• Only oriented at SMEs (measured by size) – no special cases

• A goal/target set by a strengthenedSmall Business Service of 10% ofcentral government procurement £s going to SMEs

• No distinction between primes and subsand no separate targets. (In the US 23%prime contracts must go the SMEs and40% of sub contracts to SMEs)

• Establish one definition for an SMErather than several

• Small Business Service to agree witheach Whitehall Department their targetfor the FY but the targets must balanceout to 10% across Whitehall

• Each department decides for eachcontract the relevant percentage setaside for that contract, but the total set aside must add up to their agreeddepartment target

• In the procurement process largebusinesses bidding for prime contractsmust provide a plan to use SMEs andthen the plan will be subject to auditafter the contract has been awarded.Incentives (and penalties) should be considered

• A Mentor-Protégé programme would have a very useful role to play.Consideration should be given to how this might be introduced.”

The ideas are quite streamlined and thereare tangible benefits that could be derivedfrom employing this as part of a strategyfor supporting innovation in the SMEsector. The UK Government needs to re-examine its current policies.

ENCOURAGING NEWENTREPRENEURS

As innovation and creativity become more significant within the economy, it isinteresting to note that more and moreMaster of Business Administration (MBA)students are keen to learn the secrets ofbecoming a successful entrepreneur.Nowadays, there are a number of MBAprogrammes that include an‘entrepreneurship elective’ where studentscan learn skills such as economicsmanagement, operations systems, venture capital finance and, mostimportantly, spend some time workingwith entrepreneurs.

The University of Oxford, Saïd BusinessSchool, is operating a new ‘Enternship’.25

Within the Oxford programme new studentsoften choose to work with the SME sectorrather than the larger multi-nationals.

This enables the students to gain anunderstanding of all aspects of running a business, and to be at the edge of day-to-day business decision-making. The Cambridge Centre for EntrepreneurialLearning at the Judge School ofManagement is another good example of the way in which some institutes ofhigher education are adapting to theneeds of the UK’s increasinglyentrepreneurial culture.

13 OECD report ‘Innovation Policy and Performance’ published in 200522 FT.com ‘Scientists urged to work with innovation hotspots’

Clive Cookson January 17 200723 i2010 Information Age Partnership Ensuring the Right Conditions for an

Innovative Inclusive & Competitive UK Knowledge Economy 200724 A UK Perspective on US Procurement Preference Programs –

Small Business Set Aside; Tom Wills-Sandford, February 24 2006,Intellect www.intellect.org

25 “Work placements with a difference” MBA supplement – The Times, London, 18th January 2007, p12

Innovation dependsheavily on knowledge,with science andtechnology being keyareas in the informationtechnology industry.

OPTIMISING PRODUCTIVITY LEADS TO INNOVATIVE CULTURE –PROVIDE TIME TO INNOVATE

Competitive pressures mean organisationsare constantly finding new ways to optimisetheir employees’ productivity and manynew ideas are being adopted by UK firms.Giving staff ‘innovation time’ away fromtheir normal work duties is an ideaconceived in the US that is graduallyspreading to the UK.

“There is a growing belief that by de-cluttering employee minds of the minutiaeof everyday working life, creativity andinnovation must surely blossom.”26

Initiatives such as ‘staff suggestionschemes’ are being introduced in manylarge organisations. In some cases thesehave led to new products and services.Google’s policy of allowing its engineersthe freedom to spend 20% of their timeto pursue products they are passionateabout26 has created new products andservices such as Google News andGoogle Suggest.

Other interesting examples of where theseconcepts make a difference are Microsoft’s‘Think Week’, where Bill Gates Founderand Chairman spends time consideringthe future of the technology companybased on his own ideas together with a set of high profile ‘papers’ that aresubmitted by employees. This can also be illustrated by Live Labs ‘Think TankIncubator’ for Web 2.0 with MicrosoftResearch (MSR) and MSN.27

Microsoft also has a 750-person world-wide research organisation that competesand collaborates with the best universitiesworldwide to ensure it is abreast of andcontributing towards developing the state of the art.

Over its 15 year history, MSR has mademajor contributions to every MS productand indeed incubated several of them, e.g. Digital media, Web Services (Indigo).

FLEXIBLE WORKING,EMPOWERMENT AND INNOVATION

Given the changing demographics in theUK and the pressure to recruit and retainhighly skilled employees, organisationsmust find ways to keep and reward theworkforce which they have. Flexibleworking, performance related pay andstock options are proven methods ofachieving this. Another alternative toflexible working is to provide goodworkplace services to busy professionals.These can include laundry pick-up,childcare, grocery delivery, lunch anddinner services and a concierge service.

Recent government figures28 reveal:

• 92% of employers provide paid leave for fathers

• 75% of workplaces provide parentalleave (additional leave to either father or mother)

• A quarter of workplaces allow some(non-managerial) employees to work flexitime

• In terms of flexible working arrangements,64% of employers accept that employeescan switch from full-time to part-timeemployment (64%, up from 46% in1998), 41% use job-sharing, 28% term-time only contracts and 28% home working

Given the pressing need for organisationsto become more creative and innovative,workplace policies which improve staffmotivation and morale seem to be a vital step forward.


32

There is an enormousneed for science andindustry to connect and to work together to commercialise theemerging research.

26 Personnel Today January 16th 200727 Live labs information can be found at http://labs.live.com/28 5th Workplace Employment Relations Survey (WERS), July 2006

33


RECOMMENDATIONS

• To reconsider the options for support forSME innovation and growth and examineif and how the UK could adopt a similarstrategy for public procurement withinthis sector in a similar manner to the USA.

• Consider options for financial supportfor innovation within the software sectoras a means for stimulating SME growth,a re-appraisal of the R&D classificationthat places software developmentoutside of accepted R&D should bethought through more fully to ensurethat we encourage rather thandiscourage innovation.

• Develop the pragmatic recommendationsfrom the Gowers Review to develop anappropriate IPR for the ‘digital age’.

• To re-examine how the UK can worktowards a solution with the FrenchNational Assembly to ratify the LondonAgreement on IPR for the sector. DtF 2006 highlighted this as an issue:essentially this proposed an effort tosimplify the language and regime toreduce the costs of obtaining patents in Europe.

• If the London Agreement looksirretrievable then the Government shouldexamine the recommendations in theGowers Review and provide alternativeeconomic measures that might enableSMEs to either copyright or protectinnovations via a formal or semi-formalset of affordable procedures.

• Industry should recognise thatinnovation can be born from supportive,non-restrictive work practices anddevelop new strategies that provideemployees with the time to think inorder to contribute to innovation.

SUMMARY

Those organisations that innovate quickestwill gain a competitive edge. There is awell established link between innovation,increases in productivity and economicgrowth. Creativity drives the developmentof new ideas, creating new products andnew markets. Innovative businessprocesses improve efficiency, benefitingindividuals, customers and society.

Although the UK has a history of successin research and development, it is notexploiting this in terms of translatingresearch success into new innovative,commercially successful opportunities.There is an enormous need for science andindustry to connect and to work together tocommercialise the emerging research.

At a recent Royal Society meeting, a senior R&D manager from Unileveradmitted, “he would be relaxed if more of their synthetic chemistry moved toShanghai, because the unique strengthsof their British labs were in combininghard science with a sophisticatedunderstanding of what makes consumerstick, drawn from social and behaviouralsciences. A growing number of scientistsand R&D-intensive businesses recognisethese opportunities and are reorientatingthemselves to meet them. Now policyneeds to catch up.”29

29 The science lobby is getting it wrong on innovation’http://www.ft.com/cms/s/9044734e-6ae0-11db-83d9-0000779e2340.htmlFinancial Times November 3,2006 By James Wilsdon

34

With its unique overlap of financial services,technology, media, venture capital, andgovernment interests, London is rapidlybecoming a global hub for a new class of entrepreneur.

One typical example is Eric Baker, the founderof online ticket exchanges ViaGoGo andStubHub, which was sold to eBay earlier thisyear for $310 million. He is planning his nextventure in London, having found funding fromone of the top venture capitalists. Baker is farfrom unique; there is a wave of newcomersfrom the English-speaking world and beyondcurrently streaming into London. The simplefact is that some of the best people in theworld are here.

Niklas Zennström, founder of two of the mostdisruptive start-ups in the internet’s history,KaZaA and Skype, now also bases himself in London. KaZaA was the peer-to-peer fileswapping that sounded the death knell for the music industry’s traditional distributionchannel; Skype let the internet voice (VoIP)genie out of the bottle, providing freetelephone calls over the internet and forcingthe traditional phone companies into adownward price spiral.

No sooner had Zennström sold Skype to eBayin September 2005 for nearly $4 billion thatthe rumours started about Joost, an interactivesoftware for distributing TV shows and otherforms of video over the Web using peer-to-peer TV technology. This time around,Zennström is taking greater care withcopyright issues than was the case withKaZaA, which ended up fighting aninternational legal battle with the music labels.The Joost software developers are currently in negotiations with TV networks and havesigned up with Warner Music, IndianapolisMotor Speedway Productions (Indianapolis 500,IndyCar Series) and production companyEndemol for the beta. In February 2007, Viacomentered into a deal with the company todistribute content from its media properties,including MTV Networks, BET and film studioParamount Pictures.

But it is not only new entrepreneurs who arebeing drawn to London. Leading entrepreneursfrom Web 1.0, the first dotcom boom whichended seven years ago, are back, havingdusted themselves down from the dotcomcrash and learned some crucial lessons about the harsh reality of business.

Witness Brent Hoberman, the co-founder of lastminute.com, who is helping launch awebsite designed to streamline the process of moving home for the 6 million people who change address in the UK every year.Moveme.com has raised seed funding frominvestors including Advent Venture Partnersand Accelerator, an investment fund managedby father-and-son entrepreneurs Robin andSaul Klein. The web-based service creates apersonalised checklist of all the things neededto arrange a move, ranging from notifying utilitycompanies of a change of address to hoistinga grand piano through the first-floor windows.The site automatically generates the relevantdocuments as and when they are needed. It can also be used to book removal andinsurance services.

When asked what was driving him to setsomething up again, Brent replied: “What? Sit this wave out? No way.”

But there are key differences between this dotcom boom and the previous one.Something new is happening not only in the way that the internet is shaping our livesthis time round or in Web 2.0 as the industryloves to call it, but also in how new technologyinnovations are becoming bedded down in theindustry. Briefly put, venture-capital-backedstart-ups are being acquired much earlier bycorporate enterprises which can offer scale tothese entrepreneurs and which are looking toexpand the way they grow new products andservices. Through their corporate developmentunits, most larger companies operate a mixedeconomy where they balance the greatercertainty of organic growth and its longer time horizon with the benefits of inorganicgrowth, namely an earlier starter position and greater innovation.

Entrepreneurs have the greatest insight intohow a particular market is developing – if they are good – as they are in the ‘eye of the tornado’ and are dealing with how themarkets are dynamically evolving in real-time.Entrepreneurs think differently; they see things that others don’t. They feel compelledto make things happen because somethingdoesn’t exist which they believe should.Sometimes that can take the form of blindfaith which leads to catastrophe. But, morefrequently, it represents a sharp insight which is harnessed into a step change in how an industry operates.

If a company acquires that asset of theentrepreneur’s insight and innovation, then itcan lead in that industry breakthrough. Time and time again, we see that the benefits of market disruption and dislocationaccrue to the numbers one and two playerswho embrace it. Said another way, the disrupterwill be acquired by the entity they most disrupt,and embracing the disruption can be veryvalue-enhancing.

One reason why corporates buy start-ups is to add new DNA to the corporate gene pooland introduce a new way of thinking into how they operate. Sometimes there is massiveorgan rejection by the body, but there have beenhugely successful acquisitions. In the best ofthese, the start-up culture has had a positiveeffect on the corporate culture. The EMAPacquisition of WGSN is one example. WGSN is a Bloomberg service for the fashionand style business which was acquired byEMAP in October 2004 for £140 million.Since then, WGSN’s business has doubled.

