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Information TechnologyEconomic Development

Craig Moore

The University of Massachusetts

Donahue Institute

The New Foundation

U N I V E R S I T Y O F M A S S A C H U S E T T S

Amherst Boston Dartmouth Lowell Worcester

Information TechnologyThe New Foundation

Craig Moore

The University of Massachusetts

Donahue Institute

ii Information Technology — The New Foundation

Many thanks to Steven Landau,

Carolyn Dash Mailler, Rebecca Loveland,

and Chad Cook of the Massachusetts

Benchmarks Project for their research

and editorial assistance with this

project. Special thanks to Stephen Levy,

President of Kaon Interactive, for sharing

his insights; Richard DeKaser, senior

economist at BankBoston, for his helpful

comments; and Greg Sheldon, of

Sheldon Collaborative, Inc., for his

energy and ideas.

Additional thanks to Tom Chmura for his

continuing support and encouragement,

to Lynn Griesemer and her staff at the

Donahue Institute, and to Bob

Nakosteen, my friend and colleague in

the Isenberg School of Management,

who is always there when I need

his advice.

Last, but certainly not least, thanks to the

members of the Massachusetts

Telecommunications Council, who have

supported my work over the past several

years and honored me at this year’s

awards dinner.

Copyright 1999 by the University ofMassachusetts Donahue InstituteThe contents of this publication may bereproduced only with permission of the author.

Cover illustration: Naomi Shea

iiiThe Donahue Institute

Contents

The New Foundation . . . . . . . . . . . . . . . . . . . . . . 1

The Massachusetts Economy . . . . . . . . . . . . . . . . . . 2

Defining the Information Technology Cluster . . . . . . . . . . 3

The Relative Size and Composition

of the Information Technology Sector . . . . . . . . . . . . . 3

An Overall Leader in Employment Growth . . . . . . . . . . . 4

Software . . . . . . . . . . . . . . . . . . . . . . . . 5

Systems Integration . . . . . . . . . . . . . . . . . . 5

Equipment Manufacturing . . . . . . . . . . . . . . 6

State and National Growth in Information Technology . . . . . 6

Regional Aspects of the Information Technology Sector . . . . . 8

Greater Boston Region . . . . . . . . . . . . . . . . . 9

Northeast Region . . . . . . . . . . . . . . . . . . . 9

Central Region . . . . . . . . . . . . . . . . . . . . 10

Southeast Region . . . . . . . . . . . . . . . . . . . 10

Cape Cod Region . . . . . . . . . . . . . . . . . . . 11

Pioneer Valley Region . . . . . . . . . . . . . . . . . 11

Berkshire Region . . . . . . . . . . . . . . . . . . . 12

General Regional Patterns . . . . . . . . . . . . . . . 13

Challenges and Opportunities . . . . . . . . . . . . . . . . . 13

Technical Education and Training . . . . . . . . . . . . 14

Telecommunications Infrastructure . . . . . . . . . . . 14

Other Factors . . . . . . . . . . . . . . . . . . . . . 15

1The Donahue Institute

has been characterized by mas-sive public investment. We spend hundreds of billions of dollars eachyear expanding and improving networks of railroads, canals, highwaysand bridges, pipelines, airports and public utilities. No one has to lookbeyond the central artery in Boston to grasp the scope of this phenom-enon. We depend on these vital links to communicate, govern andtrade. While moving products from the farm or factory to the markethas always been the lifeblood of economic growth, moving informa-tion, money, and ideas has become essential to successfully competein the modern global economy.

We are spending an increasingly large portion of our incomes on ser-vices rather than products. Most of these services involve information,our appetite for which is growing at a geometric rate. The developmentof computers and high-speed digital telecommunications has made itpossible to tap into a vast worldwide reservoir of knowledge in secondsand to gather new information about events almost as they happen.

The Commonwealth is a world leader in the innovation and entrepre-neurship that drive this industry; much of the technology at the heart ofthe information age — including the Internet — originated here. Oureconomy has shifted away from defense research and production tocomputer networks, software, and telecommunications. The economicrecovery of the early 1990s was driven largely by the information tech-nology sector and by service sectors that rely heavily on IT, such asfinancial management, health care and education. The future clearlyrests with the expansion of information-based activities.

OUR NATION’S DEVELOPMENT

The New Foundationn

2 Information Technology — The New Foundation

The MassachusettsEconomy

The Massachusetts economy, like the nationaleconomy, continues to shift away from its his-torical reliance on manufacturing to become acenter of business and other services. This isan important backdrop against which we canview the rapid growth in the information tech-nology sector. As Figure 1 illustrates, manu-facturing in the Bay State accounts for lessthan 14 percent of employment, while the ser-vice sector has grown to over 37 percent.When finance, insurance and real estate(FIRE) is considered, this figure increases tomore than 43 percent.1

Many of the major elements in the servicesector rely on information technology.Financial, medical, educational, and govern-ment services are obvious examples of activi-ties that rely more and more on communica-tion networks, database access, and softwareto function. Advances in information techno-logy have made many of these services moreeffective and supported their rapid expansionover the past decade.

Employment Growth,

1995 to 1998The continued restructuring of the economy isfurther emphasized when one examines thechanges in employment by major sector inMassachusetts during recent years. Thesechanges are shown in Figure 2. While manu-facturing lost more than 24,000 jobs, the ser-vice sector added over 61,000. When includ-ing FIRE, the total climbs to approximately

82,000 new employment opportunities.Transportation and utilities also show stronggrowth as a result of continued capital invest-ment in telephone, cable, and wireless net-works across the state.

The increase in government employment isdue in large measure to increases in local pub-lic school districts responding to education re-form. Efforts to equip our public schools withcomputers, networks, and Internet access isanother key link to the IT sector.

61,897

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Figure 2nn

Massachusetts Employment Growth, Number of Jobs, 1995 to 1998

Construction 3.8%Transportation,

Utilities4.7%

Other 32.2%

Legal 23.4%

Health 18.5%

Business 12.6%Education 13.3%

Services37.1%

Agriculture, Fishing, Mining0.8%Manufacturing

13.7%

Wholesale4.4%

Retail23.6%

Finance, Insurance, Real Estate6.2%

Government5.6%

Figure 1nn

The Massachusetts Economy — Employment in 1998

Defining theInformationTechnology Cluster

Information technology (IT) includes many ele-ments. Starting with information itself as aproduct or service, we can add the communi-cation network over which it is available; thehardware used to send, receive, and transmitit; the software that transforms and managesit; and the technical support to keep it going.While the IT cluster actually includes over 40separate categories of products and services,it is simpler to think of it as hardware, soft-ware, communications services, support ser-vices and integrated systems or networks, asillustrated in Figure 3.

The main components of hardware are com-puter and communications equipment.Software can manage a network, enable youto “chat” with friends over the Internet, andsupport seemingly everything in between.Communications includes wireless techno-logy (radio), local and long distance telephoneservices, cable networks, and other services,such as satellite access. Support services em-ploy a vast army of technicians who do every-thing from installing products to troubleshoot-ing over the telephone. Systems integration(or network technology) links people acrossorganizations with local area networks (LANs)and over larger geographic areas with widearea networks (WANs), as well as in otherways. Companies combine hardware, soft-ware, technical support and consulting ser-vices in integrated product/service bundles.Many firms in the IT sector provide productsor services that are variations on thesethemes, blurring the lines of distinction moreand more all the time.

This analysis of the IT cluster, showing thesize and relative change in employment andsales among its various elements, aggregatesdata provided for firms using the primary stan-dard industrial classification (SIC) code theyreport. The data used are from Dun &

Bradstreet, and have the advantage of beingvery current and including many small compa-nies. Other data sources, while more reliablein some ways, are based on employer taxrecords and miss the many small, non-traditional firms that tend to dominate soft-ware and support services.

The percentage figures from Dun &Bradstreet are very reliable. The employmentfigures are useful, especially when doing com-parisons across time. The sales figures areless reliable, because of double counting byresellers; there is no way to account for addedvalue, as the special census of manufacturingdoes. All in all, the data and descriptions usedprovide a reasonably accurate picture of the ITcluster, the ways it is changing, and how im-portant various elements of it are to thestate’s economy.