The State of Entrepreneurship in the UK in 2007:Lead, Follow or Get Out of the WayBY J U L I E M E Y E R , C E O , A R I A D N E C A P I TA L

“Entrepreneurship is not for the faint-hearted; it is about persisting and taking total accountability.”JULIE MEYER, CEO, ARIADNE CAPITAL

35

But there is still a large black cloud hoveringover London’s future as a global hub forentrepreneurial innovations. The UK is stillfeudal in many ways. A large segment ofsociety wants to argue for the master/slaverelationship, the employer/employee relationshipdespite the fact that the individual revolutionbrought about by the internet is busting wideopen these outmoded relationships. The UKhas the richest poor people of any other regionin the world, but you can count on one handthe £1 billion companies that have startedfrom scratch over the past 30 years. Some ofthe finest entrepreneurs have gone elsewhereto build their dreams.

It sometimes appears almost as if there has been something pre-meditated about the Government’s penchant for squashing the ambitions of the UK’s homegrownentrepreneurs. Over the past ten years, therole of Government in British people’s lives has increased dramatically. It is not difficult at all to connect the dots between government,their lack of accountability and a diminishedentrepreneurial sector. A massive tug of war is happening between the surge ofentrepreneurship in London, and theunnecessary difficulties of setting up a business in the UK.

The good news is that, in 2007, economics istrumping politics around the globe. The tripleplay of the internet, entrepreneurship andindividual capitalism is encouraging people of all walks of life to dream big dreams.Previously people were given aid and told tostay in their ghetto. That is changing fast.Leading British entrepreneur Paul Barry-Walshhas, for example, founded the FredericksFoundation to give micro-loans to disadvantagedpeople who want to bootstrap themselves up.

Iqbal Quadir, one of the founders of theGrameen Phone, the mobile phone operatorstart-up that has taken Bangladesh by stormover the past 10 years, said: “Capitalism was about empowered authority which didn’tnecessarily activate the citizenry; the internetstands that on its head, and shifts the powerto the Individual – making Individual Capitalismthe force of the 21st Century.”

Nick Ogden, is the founder of internet paymentprovider WorldPay, has recently founded VoicePay, a new service which uses voicebiometrics to verify purchasers’ identitieswhen making an online transaction. When asked what he was most proud of,Ogden replied: “Never missing payroll”.Entrepreneurs know where the buck stops. It stops with them and sometimes hits them smack in their forehead.

Entrepreneurship is not for the faint-hearted; it is about persisting and taking totalaccountability for a company and your life: the good, the bad and the ugly. Accountabilityis a good credo for any society. The UK needs radical forces and mobilised peoplewho intend to take back their rightful ownershipof their society by reducing the role ofgovernment in their lives, and lettingentrepreneurs drive growth.

Venture capital has often been a catalyst forthis growth. But venture capital should have asits aim not only making a return for its investorsbut also creating the leading businesses.Sadly, there are few new European businessesthat have become world leaders which werefounded less than 30 years ago; the groupincludes Vodafone, Sage, and ARM. Far fewerwere backed by venture capitalists.

37skills

The foundations of Britain’s future skills baseare in urgent need of support. The level ofliteracy and numeracy in England’s green and pleasant land is well below that in many so-called ‘third world’ regions.

Official research suggests that there arearound seven million adults in the UK whocannot read and write properly and 11 millionwho cannot add two three figure numbers.According to the latest available governmentresearch, around a third of people of workingage in the UK do not have a level 2 qualification,five or more O-levels or GCSEs. This summer,around half the teenagers taking GCSEs willfail to achieve a grade C or above in Englishand maths. Only about 19% of Germans and15% of those in the US have such low skills.Even other European countries which havetraditionally had high numbers of unskilledworkers approaching the UK level are managingto retrain people. For example, in the 10 yearsto 2001, France has reduced its proportion of low-skilled workers dramatically, from 26%to 15%.

There is nothing new in this sorry state of affairs.Britain has historically had a far poorer skillsbase than many other countries, with highereducation traditionally the preserve of aprivileged few. In the 1960s, only one in 18 young people went to university with many people not even bothering to completeformal schooling. As late 1979, only 40% of the workforce held any qualification and a relatively low proportion of young peoplestayed in education after the age of 16.Although there have been considerableadvances in attracting people to the higherlevels of education, there has been almost no progress made at the lower end of theskills scale.

The lack of basic literacy and numeracyamongst a disturbingly large proportion of the workforce has little to do with the linguisticshortfall associated with immigrants from non-English-speaking cultures. The worst area ofBritain in this respect is Northern Scotland,where there is very little immigration.

It is more than a national disgrace that therehas been no substantial improvement in literacyand numeracy among the adult population ofBritain in the last 30 years. It is a potentialtime bomb. Three decades ago, in the middleyears of the 1970s, Britain was still rich inthose industries that once relied on a vast pool of unskilled labour. Mines, docks, shipyards,factories and the merchant navy were all bigemployers of the unskilled. Today, there areonly 2.5 million jobs in the UK. A largeproportion of these are provided by big public sector employers such as the Ministryof Defence, the National Health Service andlocal authorities.

But even these employers are discovering that they need increasingly modern skills foreven the lowest-level jobs. Basic IT skills havejoined the traditional ‘three Rs’ of reading,writing and arithmetic as the minimum skillset needed to perform any but the most unskilled work.

According to Government research, theadvance of information and communicationtechnology and its rapid adoption in theworkplace has fundamentally altered the way businesses operate. The development of other technologies such as bio-technologyare expected to have similarly far-reachingeffects on the way in which society operates.These developments provide opportunities for the UK economy as it has been shown thatcountries that play a central role in developingnew technologies stand to gain most fromtheir diffusion. Skilled workers will be betterplaced to adapt to the new business andproduction techniques brought about bytechnological change. Those unskilled jobswhich still remain are disappearing quickly as knowledge services fast replace the old economy and even the most basic tasks require some degree of digital input. It is estimated that, by 2012, there will be no more than 50,000 unskilled jobs in thewhole of the UK.

This low-end skills gap has become so wide that people with literacy problems aredesperate to have something done to remedythe situation. When the Government ran itsnational ads using the concept of ‘gremlins’ tobring home the point that help with re-skillingis there for those who want it, they receivedaround 1.5 million phone calls requesting help with roughly 300,000 signing up for training courses.

All the indications are that people who are in need of basic re-skilling at this level are fully aware that they need training and will take advantage of it when offered. The government’s Train to Gain scheme is designed to give them the help they need by releasing them from their full-timeemployment for two or three hours a week.

Many of the people with basic literacyproblems who are in full-time employmentwork for small business employing only ahandful of people. A typical example would be a small delivery or haulage companyemploying young men to lift and carry. It is often hard to convince the owner of such a business that it is in his direct interestto participate in the Train to Gain scheme. But without this co-operation, those employeeswith skills in reading and writing and basiccomputer literacy are likely to face a joblessfuture further down the line.

Such is the need for this basic re-skilling to take place that, unless companies startparticipating on what is still a Government-funded scheme on a voluntary basis, the Government may consider making a similar scheme compulsory, in which case theemployee would be forced to pay. If this didhappen, then many employees would do theabsolute minimum to comply and some mighteven discriminate against hiring those in needof this kind of re-skilling.

The picture in this case of larger organisationsis much more encouraging. Companies likeCompass and McDonald’s employ largenumbers of people who lack basic literacy,numeracy and computing skills. And they do an excellent job of co-operating with anyinitiative aimed at improving their skills base.But the support and co-operation of companiesin IT is also essential if those at the bottom of the skills ladder are to be given a helping hand.

Sir Digby Jones is the formerDirector-General of the Confederationof British Industry (CBI).

Shoring Up the FoundationsBY S I R D I G BY J O N E S

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Suggestions that the teaching of ComputerScience in universities is about to fade away are premature. While it is true thatapplications for undergraduate courses inComputer Science have fallen by about 50% since 2001, the subject’s value to thegraduate remains as strong as ever, and willbe so for the foreseeable future. ComputerScience is concerned with the understanding,design and exploitation of computation andcomputer technology, combining theory withthe solution of immediate practical problems,combining scholarly and professional activities,underpinning the development of both smallscale and large scale organisational systems,as well as with helping individuals in theireveryday lives.

The pervasive nature of Computing, and itswide application, produces a complexemployment market for Computing graduates.This ranges from industrial sectors concernedwith the production of foundational hardwareand software technology, through stand-alonehardware and software products, industrialapplications (particularly, for example, in thefinancial services, media and telecommunicationssectors) and finally to the business solutionsdeployed in the majority of entrepreneurialbusinesses serving real human needsthroughout the developed world.

While Computer Science courses producegraduates that are able to enter any of theseemployment sectors, demand for suchgraduates is likely to be concentrated in thoseparts of the industry for which the deeptechnical knowledge of hardware and softwareis a pre-requisite (i.e. that part of the industryconcerned with the production of foundationalcomponents) and in parts of the industrywhere analytical and logical skills are at apremium. This section of the industry will havea requirement for fewer graduates than thoseparts of the industry concerned with businesssolutions (which will recruit no lesssatisfactorily from a broader range ofdisciplines, including Computing, InformationTechnology, often combined with othersubjects such as Business and Management,as well as many other degree subjects outsidethe Computing discipline).

Throughout the 1980s and 1990s there was astrong economic advantage to studying for adegree in Computing. This advantage waseroded in the public’s perception from around2001 when the ‘dotcom’ bubble burst, but isnow returning to its former levels as reportedin the recent UUK/PWC report (The economicbenefits of a degree, February 2007), and as evidenced by salary levels, employmentlevels and international competitiveness.

The economic advantage of studying for adegree in Computing also remains very strongin countries like China and India, which are atdifferent levels of their economic developmentfrom the UK, and these countries are producingmany thousands of graduates per year, fuellinga strong off-shoring business in the developmentof computing applications.

The perceived erosion of the economicadvantage of studying Computing in the UKhas been brought into sharper focus by theintroduction of variable fees into the highereducation system. While UCAS data showsthat since 2001 the number of studentsapplying to read Computing in UK universitieshas dropped by about 50%, graduateemployment data shows that the number ofComputing graduates entering employmentwithin the UK has risen. Many reports claimthat the demand for Computing graduates will increase, perhaps dramatically, in the next few years. If the current trends continuedinto the future, by about 2009 the number of Computing graduates produced will bewholly insufficient to meet demand. This is an unfortunate fact, since the Computinggraduates of 2009 were recruited in theAutumn of 2006.

The UK derives significant competitiveadvantage from its Computing industry. For this to continue, it is important that thisindustry remains strong, and that universitiesproduce graduates – particularly those withthe high-level design skills from which the UKderives much of its prosperity – in sufficientnumbers to meet the national need. UniversityComputing is therefore a subject of majorstrategic importance to the UK. Fortunately,the Engineering and Physical SciencesResearch Council (EPSRC)’s recentInternational Review of Information andCommunication Technology (ICT) Research(February 2007) shows that Computingresearch remains strong – second only to theUSA on many academic metrics. But it alsonotes the worrying decline in the supply of futureresearchers as undergraduate numbers fall.Despite the relatively large numbers of studentsstill studying the subject, Computing may bevulnerable as universities downsize theircomputing departments as demand fromundergraduate applicants declines.

Although academic computing feels vulnerableat the moment, it is not out-of-touch, it is notdying, and it will not die while it continues toinnovate. Over the next few years, we shallsee new alliances emerging, particularly forthe funding of higher education, insofar as it relates to the more vocational subjects like Computing.

Public funding will continue, but privatefunding (through students paying variablefees), funding from industry (in the form ofbursaries, salaries for industrial placements,golden hellos, and the write-off of student debt)and funding from higher education institutions(HEIs) themselves (in the form of bursaries tofacilitate participation) will feature much morein the higher education landscape.

The emerging market in higher education, and the simple laws of supply and demand,would, for many subjects, see graduatesalaries influencing application trends, withHEIs adjusting staffing levels to cope withincreased demand. But Computing is notquite like other subjects. It evolves quickly andthe industry is truly global, with the capacity to move its operation from one country toanother at the press of a button. Its linguafranca, English, has become increasinglywidely spoken throughout the world, reducingthe competitive advantage of highly-salariednative speakers.

Market forces will regulate this in the long-term.But in the short to medium-term, the academiccomputing community needs an alliance notseen in the UK since the earliest days of thesubject. This would involve HEIs, the widespectrum of the computing industry, theprofessional bodies, the Government and thefunding/research councils, all working togetherto safeguard the fundamental contribution thatcomputing occupies in the UK economy andin the wider society, with particular emphasison inspiring young people to recognise thatrole and to want to be a part of it. Althoughmany are already engaged in this activitythrough varied links between universities andindustry, through professional accreditation of courses, and through the active promotionof the subject in schools, the scale of theproblem should not be underestimated.

There are no silver bullets, no magicparadigms and insufficient ‘guru lectures’ tosustain a whole degree programme. But theshared enthusiasm, commitment and sense of adventure that still characterise thatcomputing will be a good starting point.

Imminent Demise of Computer Science is Greatly ExaggeratedBY P R O F E S S O R K E I T H M A N D E R : C H A I R , C O U N C I L O F P R O F E S S O R S A N D H E A D S O F C O M P U T I N G ;P R O F E S S O R O F C O M P U T E R S C I E N C E A N D D E P U T Y V I C E - C H A N C E L LO R , U N I V E R S I T Y O F K E N T

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UK companies are becoming increasinglyreliant on the IT superpowers of South Asia.As our skills resource dwindles, theirs grows.Modern business flounders without world-class technological innovation and maintenance,so we have no choice but to look abroad inpursuit of global competitiveness. Strategicoutsourcing and the inward immigration ofknowledge workers is now intrinsic to the UK IT environment.

But our distant goal must be to learn tocompete again, to become a force in trainingand development, to excel in IT research andenhancement. Our foreign outsourcing allieshave just the educational model upon whichwe should base our skills recovery – and wemust start learning from them immediately.

Borders are no longer barriers. The net effectof migrant workers on the UK is clearly positive,According to the Centre for Economics and Business Research commissioned byHarvey Nash, £54.3 billion was the uplift of GDP in 2005.

Unsurprisingly, the spread of online technologyhas increased the demand for informationtechnology specialists – in particular softwaredevelopers. According to the Office ofNational Statistics, in 1995 just 2,142 softwarespecialists came into the UK. In 2005, 20,900were welcomed. More difficult to measure isjust how many overseas developers are currentlyemployed by UK firms. The number is in thetens of thousands – costing UK businesshundreds of millions of pounds each year.Although the word ‘costing’ can be badlymisconstrued – there is nothing necessarilyuneconomical or damaging about outsourcing.On the contrary, constructive and strategicuse of overseas suppliers can form part of asound platform upon which to run a business.Moreover, many of the UK’s biggest and bestbusinesses have no choice but to outsource,as there is simply insufficient local resource to satisfy current needs.

But cultural disinterest in technology andscience has become an endemic afflictionamong those born in the UK. “I’m hopeless at maths” is heard with alarming frequency inoffices up and down the country. Unfortunately,it is often said with resignation – even pride –as if it were an irreversible flaw in our ethnic make-up. Elsewhere in the world, such educational poverty might only beannounced when earned by unfortunateeconomic circumstance and where rudimentaryscientific instruction lies beyond reach. In theUK it is at least available for all, but its detail is out of sight and unwelcome for most. By contrast, our population does at leastrecognise the value of science – even if onlypassively. According to a recent nationwideMORI poll, 86% of adults think science makesa good contribution to society.

Six thousand miles away, Vietnam has wrappedits economy around a scientific future –churning out some of the world’s leading IT thinkers. More than 80% of the country’sstudents are scientists. And Vietnam is not alone; China, Japan, Taiwan, India… Each is looking to transmute in the West’seyes from exploited off-shore commodity to innovation powerhouse.

Worryingly for our IT future, the UK populationis ageing. Over the last three decades, themedian age of the UK population rose from34.1 years in mid-1971 to 38.8 in mid-2005.This is primarily the result of past trends infertility, although recently declines in mortalityrates especially at older ages have beenplaying a major role, according to the Office of National Statistics.

Looking ahead, there will not and should notbe an end to outsourcing abroad, as foreignworkers in so many markets carry a costadvantage we could not possibly equal. Yet a science and technology polarity in theworld is an unwelcome prospect. There is not a single valid reason to suggest the UKcannot rediscover its ability to excel in IT –and to start to operate and innovate at the rate of the world’s IT superpowers. But wemust be robust and immediate in our approachto reparation.

More and more of our IT needs could beoutsourced or supplied by migrants. But dowe really want to sacrifice our digitalinnovation for ever? Do we want to becomedependent in our use of IT and in thedevelopment of new technologies? An idealoutsourcing model would be one where theUK innovates and manages and the foreignsupplier, with its cost advantages, activatesand produces on our behalf.

There needs to be a radical change of attitudeamongst the pillars of responsibility. As thetrend is towards increased trade in IT betweenhere and the Far East – we could do worsethan learn from those cultures. In many Asiancountries which lead in IT, children look up toscientists with awe. In South Korea, for example,technology giants such as LG and Samsungare part of society’s fabric, and a prestigiouscareer target from school-age upwards. Maths and science is taught with rigour anddiscipline until 18 in many countries and theper capita achievement of students in sciencefar outstrips what we manage in the UK.

According to the CBI’s 2006 statistics, China alone is producing upwards of 300,000science graduates each year. India produced a staggering 450,000 engineering graduatesin the last academic year. While in the UK,figures reveal a decline in all science subjects,from GCSE through to A-level and tertiaryeducation.

In all, we have a skills gap in UK ITprofessionals. Combine that with an ageingpopulation, net drops in scientific educationand a glut of affordable, willing resources inforeign destinations and it is clear that drasticaction is needed.

If we look again to Vietnam, the model issimple: large businesses form their ownuniversities with governmental endorsement.This is having a marvellous effect on theschools below and the working world above. It is like a throwback to apprenticeship, butwith the rigour of academic tuition applied.The result, of course, is that the modulesprovided by this new breed of university areprecisely suited to the world of work whichenthusiastically embraces the students upontheir graduation.

Conservatively, it will take fifteen years to fillthe skills gap. If each decent-sized companywere to commit to providing excellent on-the-job training today, sponsoring students nextyear and working with a partner university ondesigning and funding a vocational course, theUK would be back on track in five years time.

Lessons in LearningBY PA U L S M I T H , G LO B A L M A N A G I N G D I R E C TO R ,O F F - S H O R E S O F T WA R E D E V E LO P M E N T, H A R V E Y N A S H

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An element of practical experience isnecessary to develop competence in anyprofession, and higher education institutionsare now offering courses with substantialpractice-based elements in order to meet the expectations of students, employers, and professional bodies. Research suggeststhat 70% of learning comes from experiences,either planned or unplanned, thus emphasisingthe need to ‘learn from real work’.

Employers regard the higher level intellectualabilities associated with university study asnecessary for competitiveness in the IT industryof the future. However, analysts agree that thehigher education (HE) sector has a very lowmarket share of the employee learning market,however defined, and this is seen as anopportunity by some in the HE sector.

City University arranges role-based, project-based and usually paid work experience forstudents, with a wide range of employers,lasting between six months and three years.The most common model is the one-yearundergraduate sandwich placement, but Cityhas innovated by introducing new models forits IT students.

On the Professional Pathway, Cityundergraduates take work-placement IT rolesalongside their studies. For three years of afour-year degree programme, the only fixedelements are tuition at City one day per weekand a substantial software developmentproject done in the workplace. Employersoften choose to employ Professional Pathwaystudents for the whole three years of theprogramme, although shorter periods are also acceptable.

In addition, City postgraduate students canundertake a client-based project for anorganisation and use the work as the basis fortheir dissertation. Help from City is available tothe employer and student in formulating theseinternship projects.

Work-based Learning Advisors are key to thesuccess of City’s schemes. They visit employersand students during placements/internships to ensure that expectations are being met onboth sides. City offers flexible arrangementsthat fit with employer needs, while supportingstudents in ways that maximise the benefitthey derive from the opportunities.

City encourages students to develop the skillsthey will need to gain successful entry into the workplace. Starting with an initial skillsself-assessment, students work with personaltutors to identify their own development needsand interests. Employers work with City todevelop students’ communication skillsthrough workshops on presentations,interviews or CVs. Industry knowledge isdeveloped by means of expert lectures.

City students use the British ComputerSociety’s Professional Development Schemeto document placements and internships.Students are assessed for a Certificate inGraduate Professional Development, whichcan include Key Skills and NationalOccupational Standards, using a frameworkdeveloped in conjunction with e-skills UK.

There is a great deal of workforce developmentactivity underway in the HE sector, withsubstantial employer engagement with HE toprovide work-based development opportunities.

There are, however, issues that need to beaddressed if work-based learning is to expand.

First, work-based learning is a contested area,not least because it challenges the veryessence of universities as the primary sourceof knowledge. We cannot afford to let debatesabout the value of different types of learning or where learning is best situated to divertattention from the more important issue ofhow higher education institutions (HEIs) and employers can best ‘co-develop’ the workforce.

Finally, this co-development requires a newmodel of ‘co-financing’ with employers payingfor the development that will bring addedvalue to their businesses, staff contributingthrough the time they give and the statepaying to accredit the learning.

Professional Education:The Role of Work-based LearningBY V I R G I N I A W I L L I A M S , P R O F E S S I O N A L L I A I S O N D I R E C TO R ,S C H O O L O F I N F O R M AT I C S , C I T Y U N I V E R S I T Y

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“Give a man a fish and you feed him for a day.Teach a man to fish and you feed him for a lifetime”.

Given China’s pre-eminence as one of themost important economies of the 21st century,it is worth examining this ancient Chineseproverb in the context of skills and learningwithin business organisations, as it may wellhold the key to where the West can take onthe might of this new Asian superpower interms of global competitiveness during thenext 10 years.

The UK Government recently published theLeitch Report, which examined the UK’s long-term skills needs and set out ambitious goalsfor 2020. If achieved, these would make theUK a world leader in skills. It clearly indicatedthat skills are the key to unlocking potentialwithin the population and that withoutincreased skills, we would condemn ourselvesto a lingering decline in competitiveness,diminishing economic growth and a bleakerfuture for all.

However, if we are to compete with thegrowing pre-eminence of countries such asChina and India, the issue is not about theskills of individuals alone. Businesses mustalso adapt to the changing competitive globalenvironment, usually by becoming skilled atcreating, acquiring, and transferring knowledge.Within such ‘learning organisations’, thegeneration and acquisition of new ideas isessential if learning is to take place, andwhatever the sources of these ideas, they arethe trigger for improvements that will lead togreater profitability which, in turn, will increasethe competitiveness of the UK as a whole.

For UK businesses, one of the major barriersto learning is that of organisational inertia asmany businesses find change a difficultprocess and often resist change, even whenthey are threatened with extinction becauseprevious actions have ‘worked well in the past’.As a result, even successful firms can becomecomplacent, learn too little, and eventually fail.

There is a role for large firms to work moreclosely alongside small firms to ensure thatbusiness can access the right type ofinformation about their technology or marketcheaply and quickly. Many large businesses,especially within knowledge-based sectorssuch as biotechnology and IT, have developedstrategic partnerships, or have acquired smallhigh technology firms to enable them to gainaccess to a specialist type of knowledgewhich is not currently available within their organisations.

There is evidence that small firms can, throughboth formal and informal arrangements withlarge companies, gain access to knowledgethat, in turn, will lead to increased efficiencyand competitive advantage to both partners.For example, research indicates that not onlydid the inward investors into Wales createhigh value jobs but, through their skillsdevelopment initiatives, raised the quality of learning amongst smaller companiesinvolved in their supply chains.

The dissemination of such best practicethroughout different industrial sectors cancreate an effective ‘learning loop’ betweensmall and large firms which could be theanswer to many of the questions being askedin terms of how we compete with the growingeconomies of China and India.

The China SyndromeBY P R O F E S S O R DY L A N J O N E S - E VA N S ,D I R E C TO R , N AT I O N A L E N T R E P R E N E U R S H I P O B S E R VATO R Y F O R WA L E S

Skills are the key tounlocking potential within the population.

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The UK is facing a potentially critical shortageof technology skills. The UK’s IT industry isgrowing at five to eight times the nationalaverage, and around 150,000 entrants to theIT workforce are required each year. At thesame time, every year, fewer young peoplechoose to study technology-related subjects at school and university; and every year fewertechnology graduates choose to embark on a career in IT. This mismatch urgently needs to be addressed.