The Relative Size andComposition of theInformationTechnology Sector

The IT cluster presently employs approxi-mately 169,000 people in Massachusetts.Figures 4 and 5 compare the composition ofemployment among the major IT sectors inMassachusetts and the United States. Thegreatest share of IT jobs in the state is in man-ufacturing, well above the national figure


CommunicationsComputerHardware

Software

SystemsIntegration

SupportServices

TelephoneWirelessCable

TechnicalSupport

Consulting

CustomProgramming

IntegratedPackages

E-mail

VideoConference

Multimedia

DatabaseGames

Figure 3nn

Information Technology Cluster


shown in Figure 5. Within manufacturing, ap-proximately one-third of the state’s jobs are incomputer hardware, one-quarter in communi-cations equipment, and 20 percent in peripher-als. The balance of employment is in telecom-munications equipment and components.Wire and cable manufacturing comprise a verysmall segment.

Manufacturing, software and integrated sys-tems employment is more concentrated inMassachusetts than in the rest of the country.Our employment in communications mayseem low compared to the nation overall, buton a per capita basis, there is a higher-than-average use of communications services inthe Bay State.

An Overall Leader in Employment Growth

The information technology cluster is impor-tant not only for its absolute size but for itsrate of growth. From 1995 to 1998, IT employ-ment had a net increase of 24.5 percent, or28,783 new jobs. Software accounted for11,216 of these, growing 42.5 percent.Integrated systems companies added 11,386new jobs and grew by 174.5 percent duringthe same period. The expanded demand fortelephone and cable services brought 6,616new jobs, a growth of 58.2 percent in thethree-year period.

On the down side, computer manufacturingslowed, shedding 734 jobs (2.7 percent of itsworkforce). Communications hardware experi-enced an even stronger decline, losing 3,874jobs, or 19.2 percent of its workforce.

Overall, the IT cluster played a key role in employment growth, with software and inte-grated systems being the leading elements.This is important, considering how much ofthis employment growth is linked to sales out-side the region.

There are, conservatively, about 100,000 jobsdirectly tied to equipment manufacturing,software, and systems integration that areprimarily involved in selling their productsoutside of the state. To be sure, some oftheir products are consumed here, but someof the consulting and data services and otherparts of the IT cluster also sell elsewhere.Figure 6 illustrates the concentration of jobsin various sectors that contribute to salesoutside of the state.

IT sales in 1998 were about $47.5 billion, com-prising approximately 13 percent of all sales inthe state economy. Nearly $33.5 billion ofthese were primarily regional exports, an in-crease from $28.8 billion in 1995. Many ITproducts and services tend to have high added

Manufacturing19.6%

Comm. Equip. 21.9%

Peripherals 23.6%

Computers 19.7%

Components 15.8%Tel. Equip. 18.9%

Wholesale9.0%

Communications29.1%

Retail6.0%

Software14.9%

Integrated Systems6.1%

Data Processing12.8%

Construction2.4%

Figure 5nn

Information Technology Employment — United States 1998

Components 8.7%Tele. Equip. 14.6%Peripherals 21.6%

Computers 31.8%

Comm. Equip. 23.3%Manufacturing

26.0%

Communications18.4%Wholesale

8.4%

Retail4.1%

Software22.3%

Integrated Systems10.6%

Data Processing9.2%

Construction1.0%

Figure 4nn

Information Technology Employment — Massachusetts 1998


value, very high short-term profits, and rela-tively short life spans, because of intensecompetition and rapid innovation.

Software

Software firms are typically small and young.There are only four companies with morethan 500 employees in the state; 59 percenthave four or fewer employees. Between one-half and one-third of all software companiesare less than three years old. Sales in 1998were estimated at $5.7 billion dollars, havinggrown by $1.5 billion since 1995. These com-panies are involved in a wide variety of appli-cations, from Internet security to networkmanagement. Some are software integratorsthat specialize in making existing softwarework together in solving complex systemsproblems. Software designers and engineersare in high demand across the nation, whichcreates a bottleneck to continued fast growthin this industry.

While Massachusetts is clearly a nationallyrecognized leader in software development,employment here has not grown as fast as ithas in the nation. This is explained in part bythe Commonwealth’s strength early on. Whilenational growth was 51.5 percent from 1995to 1998, Bay State growth in this sector was42.5 percent. As our talent became employed,it is likely that companies looked elsewherefor late bloomers in the pool. Some firms havecontracted for programming services in Russiaand India, for example, to tap cheap but talent-ed human resources.