In the first instance, we must improve theattractiveness of technology careers and thequality and relevance of IT-related education.Drawing new talent into the IT workforce isvital to its renewal and growth.

Between 2001 and 2006 there was a drop of 43% in the number of students taking A-levels in Computing (from 10,913 in 2001to 6,233 in 2006). The uptake of IT-relateddegrees almost halved between 2001 and2005 (from 27,000 in 2001 to 14,700 in 2005).Of these IT-related graduates only aroundthree in ten choose to enter IT occupationsupon graduation.

There is also a growing chasm betweentechnology-related education at school anduniversity and employer needs. At school level,most IT courses focus on IT user skills, whichhave little relevance to today’s IT careers. We need courses that bring out the excitementand relevance of IT to modern day lives andthat transform the attitudes of young people,particularly women, towards careers in IT.

At university level, many IT courses focus oncomputer science, with little business content.There is an urgent need for more university-level courses to combine IT and business, withcreative and stimulating programmes of studythat enable students to develop the full rangeof skills required for a modern career in IT.

This should be complemented by a sector-wide commitment to the development of theexisting IT professional workforce. Over 70%of the UK’s workforce in 2020 has already left compulsory education. The development of IT professionals to meet changing business,technological and global needs is a primarychallenge for the UK if we are to remainsuccessful ten years from now.

Over the next decade, UK employers will needincreasing numbers of business-oriented ITprofessionals who can function in customer-facing roles and are prepared for ongoingchange. This requires a sophisticated set of skills and understanding, one thatencompasses business, communication, team working and project management skillsas well as in-depth and up-to-date technicalknowledge. IT professionals need to beencouraged and able to develop their skillsthroughout their careers, with access torecognised qualifications that meet consistentstandards and employer and individual needs.

The global landscape for IT professionals and the IT industry is undergoing constantevolution and this will only accelerate with time.It is vital that we continue to understand andaddress the skills and development implicationsof these changes so that the UK has the IT professionals it needs to succeed in every sector of the economy.

To Succeed in the Global Economy theUK must Commit to Technology SkillsBY K A R E N P R I C E , O B E , C E O E - S K I L LS U K

“IT professionals need to be encouraged and able to develop their skills throughout their careers.”KAREN PRICE, OBE, CEO E-SKILLS UK

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Knowledge transfer is not a one-way processwhere the wisdom of academia is somehowtransferred into the minds of students andclients in the IT industry. If this arrogantattitude was ever appropriate, it is no longer.Research and teaching need to be informedby current practice, responsive to itschallenges and to learn from it.

The research focus at City is on dependablesocio-technical systems and this requires aclose cooperation between HE and industry.The systems we depend on are pervasive andwe need to work closely with those responsiblefor them in areas outside the IT industry suchas financial services, air traffic managementand energy.

At City we have a number of ways in which we achieve this close coupling between HEand industry. In our research, we work on realsystems and real problems with partners thatown and address systems critical to the UKeconomy. We have an approach that de-risksthese interactions with industry but allows usaccess to real systems. To do this we havespent years building up confidence and trustin how we work. For example, we exploit thegood links we have with the City of London in developing a research partnership with theCity of London Police on High Tech Crime. Of course, we have the usual mechanismsavailable to us of Knowledge Transferpartnerships (KTP), case studies, spin outs etc and we use these as and when we can.But two-way working on real systems and real problems means we also need theresources to provide what our partners need.This requires flexibility and perhaps a broaderinteraction than is customary (the ‘KnowledgeTransfer’ product can be quite broad and inour field sometimes requires engaging withsolved problems previously solved butunknown to the community).

We are also active at a policy and regulationlevel. Again, this is a two-way process where we can both shape the agenda withinGovernment, EU and corporate bodies but at the same time understand their needs andpriorities. This can be a very efficient mechanismif we work at a senior enough level, as we do.

Finally we have experimented with spinning in a high-tech company (Adelard) so that it is co-located with our Centre for SoftwareReliability. This proves a direct ‘water cooler’synergy with low interaction costs. It hasprovided staff to teach who are alsopractitioners plus a route for collaboration and contact with a wide client base.

In our area of socio-technical systems, as in so many others, Knowledge Transfer is aboutdeveloping and being able to sustain trustedrelationships. This involves specific skills and opportunities and is something that can be facilitated at an institutional as well as a personal level. It involves investment,commitment and patience from all concerned.

Knowledge Transfer: Linking HE with the IT IndustryBY P R O F E S S O R R O B I N B LO O M F I E L D , P R O F E S S O R O F SYS T E M A N D S O F T WA R ED E P E N D A B I L I T Y, S C H O O L O F I N F O R M AT I C S , C I T Y U N I V E R S I T Y

“Knowledge Transfer is about developing and being able to sustain trusted relationships.”PROFESSOR ROBIN BLOOMFIELD, CITY UNIVERSITY

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“We need courses thatbring out the excitementand relevance of IT tomodern day lives andthat transform theattitudes of youngpeople, particularlywomen, towards careers in IT.”KAREN PRICE, OBE, CEO E-SKILLS UK

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SkillsINTRODUCTION

Research for this section of DtF 2007develops the themes from DtF 2006 from commentary and challenge intoanalysis and action. The education and skills agenda for IT in the UK is the linchpin for the success and growth of the UK knowledge and creative economy.Skills and education develop the knowledgeand flexibility to adapt and respond tomarket trends, competitive pressures (e.g. globalisation) and provide the means by which the UK can become a lead innovator in IT.

The section deals with three main areas:

1. Skills: providing insight into UK skillsagenda from within the educationsystem through to the work-place. It examines current strategies such as the IT Management for Business(ITMB) degree and goes on to provideaction-oriented solutions for theimplementation of a unified skillsagenda within the work-place.

2. Secondary Education: analyses thefracture points in the current system,explains what impact these have on the overall education and skills agendafor the UK and provides solutions andrecommendations for action.

3. Higher Education: examines the trendsin undergraduate and postgraduateapplications for both full and part-timemodes of study. It provides a developedinsight into the output from universityto industry and provides examples ofsuccessful strategies that someuniversities are employing.

The section shows the problems that the UK will face if it cannot develop acohesive action oriented strategy betweenindustry, academia and Government.

POTENTIAL SHORTAGE OFQUALIFIED IT PROFESSIONALS IN THE UK

In 2005 the number of graduates from IT related degrees totalled 15,930.30

Six months after graduation 71.5%,11,390, were in employment or employedand studying; but only 42.4%, 4,829, were employed in the IT sector.30

Research shows that unemploymentamong IT graduates is higher, at 10.3%,than the average for all subjects, 6.2%.

In 2005/6 the proportion of graduatesfrom IT related degrees that chose to entercareers in the IT software professionswas only 30% (rounded).31 This is setagainst the UK IT workforce requirementthat averages 156,000 – 179,000 perannum that covers both new jobs createdfrom growth and replacement demand.

Put another way, 70% of IT graduateschose or found alternative activities orjobs outside of the IT profession in2005/6, with 10.1% going on to study for higher degrees or other qualifications,10.3% are unemployed, 4.3% are engagedin other activities and 3.8% are notavailable for employment, study or training.Of those finding employment 6 monthsafter graduation a proportion may beclassified as IT workers within otherindustry sectors based on the currentgovernment careers taxonomy and some may be in interim jobs.

There is an increasing demand foralternative graduate level skills that areonly being met in part by graduatequalifications in computing. Research forthis report indicates that there is indeed a ‘pipeline’ problem with fewer studentselecting to study computing at highereducation institutions (HEIs) since thehigh point in 2001.


30 Data source: prospects.ac.uk & HESA31 HESA, Destinations of Leavers of Higher Education, 200, cited by

prospects.ac.uk, survey carried out 6 months after graduation

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The number of advertisements monitoredfor permanent and contract IT staffappears stable at 150,000 since 2005.32

The acknowledged number of entrantsrequired for the IT workforce averagesbetween 156,000 and 179,000 a year. This figure covers new jobs created fromgrowth as well as replacement demand.

The sector may, therefore, be heading fora crisis that could have a substantial impacton the growth of the UK KnowledgeEconomy. But there are immediateinterventions that can be taken to beginto turn the problem around and acceleratethe growth of this important sector of the UK economy.

DEVELOPING SKILLS TOUNDERPIN THE GROWINGKNOWLEDGE ECONOMY

There is a close correlation betweensuccessfully developing the KnowledgeEconomy and the need for a highlyeducated workforce. The Leitch Report(December 2006) examines the skillsrequirements within the UK. It states that the UK should aim to become aworld leader and focus on economicallyvaluable skills. The Leitch Reportrecognises that although considerableprogress has been made with regard to education and skills in the UK, it is still behind other countries.

“The UK’s skills base remains weak byinternational standards, holding backproductivity, growth and social justice,”said the report.

Even if current targets to improve skillsare met, the UK’s skills base will still lagbehind that of many comparator countriesin 2020. “The UK will run to stand still,”33

warns the review.

Research by several agencies, includinge-skills UK, CBI and McKinsey, showsthat companies are hiring more workersfor complex rather than less complex jobs.

Research shows that 70% of all US jobscreated since 1998, 4.5 million, requirejudgement and experience. These jobs now make up 41% of the labour marketin the United States. Most developednations are experiencing a similar trend.34

Britain is experiencing a huge need for highly skilled employees across allindustry sectors, in particular thoseindustries which demand knowledge of technology and IT. Individuals with IT knowledge are finding their skills indemand not just within the IT industryitself but across other industry sectors.

The IT sector can no longer assume that all IT graduates will work within the IT industry. Many will use their skills within other sectors where rewards arethe highest, working in sectors such asfinancial services. The universal demandfor skilled IT people is great news for new graduates, but a challenge for thesoftware development and IT industrysector itself.

ECONOMICALLY VALUABLE SKILLS

Evidence of the types of skills required by the industry is provided by the surveyon the ICT labour market produced by e-skills UK.35 The survey undertaken inthe third quarter of 2006 indicates thatthere is still a skills shortage and thatthere are particular areas which are more problematic than others. The greatestproblems are in those areas whereapplicants with high-level technical skillsare required, such as computing andsoftware engineering. Around one in tenbusinesses reported suffering recruitmentdifficulties during the period. A similarproportion of ICT recruiters were havingproblems finding suitably skilledapplicants for jobs.

The sector skills council (e-skills UK)reports that when employers are askedfor more detail about recruitmentdifficulties, they state that softwareengineers are considered to be the most difficult to recruit.

“The UK’s skills baseremains weak byinternational standards,holding back productivity,growth and social justice.”LEITCH REPORT

32 Computer Weekly/Salary Services Ltd. As reported by e-skills UK33 Towards 2020 Science – Microsoft Research UK 2006

http://research.microsoft.com/towards2020science/background_overview.htm

34 Competitive advantage from better interactions; Beardsley, Johnson and Manyika, McKinsey, 2 2006

35 e-skills UK ICT Inquiry, Quarter 3, 2006

48

Government statistics36 are likely to pointto a growth in the software sector overthe coming years (to 2010 – forthcomingGreen Paper on the Creative Economy)and the UK could face a worse crisis in the near future if this issue is notaddressed now.

The data that is available at presentmakes it difficult to separate out the keyskills for sub-sectors of the ICT industry.The definition of ICT not only includescomputing but other areas such astelecommunications. The data does not,therefore, give us a conclusive picture of the skills shortage as related to thesoftware sectors. Some planned workwith the ONS, industry and academia(Summer 2007) will aim at providing a more robust jobs/roles taxonomy that reflects the changing face of the IT industry that could be used to derivemore robust statistics in order todifferentiate more clearly between the ITindustry itself and the more generaliseduse of technology in other industries.

PREDICTING SKILLSREQUIREMENTS

Organisations increasingly outsource theroutine tasks and concentrate on developingthe tasks which require judgement,experience and knowledge in order to develop a competitive advantage. Using technology to develop new processes,products and improve current workoperations is vital in many organisations,not only within the IT sector.

The novel application of technology acrossother industry sectors in this way not onlyrequires technical skills but also businessknowledge, communication skills, specialistknowledge combined with knowledge ofIT practice and project management skills.Combining knowledge of technology withother skills and applying these integratedhigher skills gives organisations the abilityto develop new innovation which in turn willdrive a sustainable competitive advantage.

Organisations cannot afford to lose highlyskilled staff with years of knowledge andexperience and rely on trying to hireyounger employees with an exact skillsmatch for the projects they wish tocomplete. There are not enough newentrants into the IT profession to makethis a sustainable strategy; organisationswill have to commit to supporting lifelonglearning. The process of understandingtechnology and its potential is continual,and the supporting knowledge and skillsrequired also require continual updating.

Assuming that technology and IT has arefresh time of around 18 months, then itis fair to assume that the knowledgerequired to support this technology will also have a finite ‘lifetime’. We havemoved into a time when ‘lifelong learning’is no longer an aspiration but a necessity.

HIGHER EDUCATION

BRIDGING THE WORLDS OFACADEMIA AND COMMERCE

The education sector does not necessarilyrespond in the same way as the privatesector to emerging economic trends. It is simplistic to assume that all therequirements of a skilled workforce canbe met by the education sector alone. It is also naive to assume that academia is motivated solely by the needs andrequirements of industry. However, academicinstitutions are more exposed to marketforces now that students pay for part oftheir own tuition.

KEEPING PACE – EDUCATION ANDINDUSTRY REQUIREMENTS

New technology is being deployed swiftly where it can offer benefits that are both social and economic. Where there is demand for newtechnology there is a demand for thepeople to deploy it. The industry needsmore people skilled in computing.

Demand for ICT workers has been quotedas being in the region of 150,00037, 38, 39

workers per year. This is a huge figureand has provoked much alarm in somesectors of the economy. The UKGovernment is examining this issue ingreater detail,40 with work that is lookingat not only the numerical or statisticalfigures but the distribution and mix of skills required for the industry.

WHAT DO THE FIGURES SAY?

Dr. Andrew Tuson of City University says:“The use of the term ‘ICT’ in Governmentstatistics is telling. It confuses andcombines two distinct though relatedindustries: Information Technology andTelecommunications. Does this figureinclude telecoms installation technicians?If so, are we in danger of providing provisionfor which there is no real demand?”


We have moved into a time when ‘lifelong learning’ is no longer an aspiration but a necessity.

36 IT Investment, ICT Use and UK Firm Productivity – summary of ICTeffects, and measurement conclusions, T Clayton, Oct 2005, vol169kb,no 625; ISSN: 0013-0400

37 Microsoft UK, Developing the Future, 5th June 200638 The Office of National Statistics39 UK Government Creative Economy Programme: Software Summit

21st March 2007 40 Ongoing work towards the UK Government Green Paper on the

Creative Economy

49


The skills issue is not a simple one ofnumbers of graduates. Neither is it a caseof ‘predict and provide’, a strategy that hasconsistently failed in previous governmentskills interventions.41

But there are some clear trends emerging:

• A move to ‘higher-level’ skills and roles42

such as business analysis, IT servicemanagement and high-quality, high-valuetechnology and software development. A salaries report by Hudson43 notes that although IT salaries are increasingoverall, the increase is going to thequality end: highly skilled managers andtechnologists. IT professionals withoutsuch skills and expertise are havingdifficulty maintaining their earnings andsome are seeing their roles disappear.

• The increasing need for IT professionalsto be ‘lifelong learners’ and update theirskills, and the need for the IT industry to actively support their employees inmaking the transition to the changingskills profile.

• The balance of soft and hard skills isbecoming more critical, with soft skills forIT graduates being of more importancethan other STEM44 disciplines. Prospects45

quotes research by the analyst groupGartner, revealing that sound businessacumen is just as essential to IT roles as technical ability.

• The ‘traditional’ Computer Science degreewith its emphasis on purely technical skillswill not be enough on its own to meet the needs of the IT industry; its valuablefocus on technological and softwaredevelopment roles covers only a part of a diverse IT industry that increasingly isfocused on supporting businesses inachieving its aims, rather than solely being a provider of technical services.

• Diversity of provision is thereforeessential to providing a balanced ITgraduate mix. The complementary skill-sets offered by ‘Business Computing’and ‘Information Systems’ degrees –long-standing offerings by someuniversities such as City and Brunel –will play a larger role in satisfyingemployer’s needs. Niche offerings suchas Games Technology degrees will also play their part.

UCAS COMPUTING RECRUITMENT

The number of students joining UKuniversities to study computing usingUniversities and Colleges AdmissionsService (UCAS) shows a sharp decline innumbers of full-time undergraduatesaccepted on computing courses, from29,014 in 2001 to 18,341 in 2005.Figures for 2007 are considerably moreencouraging and recruitment is up onprevious years, despite the introduction oftop up fees.

Developing the Future 2006 was concernedabout the falling numbers of studentsenrolling on undergraduate computingdegrees in the UK and in other developedeconomies. City University’s Dr AndrewTuson explains “It is worth noting thatthere have been boom/bust cycles in computing recruitment before,46

usually around key technologicaltransitions such as the introduction of the PC in the early 1980’s or the internet boom at the turn of the century.

The recent recruitment expansion occurredwhen there was a stock-market bubblebased on telecoms and internet start-ups,a time when the market was in cleardisequilibrium and sending strong andvery unrealistic employment signals to potential students.”

Tuson said: “To put current recruitment in context, in October 2006 G4(Computer Science) was the 6th largestJACS47 group by acceptances48 (9,987).Combining the total acceptances for G4-G7 groups49 that cover all types ofcomputing degree, gives a total of 14,313acceptances. If this were a single JACSgroup, computing acceptances would be the second largest after law.”

The latest UCAS statistics50 for 2007entry indicate that the large falls inapplications of recent years are levellingoff. Tuson concludes that “This tells a verydifferent story to that of a discipline introuble.”51

The importance of computing at University is also emphasised by Professor Keith Mander, Chair, Council of Professors and Heads of Computing,Professor of Computer Science and DeputyVice-Chancellor, University of Kent.“The Engineering and Physical SciencesResearch Council (EPSRC)’s recentInternational Review of ICT Research(February 2007) shows that computingresearch remains strong – second only to the USA on many academic metrics,but notes the worrying decline in thesupply of future researchers asundergraduate numbers fall. Despite the relatively large numbers of studentsstill studying the subject, computing maybe vulnerable as universities down-sizetheir computing departments as demandfrom undergraduate applicants declines.”

41 Alison Wolf, ‘Does Education Matter? Myths about education andeconomic growth. Penguin Books, 2002, ISBN-13: 978-0140286601.

42 ‘Insights – Trends and UK Skills Implications’, e-skills UK with GartnerConsulting, 1 Nov 2004.

43 Hudson, IT Salary Survey 2006, at:uk.hudson.com/documents/jobs_uk_ITSalarySurvey.pdf

44 Science, Technology, Engineering and Mathematics45 ‘What do graduates do? 2007’ at www.prospects.ac.uk46 David A. Patterson, ‘Restoring the Popularity of Computer Science’.

Communications of the ACM, 48(9), 25-28.47 Joint Academic Coding System48 Source: Universities and Colleges Admissions Service (UCAS).

See Table 9 on: http://www.ucas.com/new/press/news180107.html49 Computer Science (G4), Information Systems (G5), Software

Engineering (G6), and Artificial Intelligence (G7).50 Source: Universities and Colleges Admissions Service (UCAS).

See Table 8 on: http://www.ucas.com/new/press/news140207.html51 For example: Neil McBride, ‘Erase old programme and launch new

version’. Times Higher Education Supplement, 9th February, 2007.

50

However, looking further into the UCASdata we can see that there are still anumber of areas of continuing concern:

• Low levels of female applicants oncomputing courses

• Lower entry qualifications to computingcourses compared to other subjects

• A decline of 8% in STEM subjects, anarea which the IT industry is likely torecruit from

Dr Jeremy Wyatt from BirminghamUniversity said: “Given that the industryhas a history of drawing candidates froma range of mathematically focussedscience and engineering degrees it is alsoimportant to consider the total applicationsto all these subjects. Between 1996 and2006, applicants to the hard sciences andengineering declined by about 8%, showingthat there is a continuing and long termdecline in graduates of disciplines whichhave traditionally supplied the IT industrywith its technical leadership.”

The drop in students studying science,technology, engineering and mathematics(STEM) subjects therefore has an impacton the total pool of resources which theIT industry has traditionally recruited from.

The recruitment level during the dotcomboom should not be considered a desiredor realistic baseline. It is becoming clearthat we are returning to a state of normalitywith application levels around those of the late 1990’s. Computing is stillrecruiting more undergraduates than most professions. Advertised vacanciesare buoyant52 and around 1999 levels –150% higher than the nadir in 2003 –with salaries increasing. It is also clearthat the research output of UK computingdepartments is world-class with excellent examples of knowledge transfer to industry.53


0

350

300

250

AverageTariff Points

200

150

100

50

2002 2003 2004

Computer ScienceApplicants

All Applicants

2005 2006

Figure 6:Female Applicants as Percentage of Home Apps

0%1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

Figure 5:Rise in Average Tariff Points 2002-2006

52 Source: www.jobstats.co.uk53 EPSRC, ‘International Perceptions of the UK Research Base in

Information and Communications Technologies’. December 2006,EPSRC.

51


LOOKING BEYOND UCAS DATA

Many analysts and the media look only at the UCAS statistics – unfortunatelythese show an incomplete picture.

The research for this report shows thatthe nominal ‘decline’ in full-timeundergraduate acceptances (all courses)is being reversed. In early 200754 UCASreleased a report that showed the number of people applying to full-timeundergraduate courses at UK universitiesand colleges has increased by 6.4%. The rise represents 395,307 applicantsapplying to enter HE in 2007 comparedto 371,683 in 2006. The snapshot ofdata is taken at UCAS’ 15th Januaryadvisory closing date for UK and EU applicants.

Anthony McClaran, UCAS Chief Executive,said: “These figures are encouraging for all who believe the expansion of highereducation is good for individuals and good for our society. Not only has lastyear’s dip in applications been reversed,but application levels are now higher than in 2005 which had previously broken all records. The increase isparticularly marked in England”.

However, the picture for computing still shows a recent continued declinefrom the high levels of 2003 (acrossJACS G4-G7) for full-time applications. In contrast, research for this report55

shows that there is a small but potentially significant growth in part-time undergraduates from a moderatebaseline in the years from 1996 – 2000.This increase, or change of emphasis on study modes, might also be related to the introduction of top-up fees.55

1996-19970

160000

140000

100000

120000131280

Foundationdegreesoperational

73515

33255

13525

10985

80000

60000

40000

20000

1997-1998 1998-1999 1999-2000 2000-2001 2001-2002 2002-2003 2003-2004 2004-2005

Total HE studentsFT UGsFT PGsPT UGsPT PGs

Figure 8:HE Computing Qualifications obtained with breakdown betweenUG/PG & other UG/PG 1996/97 – 2005/06 DTAHESA-Dialogic

1996-19970

40000

35000

25000

30000

37445IncludesFoundationDegrees

20095

8255

7410

1685

20000

15000

10000

5000

1997-1998 1998-1999 1999-2000 2000-2001 2001-2002 2002-2003 2003-2004 2004-2005

Total HE qualifications obtainedTotal first degreesTotal higher degreesTotal other PGTotal other UG

Figure 7:Computing Students in HE with breakdown betweenFT/PT as well as UG/PG 1996/97 – 2005/06 DTAHESA-Dialogic

54 UCAS, 14th February 200755 Dialogic Consulting for City University London, February 2007

www.dialogic.co.uk with baseline data from UCAS

52

HE outputs are currently showing asignificant improvement and this is largely in response to the increases seen in undergraduate recruitment in2003, as these graduates feed throughthe system. However, in the short termthese outputs will decline in response to the lower undergraduate recruitmentthereafter.

Although initial research into theundergraduate UCAS recruitment figures for 2007 are showing that for the moment the picture is healthier than some commentators would have the media believe, it will take three years before these students graduate and take up employment.

While the output from HE looksencouraging today, in the short term this picture will change in response tolower undergraduate recruitment in therecent past. Any recovery in undergraduaterecruitment will also take some time tofeed through the system, so will not solve the immediate skills dilemma.