States that had little software activity only afew years ago are growing rapidly today.California has been a perennial leader, withmore employment (134,419) and sales ($24.3billion) than any other state. Texas now rankssecond in employment, with 56,778 employ-ees, and third in sales, with $7.8 billion.Massachusetts is third in employment(36,640) and number four in sales ($5.7 billion). The state of Washington ranks fourthin employment with 34,708, but, thanks toMicrosoft, number two in sales, with $13.3 billion. Other leaders include New York,Florida, New Jersey, Virginia, and Illinois.

Systems Integration

This element in the IT cluster is growing fasterthan any other part of the state economy, hav-ing increased 174 percent since 1995, com-pared to the nation’s 52 percent. In 1998,about 25 percent of the companies were lessthan three years old, and only five companieshad more than 500 employees.

Like software, this segment is made up ofsmall, young businesses that are growing fast,and the two sectors are competing for thesame employees. Sales in 1998 were approxi-mately $3.5 billion dollars, having increased bya meteoric 188.7 percent since 1995. Many ofthese firms are prime targets for acquisition,as they have developed new products thatlarger firms would like to add rather thandevelop internally.

The national leader in absolute employment isCalifornia, with 46,259 jobs and sales of al-most $12.9 billion. Virginia is second in em-ployment with 28,920 workers and third insales with $4.9 billion. Massachusetts is thirdwith a workforce of 17,912, and fourth insales, with $3.5 billion. New York, while onlysixth in employment, is tied with Virginia atnumber two in sales, with just under $5 billion.Other leading states include Maryland, Texas,Illinois, Georgia and Pennsylvania.

RegionalSales41.1%

ExportSales58.9%

99,557Jobs

69,407Jobs

Wire and Cable 0.9%

Software 37.8%

Computers 26.9%Integrated Sys. 18.0%Comm. Equip. 16.4%

Figure 6nn

Regional Export Employment — Massachusetts 1998


Equipment Manufacturing

While equipment manufacturing in computersand communications sectors has been declin-ing, Massachusetts is strong in both of thesesectors. Figures 7 and 8 illustrate how theCommonwealth stacks up against other states.

State and NationalGrowth inInformationTechnology

Economists view the relative performance of aregional economy through a shift-share analy-sis. This compares the rate of change in em-ployment within each sector of the nationaleconomy with the rate of change in the stateeconomy. Industries growing at the same ratein a state as in the nation appear along a 45-degree line (see Figure 9). Points above theline indicate faster growth in the state, andpoints below the line, slower growth. Pointsfalling below the horizontal axis (e.g., whole-sale trade) indicate growth in national employ-ment while there is actually a decrease in stateemployment. If the state is growing in an in-dustry that is experiencing a decline nationally,the point falls to the left of the vertical axis.Industries that are declining in both the nationand the state (e.g., communications hardware)fall to the left of the vertical axis and below thehorizontal axis, where both rates are negative.

In Massachusetts, the networking or systemsintegration segment of the IT cluster is grow-ing at a much faster rate than in the nation asa whole. The graph’s broken vertical axis isnecessary to accommodate the explosive 174percent rate of growth in jobs in Massa-chusetts, while the nation posted an impres-sive, but more modest, rate of 52 percentover the same period.

The state’s communications sector also grewat a faster rate than did the nation’s, indicatingthat, for a state with a relatively small popula-tion, we have invested more heavily than haveother states in communications infrastructureduring this period. This very positive factorsupports continued economic growth, particu-larly in the IT sector.

While continuing to grow at a very healthy rate,software employment grew more slowly herethan in other states. This is not surprising, as

*excludes components

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Figure 7nn

State Comparisons — Computer Equipment Employment, Number of Jobs, 1998*

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Figure 8nn

State Comparisons — Communications Equipment Employment, Number of Jobs, 1998*


Massachusetts has a larger base and wouldhave to add very large absolute numbers ofjobs to keep up with states that are just takingoff in this fast-paced industry. Small softwarebusinesses have the advantage of being inex-pensive to start, while offering great opportu-nities for growth and profit.

Computer hardware continues to decline inboth the nation and the Commonwealth, asmore and more production shifts overseas.Mass production of computer equipment andtelecommunications components can be donein highly automated facilities with cheap for-eign labor, making competition very difficultfor domestic manufacturers.