DEMOGRAPHIC CHANGES – THE ISSUES AND OPTIONS

The data shows that there is a smallerpool of potential young undergraduatesfrom which to train and to recruit.

According to Government data,56 under anyplausible scenario this country is facedwith a rapidly ageing population, in commonwith most other developed countries.Analysis shows that the age structure of the UK population has become older in the last 30 years. Predictions show that it is likely to age further in the next30 years. The median age has risen from 34.1 in 1971 to 38.6 in 2004, and its projected to rise to 42.9 in 2031.Not only is the population ageing, but theproportion of the population under 16 is declining. In 1971 over 25% of thepopulation were aged under 16, in 2004this fell to 19% and is projected to fall to 17% by 2031.

IT GRADUATES – HIGHESTUNEMPLOYMENT – CHOOSINGCAREERS OUTSIDE OF IT SECTOR

The data for 2006 suggests that thelabour market for information technologyis growing and there is demand for newgraduates with these skills. Official labourmarket statistics have shown that thelabour market in information technology is rising and recent studies have predictedstrong growth in the numbers of vacanciesin computing/IT of up to 20% for 2006.57

Examination of data from 2005 showsthat six months following graduation,71.5% of IT graduates (from the 2005cohort) were in employment (includingworking and studying), compared with71.7% for all subjects. IT graduates,however, were still less likely to be infurther study (as a sole activity) and morelikely to be unemployed. At 10.3%, theunemployment rate fell slightly from 2004(10.7%), but was still substantially higherthan the average for all subjects (6.2%).


Figure 9:Destinations of UK IT 2005 GraduatesSource: Prospects

In UK employment(see breakdown bytypes of work)64%

In overseasemployment

1.1%

Working andstudying

6.3%

Studying inthe UK for a

higher degree6.1%

Studying inthe UK fora teaching

qualification1.3%

Undertakingother further

study or trainingin the UK

2.6%

Undertakingfurther study or

training overseas0.1%

Not availablefor employment,study or training

3.8%

Believed to beunemployed

10.3%

Other4.3%

56 DNS, People and Migration, www.statistics.gov.uk57 Prospects 2004-2007

53


Year on year the picture is not improvingand research for 2006 shows that six months after graduation, 58% ofcomputing/IT graduates were in full-time work, 7% were in part-time work and 6% combined work and study.

However, the research also shows that11% were assumed to be unemployed. Of those in full-time employment, only 45%were working in the information technologysector and 11% were working incommercial, industrial, engineering or public sector organisations.

One aspect highlighted for this reportshows that, of the 58% of IT graduatesfinding employment in 2006, only 42%(rounded) enter the IT profession.

ALL THIS DURING A TIME WHEN THE IT INDUSTRY IS IN ECONOMIC RECOVERY

A press report58 that referenced theProspects research revealed that the level of students applying to studycomputer science has halved in five years,leaving the sector short of the 150,000new entries needed by businesses.

This data reveals a paradox, why isemployment amongst IT graduatescomparatively low at a time when demandfor IT graduates is rising, and their skillsare apparently in huge demand? In orderto try to understand the employmentstatistics it is necessary to look at some further research.

Research by FDM59 Group revealed the disparity that exists in the minds ofgraduates that the skills taught to themby university courses were outdated.

WHERE THE REMUNERATION ISHIGH – BUT THE ENTRANTS TO IT CAREERS LOW

The subject areas of Mathematics &Computing and Medicine and relatedsubjects have two of the highest averageannual earnings for both men and women.59

This finding is corroborated by researchundertaken by PricewaterhouseCooperswhich show that a graduate in Maths orComputer Science can expect to earn,over his/her lifetime, £241,749 more than someone with two A-levels. So thosegraduates who go into the IT industry canexpect to receive higher than averageearnings throughout their careers.60

Figure 10:Types of Work Graduates in UK EmploymentSource: Prospects

Unknown Occupations

Other Occupations

Retail, Catering,Waiting and Bar Staff

Other Clerical andSecretarial Occupations

Numerical Clerksand Cashiers

Other Professionals, AssociateProfessional and Technical Occupations

Social andWelfare Professionals

Legal Professionals

Arts, Design, Culture, Mediaand Sports Professionals

Information TechnologyProfessionals

Business and Financial Professionalsand Associate Professionals

Education Professionals

Health Professionals andAssociate Professionals

Engineering Professionals

Scientific Research, Analysis andDevelopment Professionals

Commercial, Industrial andPublic Sector Managers

Marketing, Sales andAdvertising Professionals

0.1%

9.0%

7.7%

8.2%

2.2%

2.5%

0.6%

0.1%

4.3%

42.4%

6.3%

2.2%

0.1%

1.7%

0.1%

9.6%

2.9%

58 Computer Weekly (17 July 2006) citing research – Prospects final destination survey

59 DfES The Supply and Demand for Science,Technology, Engineering andMathematics Skills in the UK Economy Department for Education andSkills Research Report RR775

60 The Times Feb 7th 2007

54 UPDATING COMPUTING EDUCATION

The nature of IT has changed in recenttimes with significant numbers of graduatesentering roles such as business analysis,consultancy and project management.Research by the analyst group Gartner,reported in the Sunday Times and referencedby Prospects, has revealed that soundbusiness acumen is just as essential to such roles as technical ability.

Research related to the production of this report61 has begun to examine someof the deeper issues and is raising somequestions including:

• How much do key influencers, such asparents and teachers, affect the choicesstudents make?

• Is it the case that those influencers have a different opinion of the careerprospects in the IT sector?

• Did the dotcom boom-bust create anegative perception of the stability of a career in the software/IT sectors for key influencers?

The pre-university student is very wellinformed and is in essence a sophisticatedconsumer, one who is able to determine agood opportunity from a bad opportunity.62

This is view borne out by e-skills UK,which is an employer-led, not for profitorganisation, licensed by Government as the Sector Skills Council for IT and Telecoms.

Tilly Travers from the e-skills UKorganisation said: “In a global knowledge-driven economy, IT professionals need to be numerate, literate, business and customer-oriented people whounderstand how to make the most oftechnology to transform the way we work and live. This requires a deep andsophisticated blend of business, technical,project management and personal skills –developed through a varied and balanced education.”

Research shows that employers arelooking for business-oriented technologygraduates with the ability to demonstrateproblem solving, project management,team-working and communications skills.63

THE ITMB DEGREE AND THE WORKPLACE

The need for these combined skills hasled to the development of the informationtechnology management for business(ITMB)64 degree by e-skills UK which hashad some limited success in recruitingstudents or licensing the course itself.Initial indications in March 2007 showthat more universities are considering the ITMB degree as an option to aid with recruitment or indeed to offer as a benefit to their students.


Figure 11:Projected employment in STEM occupations in 2014Source: Science, Engineering and Technology Skills in the UK (DTI March 2006) based on SSDA Working Futures

61 Research – City University – M. Bowkis 2007; www.dialogic.co.uk62 Dialogic Consulting, September 2006; interim report for Anglia Ruskin

University, School of Applied Sciences on the changes to undergraduaterecruitment markets in the Eastern Region.

63 e-skills UK – T. Travers, 200764 e-skills UK, ITMB degree: http://www.e-skills.com/

cgi-bin/go.pl/itmb/itmb.html

Science andTechnologyProfessionals

(SOC code 21)

HealthProfessionals

(SOC code 22)

Science andTechnologyAssociateProfessionals

(SOC code 31)

HealthAssociateProfessionals

(SOC code 32)

All otheroccupations

(All other SOC)

2004(baseline)

947,000 277,000 593,000 1,045,000 26,449,000

2014(forecast)

1,121,000 360,000 666,000 1,122,000 27,314,000

Change(%)

18% 12% 30% 7% 4%

55


The ITMB degree and courses from highereducation institutions (HEIs) such as City,Brunel and other universities givebusiness skills, project management and personal skills as much prominenceas technical skills.

The ITMB degree includes some interestingconcepts and, in addition to traditionallectures and tutorials, the degree courseincludes a programme of employerinvolvement that keeps students up-to-date with topical issues in IT. For example,representatives from business regularlyshare their experiences and vision in theform of ‘guru’ or ‘leading-light’ lectures.

The courses also feature ‘real life’ groupprojects during which students work with IT professionals on authenticbusiness challenges. ITMB students are expected to undertake at least one extended business placement, and these are often hosted by one of the supporting companies.

PROFESSIONAL PERSONALSKILLS DEVELOPMENT

As the population ages and new talentbecomes less available, employers andemployees will need to re-skill or up-skillexisting talent. The need for continualprofessional development was highlightedin the Government’s recent report onskills and education.33 The Leitch Reportargued that in order for people to progressin the modern labour market, it is criticalthat they are able to update their skills.

This report goes on to recommend thatthe UK should aim to have 40% of itsadult population educated to a high level(level 4 or 5 – degree and postgraduate).By changing educational targets andoffering incentives to HEIs to workclosely with industry, the aim is to enableadults to continually invest in updatingand developing their skills.

The report argues for “a culture of learningto be fully embedded across society.” This cultural change will take time but the forecast is one of huge economicbenefits for the country as a whole “The prize means more economicprosperity and increased social justice. It would deliver a possible net benefit of at least £80 billion over 30 years, an annual average of £2.5 billion.”33

The discussion so far neglects an importantsource of HE provision for the IT industry:masters graduates. UK universities in2004/5 admitted 7,070 full-time and1,460 part-time taught masters studentsin computing.65 In recent years this hasremained broadly stable.

Postgraduate provision plays twoimportant roles. First, it allows establishedIT professionals to upgrade their knowledgeand skills, which given the move to higher-level skills will be essential if we are notto lose existing talent. Second, it providesa route for non-IT graduates to enter the profession; these graduates oftenhave complementary skills that enrich the IT profession. It may be the case that these students are more responsiveto recruitment efforts. The lead-time is also shorter for masters study – one year – allowing a faster response to skills shortages in the industry.

WHAT WILL FORCE A HIGHERUPTAKE FOR PROFESSIONALDEVELOPMENT?

There is already recognition of theproblems facing the industry and awillingness on the part of many universitydepartments to work more closely withindustry. Examples include the CiscoDevelopment programme and theMicrosoft university programmes. These allow students to learn the ITfundamentals using state of the artequipment and software in a practical way at the same time as working towards their academic qualification.

Mike Smith, Principal Lecturer and Ciscoco-ordinator at Anglia Ruskin University,said: “Anglia Ruskin’s main educationalcollaboration with Cisco Systems is throughthe Cisco Networking Academy Program(CNAP). The CNAP is a comprehensive e-learning program that provides studentswith the internet technology skills essentialin a global economy.”

According to Smith, the benefits to Angliaare numerous, but the key benefits are:curriculum enhancement, external profileindustry certification, external income and research.

“In a global knowledge-driven economy, ITprofessionals need to be numerate, literate, business and customer-oriented people whounderstand how to make the most of technology to transform the way we work and live.”TILLY TRAVERS, E-SKILLS UK

33 Towards 2020 Science – Microsoft Research UK 2006http://research.microsoft.com/towards2020science/background_overview.htm

65 Source: Higher Education Statistics Agency (HESA)

56

There is a gender gap in the IT industry as a whole and in the softwaredevelopment industry in particular.Currently, only one in five of the UK’s IT workforce is female and only 17% of those undertaking IT-related degreecourses are women. In Scotland, only15% of the IT workforce is female. Given the industry’s need for high levelskills it cannot afford to overlook largesectors of the workforce and so it isessential to do more to encourage women into the industry.

Young women from all walks of life are now, more than ever before, engagingwith the use of computer technology as a means of communication. The assertionthat women are not as good at ComputerScience is untrue.66

In the USA, the Carnegie MellonWomen@SCS Action Plan67 has hadsome success in increasing the entry and retention numbers from 7% to 38%between 1995 and 1999. It would beappropriate for a similar initiative to beestablished in the UK, so that the smallnumber of women currently recruited to CS degree programmes can gain the support of a larger group across the country.

The CC4G programme, has more than70,000 girls in over 2,400 schools, hasbeen developed for girls in response to thegender imbalance within the IT industry.

The programme has been developed as a response to an e-skills UK strategicobjective in order to improve theattractiveness of technology careers, sothat they appeal to the quality, quantityand diversity of recruits the industry needs.