From 1995 to 1998, employment in this areafell by 1.5 percent nationally, while it declinedby 2.7 percent in Massachusetts. Though theindustry has been declining overall, there hasbeen growth in peripheral equipment, helpingto offset the loss of jobs. It is likely to remainweak, however, in view of reduced foreign

demand and increased overseas manufac-turing operations.

Communications hardware was likewise inthe red, with a 3.6 percent decline in the in-dustry nationally and a 19.2 percent fall in thestate since 1995. This shows real overallweakness in this sector, though radio and TVcommunications equipment increased by2,297 jobs, offsetting some of the loss inother areas.

Wholesale trade in IT products increased by11.9 percent across the country, while it fellby 5.1 percent here. Retail employment na-tionally experienced a rise of 40.2 percent,while Massachusetts employment increasedby 34.7 percent.

In the Bay State, non-hardware communica-tions employment outpaced the nation with a58.2 percent increase since 1995. It grew byonly 22.4 percent across the country. Thissupports the belief that the per capita use of communications in our state economy ishigher than in other states.

Data services include a variety of activities,from data preparation and processing to infor-mation retrieval and facilities management.Employment in this sector grew by 24.7 per-cent nationally during recent years, while in-creasing only 2.6 percent in Massachusetts.Most of this work is related to the size andcomposition of the economy. Being a smallerstate, more advanced in the use of IT, onewouldn’t expect as much growth here as inother regions.

The systems integration sector in the BayState is a leader in the nation. This mixture ofcomputer hardware, communications hard-ware and software, network managementsoftware, consulting services, and technicalsupport embodies all of the IT cluster. Firms inthis category are often referred to as softwareor telecommunications companies.

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UNITED STATES

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Figure 9nn

Relative Change in IT Employment — 1995 to 1998


Regional Aspects ofthe InformationTechnology Sector

The rapid growth in information technologysectors is like a wave radiating out from theGreater Boston region. It is flowing along thecorridors of transportation and trade, seekingthe best available facilities and the most talent-ed pool of labor. It seems to wash right oversome smaller or older communities, and ithasn’t had a major impact on the most distantregions yet. Everyone is trying to catch thatwave of prosperity and opportunity pushedalong by software, systems integration andother information technology services.

Figure 10, showing total IT employment ineach of the seven regions across the state,provides some perspective. The GreaterBoston region dominates the state, with over108,000 people employed in information tech-nology. The adjacent Northeast region follows,with 30,821 jobs. Central Massachusetts adds

11,507; the Southeast region, 8,339; thePioneer Valley, 3,295; Cape Cod, 1,727; andthe Berkshire region, 734. On the face of it, thegeographic pattern supports the wavemetaphor. But while this general view may beuseful, there are many differences among re-gions’ performances with respect to the vari-ous IT clusters. Those differences includesome interesting surprises.

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Figure 10nn

Regional Change in IT Employment — 1995 to 1998

COMMONWEALTH OF MASSACHUSETTS

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Cape Cod Region


GREATER BOSTON REGION

Boston is at the heart of the IT revolution inMassachusetts. Total employment grew from87,400 to more than 108,000 from 1995 to1998, and sales boomed from $27.6 billion to$36.8 billion. There were nearly 400 new com-panies. While manufacturing employment wasslipping in many other regions, in Boston itgrew, if only slightly, from 22,043 to 23, 921.

Both software and systems integrationshowed remarkable increases in sales andemployment. There were almost 12,000 newjobs in these two sectors. IT services addednearly 3,000 more. Other sectors were flat orshowed smaller amounts of growth.

On top of all this, there is the strength of othersectors that rely on IT services — financialmanagement, health systems, higher educa-

tion, and a wide variety of business services.Boston reaps the benefits of being a purveyorof all of these.

NORTHEAST REGION

The Northeast region is showing a significantdecline in the manufacturing sector. Between1995 and 1998, jobs fell from over 13,000 toabout 7,400. Equally impressive was thegrowth in software and systems integration,which was almost enough to offset the loss.There is clearly some major restructuringgoing on in this region.

There has also been an increase in the num-ber of IT services firms over the past threeyears, from 248 to 342. Sales have increased,but employment has fallen from 7,585 to4,522. The answer may lie in smaller, more ef-ficient companies.

With over 30,000 workers in the IT cluster, de-velopment of the workforce and of quality

telecommunications services will be importantfor continued restructuring.