IMMIGRATION

One method of alleviating the skillsshortage in the software development and IT industry as a whole is to encourageskilled workers from overseas to work in the UK. Net migration to the UK was185,000 in 2005.68 The latest estimatesshow that around 510,000 people fromthe A8 accession countries have registeredto work in the UK since May 2004.Migration generally has a positive effect,helping to mitigate skills shortages and fill jobs.

Between 2001 and 2004, some 110,000work permits were issued in total for IToccupations, representing no less than20% of the total work permits issued for all occupations, despite the fact that IT occupations represent only 3.5% of the workforce.

Although immigration alleviates the problem,it treats the symptoms not the illness.Britain needs to invest in developing the skills of the UK to ensure the futureability to compete across the IT sectorand the whole economy.

SECONDARY EDUCATION

COMPUTING – THE IMAGE IN SCHOOLS

There is evidence to suggest that theproblems relating to the shortage ofpeople entering the IT industry starts at or during Key Stage 2 in the education system.

The current schools ICT curriculum is out of step with the ‘New Media World’,where content blurred across TV, internet and mobile communications. This is compounded by the fact that ICTteaching to 16 years of age is all aboutgaining skills in computer software use.

Peter McOwan from Queen Mary,University of London said: “Young peopleare fighting hard to create the content forTV, but what about the content for PCs,software? Software engineers havefulfilling well-paid and successful careersand their work can really change society.But students see this world as filled with problematic stereotypes, career dead ends and dull office work. Changing the perception of the industry is a fundamental requirement to attractingmore individuals into an IT career.”

There is an economic justification for supporting this effort. The creativeeconomy, which relies on software, hasbeen predicted to grow to 10% of GDPper annum by 2010.40

THE ICT CURRICULUM NEEDS RADICAL REFORM

Within state secondary schools, ICT istaught as part of the National Curriculumbut has not kept up with the technologicaldevelopments within the industry. Therefore,many students see it as increasinglyirrelevant and unattractive.


40 Ongoing work towards the UK Government Green Paper on the Creative Economy

66 Fisher A, Margolis J, and Miller E. “Undergraduate Women in Computer Science: Experience, motivation and culture” ACM SIDCSE Technical Symposium

67 Carol Frieze, “Building an Effective Computer Science Organisation: The Carnegie Mellon Women @SCS Action Plan”, Inroads SIGCSEBulletin Women in Computing: vol34. No2. 2002, June P74-78

68 Leitch Review of Skills . “Prosperity for all in the global economy – worldclass skills” December 2006. HMSO, ISBN-13: 978-0-11-840486-0

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The National Curriculum forces teachersinto prescriptive teaching. Many now findthemselves in a situation where they areforced to teach many areas of ICT whichare increasingly irrelevant, and yet neglectnew emerging areas such as digital videoproduction, animation, music sequencingand digital image editing.

Many analysts and education specialistshave concluded that the teaching of ICTfrom Key Stage 2 onwards is in need of a thorough overhaul and some recognitionis given to the belief that the national Key Stage 3 online test would only have exacerbated the problems facedwithin schools.

The ICT test was designed at anestimated cost of around £25 million to measure attainment in practical ICTskills at 14 years. It has been pilotedannually since 2004, and was due to bestatutory from 2008. Some analysts saythat the recent announcement that thetest will not be run and withdrawnsignified a u-turn in policy.

This report has made it is clear that the issues facing the lead into HE fromSTEM subjects and Computing withinschools are felt in the HE sector; thedirect result has been the decline inapplications from the high point in 2003/4.

ICT IN THE NATIONAL CURRICULUMIS NOT COMPUTING

The significant issue regarding teachingComputing in schools is the skewed focuswithin the curriculum on computer and‘software use’. With no GCSE in Computingor Computer Science as part of theNational Curriculum (only the GCSE in ICT;which is not about the subject ofcomputing) learning to use a computerand learning Computer Science becomeindistinguishable as far as students areconcerned. The skew in emphasis has a direct bearing on a students’ view of the IT industry; one that results in manynegative perceptions.

With many families having greater accessto computing technology, children areobtaining computing and ‘software use’skills far earlier and often at home. In addition many Primary schools are providing good ICT use skills, oftendelivered in quite interesting ways.

The problems start to manifest themselvesat Key Stage 2, here the ICT curriculum is outdated and in some instances thedelivery is a repetition of previous work.

Whilst it is recognised that gainingcomputer and ‘software use’ skills isessential for entry into the work-placethere is also a need to provide an educationoption for Computing or Computer Scienceat GCSE within the National Curriculum.The current policy and thinking is onlyserving to de-motivate children that seeICT teaching as outdated and boring andtheir tendency is to extrapolate this tofurther study in Computing and indeedComputing as a career option.

More emphasis needs to be given to the contribution that technology makes in creating and sustaining the moderneconomy.69 To enter higher education,students need to understand somethingabout ICT in the same way as they needto be able understand some mathematicsor to write an essay.

“Young women from all walks of life are now, more than ever before, engaging with the use ofcomputer technology as a means of communication.The assertion that women are not as good atComputer Science is untrue.”FISHER A, MARGOLIS J, AND MILLER E.UNDERGRADUATE WOMEN IN COMPUTER SCIENCE:EXPERIENCE, MOTIVATION AND CULTURE.ACM SIDCSE TECHNICAL SYMPOSIUM

69 “Ensuring the right conditions for an innovative, inclusive and competitive UK Knowledge Economy”, DTI, Information Age Partnership,i2010 Working Group report, 9th May 2007

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RECOMMENDATIONS:

• More research needs to be undertakeninto verification of the detail regardingthe break points in the skills andeducation agenda for the UK withregard to IT and the software industry.This should be action oriented, withmeasurable outcomes.

• Large software companies should beencouraged to develop and enhancetheir existing education programmes for individuals, schools and HEIs withthe support and backing from CentralGovernment.

• Initial pilot studies must be conducted to devise the best support networks andstrategies that bring together industryand academia with the support of theGovernment for a radical reform of ICTteaching across the Key Stages 2 and 3 through GCSE and A-level touniversity entry.

• Industry and academia should develop a system of mentoring and supporting a continued education programme for school teachers for the subject of Computing.

• Implementation policies for taking the recommendations of the LeitchReport forward for Computing should be devised in concert with industry and academia and not in isolation from Central Government.

• Innovative programmes of continualprofessional development from industryneed to be further developed andintegrated into the workplace to facilitatethe notion of ‘cradle to grave’ education.

• Government needs to examine andprovide the incentives that might berequired for the SME sector to ensurethat businesses can afford to provide the skills and education packagesrequired to develop staff capability and productivity.

• Industry should work proactively with the HEIs to develop suitable educationand training packages for SMEs thatwould provide relevant education whilst simultaneously offering a meansfor connecting industry and academiatogether in a meaningful way.

• e-skills UK should re-evaluate thebusiness licensing model for the ITMBdegree so that it is attractive to HEIs,rather than a financial disincentive as it is at present.

• Academia should examine undergraduateand postgraduate provision and provideflexible mechanisms to ensure coursesare easily updated without over-burdensome and slow internalaccreditation processes.


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SUMMARY

Research shows that the skills required bythe IT and software development industryare changing, and the growing KnowledgeEconomy in the UK and overseas is also demanding employees with a similar range of skills to those required by the IT industry.

While prospects look good for new entrantsto the IT industry, research shows thatmany IT graduates are not entering theindustry itself, but are gaining employmentin other sectors. The stark figures are that in 2005 only 42% of IT graduates in employment worked within the IT sector(within 6 months of graduating), only 4,829graduates out of a total population of 15,930.

IT graduates are now in demand acrossthe whole Knowledge Economy and notjust within the IT sector, so competition to recruit employees with professionalbusiness and technical knowledge is fierce.As the IT sector grows, the existing skillsshortfall of IT professionals will becomemore acute.

The report shows that there are ways in which the industry can work to supportthe development of the skills that itrequires. Undergraduate student numbersare not falling as disastrously aspredicted, and in fact there are areas ofrecruitment which see signs of growth. It is vital that the IT industry is proactive in working closely in partnership withacademia to develop courses andprogrammes of study which offer students the chance to developappropriate professional skills and find relevant subsequent employment.

Where these partnerships have been developed the report shows thatrecruitment and subsequent employmentfor students is high.

Changes to the future demography of the country will mean that we need todevelop a range of strategies to ensuremore students are equipped with theskills needed for the industry; these will have to address an increasingly ageing population as well as a reductionin birth rate.

IT has an accelerated development profile when compared to other sectors.New technology is produced at a cycle of approximately 18 months. Degrees onthe other hand can take between one and two years to develop and accredit;with a delivery time of three years, theoutputs from the HE sector are typically 4-5 years out of date by the time the first cohort has graduated. Unfortunatelysome degrees in HEIs have not beenradically overhauled since their creationand are in fact much more dated that this figure suggests.

IT graduates are now in demand across the whole KnowledgeEconomy and not justwithin the IT sector, so competition to recruit employees with professionalbusiness and technicalknowledge is fierce.

61the future

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The business world is about to go through a major shift from centres of excellence tonetworks of excellence.

Five years ago, we still lived in a world wherethe best way to ensure competitive advantagewas by centralising investment and resourcesin a way that still happens in sectors such as the pharmaceutical industry. For example,about five years ago, when I was at the BBC,we signed a three-year contract with the MITMedia Lab in Dublin, giving the BBC accessto MIT’s research and ideas. But it was alreadybecoming obvious that this sought-afterknowledge had already escaped the narrowconfines of any single research institution. The writing was on the wall, or rather on theweb, as even then researchers at that levelwere posting blogs on the internet discussingthe latest concepts.

Therefore, about three years ago, TomLoosemore and I developed an open innovationstrategy for new media. This was in recognitionof the amount of informal projects we wereseeing out there that used BBC content as a base. As a result of this, we started a seriesof experiments. The first lesson we learnedabout running open innovation projects of thisnature is that once you’ve opened the door,you can’t close it again afterwards.

It might seem obvious, but the world outsideyour organisation isn’t one homogenous blob.The web is just a small sub-sector of this world,and that, in turn, isn’t one homogenous blobeither. It’s easy to just stick an invite for ideasonline, but it’s a pretty crude way of starting aconversation, and leaves you open to gettingcrude responses back.

We identified a few generic communities that we wanted to build conversations with –Corporate Peers, Academics, Indies and LeadUsers – and tried to think about the dynamicsof each community. The projects we designedwere very different as a result.

As with any information gathering process,listening is a crucial skill. By engaging andsupporting a community of interesteddevelopers, we found out about trends withinthe industry. When handling independents, it pays to ask strategic questions and do half-day sessions to establish what we want from proposals, so that people aren’tpitching into a vacuum.

The internet may enable your organisation toreach everyone, but it is important to rememberthat not all the people who might have goodideas for your company are the same. A strategy for starting different kinds ofconversation about innovation with differentcommunities is crucial. Does a group you want to reach already have existingmailing lists, meetings, social media sites? Do they prefer to be approached via email? Blog posts? Conferences?

This new way of building a network ofexcellence is not just some empty hippieliberation rhetoric, it is a crucial element in increasing the speed of bringing products to market. Security is also a central consideration. Most projects have elements that are public and in full view, and some that are private. For example, many entrepreneurs areunderstandably wary of submitting ideas to an open forum. It is important thatparticipants retain all the intellectual property (IP) on their ideas as this also encourages open discussion.

Far better to not try and own the IP, and instead encourage a collaborativeconversation about how you can makesomething actually happen. To do that, you need people to drop their defences and actually trust you not to rip them off. Keep the lawyers to one side until you’ve got something that you can actually build.

At the BBC, we ran workshops where weasked the participants to sign a contract thatsaid they owned all the IP on the ideas theydevelop over the five-day workshop. But wealso asked for a 90-day ‘first look’ clause that means they could only talk to us aboutdeveloping it for that period after the end ofthe Lab. After that, or if we decided earlier that we were not interested, the team werefree to take their idea anywhere else.

The last thing to remember is that OpenInnovation is an evolving process. The speed of this evolution is likely to increase sharplywithin the next few years as the so-called‘MySpace’ generation start to enter theworkplace. Just as previous generations ofteenagers defined themselves through cars,record album covers and, most recently, mobilephones and music players, today’s teens areusing social networking to establish theiridentities. In doing so, they are forming lifetimehabits that will soon spread to the workplace.

Used to communicating and planning togetheronline in gaming as well as on social networkingsites such as FaceBook and MySpace, youngerpeople will expect to develop projects in asimilar way when they enter the business world in a few short years time.

Matt Locke, www.test.org.uk, former head of innovation BBC New Media.

How Today’s Teenage Kicks Will Turn IntoTomorrow’s Best Business PracticesBY M AT T LO C K E

“Just as previous generations of teenagers definedthemselves through cars, record album covers and,most recently, mobile phones and music players,today’s teens are using social networking to establish their identities.”MATT LOCKE, FORMER HEAD OF INNOVATION, BBC NEW MEDIA

63

The future of softwarebased technologies istransformational withmassive potential to drive significant growthand prosperity in the UK economy.

FuturesE M E R G I N G T E C H N O LO G I E S

We are entering a new age wherecomputing and software technology start to fulfil the vision of the greatscience visionaries such as Arthur CClarke70 and Isaac Asimov, with newadvances pushing the boundaries ofhuman knowledge. Much of what seemedimpossible or even improbable only 10 years ago is now a reality.

In the recent report ‘Towards 2020Science’,33 an international expert groupwas brought together to produce a newvision and roadmap of the evolution,

challenges and potential of computerscience and computing in scientificresearch in the next 15 years.

With new discoveries comes complexityand we are generating vast amounts of information or data plus the need toanalyse or process data, more rapidly than before is what differentiates the new scientific discovery process fromprevious generations. Both in science and business, the need to analyse andoperate huge data stores in near real-time is essential for success.


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Most drugs that are developed today arein fact discovered. Very few are actuallydesigned or specifically synthesised. But what if we could design smallmolecules to switch genes on or off at will, to stimulate the production ofproteins or reduce them, to control the mechanisms of our biologicalprocesses directly?

Some recent research, currently beingvalidated by many independent groupsaround the world, has stumbled across an unexpected mechanism that might be used to switch on genes. In order to do this, small fragments of biologicalmolecules called RNA (specifically RNAi)can be designed to locate specificsections of the human genome, acting as switches that operate at the source of protein production. These moleculescan be designed to locate and act as aswitch to the gene that might, for example,be an anti-cancer gene.

To locate the regions on the genes and to determine where these bio-molecules(RNAi) attach themselves, or indeed tounderstand if there is only one specificplace that the molecules do act asswitches, researchers need to trawlthrough the entire humane genome,looking for exact pattern matches. They need to interrogate the genomedatabase repeatedly, demanding answersrapidly, modifying their molecular designs,undertaking additional experiments and asking additional questions.

This process of interrogation requiresdealing with complexity and speed, utilisingnew computing technology to provide themeans for answering questions rapidly, for undertaking searches and refining theideas prior to any physical experimentsbeing carried out. Without this newcomputing technology it would not befeasible to ask the questions, to searchfor the sections on the human genomeand to rapidly redesign experiments.

33 Towards 2020 Science – Microsoft Research UK 2006http://research.microsoft.com/towards2020science/background_overview.htm

70 The Arthur C Clarke Foundation – see www.clarkefoundation.org

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There are experiments now generatingvast quantities of data: the projects at the Sanger Institute near Cambridge, UK, store over 150 terabytes of genomicdata and clusters of computers totalling2.5 teraflops of processing power. The problem is not one of obtaining data,but one of processing such vast quantitiesof information rapidly. How can billions ofdata items be searched and manipulatedin an acceptable time-period?

The answer to this question lies in novelcomputer architectures that are vastlydifferent from traditional computers. For example, we are using networks ofordinary computers to develop ever moresophisticated parallel and grid systems totry and accelerate our scientific discoveryprocess. Many of these are being usednow on climate prediction models andmedical research.

INDUSTRIAL R&D AND PURERESEARCH

Research into new computing technologiescan be divided into two equally importantcategories: industry based research andpure research. The former, industry led, is typically geared towards advancement ofproducts and services (often termed R&D)to develop new, usable technologies that can transform our lives in societyimmediately or in the near future.

The second, pure research, is unfetteredexploration into sciences that couldradically transform human knowledge orunderstanding; all of which may have noimmediate financial return. Like previousresearch in physics and electronics thatled to the development of the transistorand ultimately the modern computer, much of today’s computing research couldchange our lives drastically in the future,in twenty, fifty or a hundred years from now.

Both aspects of research are equallyimportant and Government investmentand support for each is required if we areto accelerate the development of usable

research that will drive society forward(see sections on Innovation & Educationfor specific recommendations and alsothe initial introduction that provides thedata on the contribution to UK GDP).

EMERGING TECHNOLOGIES

Web Services are operations that usersaccess via the internet through a well-defined interface, independent of wherethe service is executed. It is estimatedthat worldwide spending on web services-based software projects will reach $11billion by 2008, compared to $1.1 billionin 2003;71 a growth factor of 10 over afive-year period. The conclusion we drawhere, is that the financial future for servicebased software technologies is massive.

For most of the 20th century, computingpower was driven by Moore’s law – as the number of transistors on a chipdoubled more-or-less every 18 monthsthis was translated into a doubling ofcomputational throughput, producingfaster machines more capable from onegeneration to the next. Now, in 2007 it is becoming clear that such growth hasphysical limitations.

But although individual computers may not get much faster, we will see the development of parallel computers,with multiple processing elements on onepiece of silicon or within one integratedcircuit package (what is termed multi-corecomputer architectures). Many of the newtypes of machine are now on the shelvesready to buy today. Typically they containtwo to four computing cores, but in future we will see the next generation of computers delivering many orders ofmagnitude more processing power thanwe have seen to date. Multi-core machineswill be the norm within the next twelvemonths. From a programming point ofview this will require a paradigm shift awayfrom the current sequential approaches to software design to one that exploits a parallel approach to computation.

“Bringing togetheradvances in datamanagement, analysis,knowledge discovery and visualisation couldchange the way in which some science is carried out.”ANDREW HERBERT,MANAGING DIRECTOR OF MICROSOFTRESEARCH, UK. MICROSOFTDISTINGUISHED ENGINEER

71 Leavitt N., 2004, ‘Are Web Services Ready to Deliver?’. IEEE Computer, 37(11), 14-18

From the new Web 2.0 systems thecurrent web service enables towards thenext generation, including the semanticweb, we shall see an increase in thedevelopment and use of peer-to-peercomputing, enabling the construction of distributed systems without anycentralised control or hierarchicalorganisation. These will scale up to large systems and use the fact that there are multiple machines, cooperatingwith one another, to build in fault tolerance.Should one or even several machines beremoved from the network (or indeed fail completely) the system will adapt tothe event and continue to operate as ifnothing had occurred.

This technology will be integrated into the new mixed or multi-media computingand communications channels that arejust emerging.72 Rapid advances indistributing video on demand, integratingvoice with other forms of interaction and communication to provide novel and exciting interactive experiences in entertainment are among some of the latest ideas that will use thesetechnologies.

We are also witnessing the emergence of haptic devices, that allow sensoryfeedback to the human from the computer,in areas such as surgery. This newtechnology allows surgeons to practicehigh risk surgical procedures in a virtualworld. Operating on a brain, learningthe procedures and techniques in a virtual world with sensory feedback to the hands holding the scalpel emulateswhat would be experienced when operatingon a patient.

Within the next few years, such hapticdevices will find their way into multi-mediasystems, games technology and sportstraining systems.

REVOLUTION IN SCIENTIFICINVESTIGATION

A revolution is taking place in the scientificmethod of: “hypothesise, design and runthe experiment and then subsequentlyanalyse the results” – in some instancesthis is being replaced by “hypothesise and look up answer in a database,” says Andrew Herbert, Managing Directorof Microsoft Research in the UK. Herbertadds: “Databases are an essential part ofthe infrastructure of science: they maycontain raw data, results of analyses orsimulations or the results of theorganisation of data.”

A major issue is the distribution of data. It has long been known that it is expensiveor impossible to move large amounts of data. Traditionally, queries have beenoptimised for small numbers of databases,but how do we optimise queries for say anetwork of several million environmentalsensors or massive amounts of onlineinformation? How do we explore the datafrom the Human Genome Project or theLHC particle accelerator at CERN, theEuropean organisation for nuclear research?

Herbert says: “Attempting to solve theproblems of scientific management by building large centralised archivalrepositories is both dangerous andunworkable. New distributed data sourcesare required and these in turn presenttheir own challenges.”

Today much of this scientific processing isdone using home-brew software or simplespreadsheets. There is a tremendousopportunity to exploit Online AnalyticalProcessing (OLAP) add-ons to moderndatabase engines. These allow for theconstruction of ‘data cubes’ serving as replicas of pre-computed, multi-dimensional aggregations of information.These facilitate data analysis frommultiple perspectives.

Bringing together advances in datamanagement, analysis, knowledge discoveryand visualisation could change the way in which some science is carried out.Herbert goes on to say that “such changesempower the individual scientist; we canenvisage a truly smart (electronic) labnotebook. Such a device would unlockaccess to data and make it extremelyeasy to analyse, discover, visualise andpublish new phenomena.”

INTELLIGENT SCIENTIFIC ANDBUSINESS COMMUNICATION

The worldwide web was invented forpublishing and communication. In future,information will be transformed forvisualisation for an individual, determinedby personal preferences. Online pages will be generated at the moment they are requested allowing customisationaccording to a particular time and place.The reader’s access device could be asmart phone, electronic paper, a personalcomputer or richly equipped collaborationenvironment.

Computational approaches to systemsbiology may also help address thechallenge of finding sustainable forms of energy, for example from bio-energycrops with near carbon neutrality if grown,harvested and converted efficiently with predictable performance.


66

72 See www.skinkers.com for an example of current sophisticated peer-to-peer solutions

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Understanding the large-scale structureof the universe requires that data fromsurveys are compared to models whichpredict the distribution of galaxies. There is great potential for tools thatsteer computation, fit models andautomate data analysis to improve our knowledge of the universe.

RECOMMENDATIONS:

• A curriculum review of teachingcomputing and ICT in schools is required.We need to find ways to inspire youngpeople in computing in order to generatenew recruits into the industry.

• The IT sector needs to communicatetechnological developments and theirimplications to the youth sector inparticular in an attempt to generateinterest and enthusiasm.

• The Government needs to radicallyreview computing skills with a view to future requirements.

• The development elite within the ITsector and those who truly understandthe scientific basis of emergingtechnologies need to collaborate in orderto advise and guide on the developmentof the skills agenda for the growingcomputing sector. It is not reasonable to expect those who do not understandthe fundamental technology within thesector and how it can be applied anddeveloped to be able to forecast anddevelop a skills and educationprogramme which will feed through to the sector in the future.

SUMMARY

The 21st century presents some of themost important questions, challenges andopportunities in human history. Some have solutions in scientific advance (eg. health). Others require political or economic solutions (eg. poverty). Some require significant scientificadvance in order to provide the evidencenecessary to make economic and politicaldecisions (eg. our environment).

Computing is changing the way we workand live enabling new discoveries in almostevery field of knowledge, creating massiveopportunities for global collaboration, and at the core of most business practicesand operations. The future of softwarebased technologies is transformational with massive potential to drive significantgrowth and prosperity in the UK economy.

The impact of Web 2.0 on the way thatcompanies sell goods and services to the public will be even greater than thechanges already wrought in sectors such as travel and entertainment. The convergence of computing andtelecoms will continue to allow consumersincreasingly to determine the nature ofthe products and services on offer.

The views and opinions contained in this report are the authors’ own and, except where indicated otherwise, do not necessarily reflect orrepresent those of Microsoft Corporation or its affiliates. Reference in the report to any products or services, other than those of MicrosoftCorporation, shall not constitute or imply any endorsement by Microsoft Corporation or its affiliates. While Microsoft Corporation has madereasonable efforts to ensure that the content of the report is accurate, Microsoft Corporation and its affiliates cannot assume legal liabilityfor any errors or omissions and exclude all such liability to the fullest extent permitted by law.© 2007 Microsoft Corporation and its licensors. All rights reserved.

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