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Figure 11nn

Greater Boston Region IT Employment — 1995 and 1998

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Figure 12nn

Northeast Region IT Employment — 1995 and 1998


CENTRAL REGION

Central Massachusetts has experienced a de-cline in total IT employment since 1995. Therewere more firms and increased sales (from$1,408 million to $1,827 million), but manufac-turing employment in the sector fell significant-ly, from 7,266 to 4,891.

Growth was significant in software, retail tradeand IT services. While this region seems to benext in line for the wave of IT expansion, therehas not yet been a major impact. Current em-ployment is only about 11,500, and there is nosign of rapid expansion within the IT sector itself.

While direct activity in the IT cluster may notbe growing as fast as expected, biotechnologyand healthcare are booming. This sector is amajor user of telecommunications, databasetechnology, software, and other IT services.The expertise that might typically go directly

into IT in other regions is probably being attracted into the rapid growth in medical technology and research here.

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Figure 13nn

Central Region IT Employment — 1995 and 1998

SOUTHEAST REGION

The IT wave has hit the Southeast and is start-ing to have a very positive impact. The region,while small in its IT base, showed growth inevery sector. Total employment increasedfrom 6,827 in 1995 to 8,339 in 1998, with apattern of almost perfectly balanced growthacross the board. The number of new compa-nies suggests that some people who are tiredof the Boston bustle are setting up shop southof the city.

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Figure 14nn

Southeast Region IT Employment — 1995 and 1998


CAPE COD REGION

The Cape Cod region has only about 1,727 ITemployees, an increase from 1,373 in 1995. Thelargest and fastest-growing sector is software,with almost 600 employees. Manufacturing,while small, did grow from 135 to 272 jobs.While trimming the number of companies from17 to 10, sales increased almost threefold.

Will Cape Cod and the islands become placeswhere software engineers telecommute fromtheir sailboats? Some people think so. While itis doubtful that this region will ever become amajor IT center, it should continue to enjoymodest growth from software and networkcompanies, as the industry seems drawn in itsdirection.

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Figure 15nn

Cape Cod Region IT Employment — 1995 and 1998

PIONEER VALLEY REGION

Like Central Massachusetts, the PioneerValley experienced a decline in IT employ-ment between 1995 and 1998. The numberof manufacturing firms grew from 12 to 19,and sales increased from $33 million to nearly$49 million. Employment, however, fell from1557 to 363.2 This indicates that near-termgrowth in the number of manufacturing jobsin computer and communications equipmentis unlikely.

Nearly every other sector of the clustershowed significant growth. Software, sys-tems integration, and IT services were all verystrong. The number of new software compa-nies grew from 67 to 107, and employmentjumped from 390 to 561. IT services addednearly 150 jobs — from 490 to 637 — withcompanies like JavaNet leading the way.

This region has excellent telecommunicationsaccess. It also has access to major marketsand is a natural crossroads for travel and com-munications. Though other regions have simi-lar advantages, the Pioneer Valley’s lowercosts should attract more than IT companies. It

is also an excellent location for companies thatdepend on good telecommunicatons services.

The region’s strong base of higher educationis likely to continue to spawn new ventures insoftware and systems integration. If the Valleyincreases the supply of people with the rightmix of technical skills, it will undoubtedly attract growing IT-oriented businesses.

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Figure 16nn

Pioneer Valley Region IT Employment — 1995 and 1998


BERKSHIRE REGION

Its distance from Boston, along with its lowpopulation, place the Berkshire region at a dis-advantage for economic growth in the IT sec-tor. In spite of this, the region has been show-ing promise. Total IT employment is up nearly24 percent, from 594 in 1995 to 734 in 1998.Surprisingly, the manufacturing component ofthe cluster is growing significantly, along withsoftware, systems integration, retail trade, andcommunications. As the infrastructure is up-graded, even more rapid growth is expected inIT services and software.

There is potential for continued growth inmanufacturing, as low-cost space becomesavailable at the General Electric facilities inPittsfield. There are resident workers with ex-perience, skill, and the willingness to work at alower wage than are people who have toshoulder the higher costs of living in urbanareas. While manufacturing in general is flat orin a long-term decline, this region may buckthe trend because of its cost advantages.

The IT sector in the Berkshire region maynever grow to the extent that it might in a

more urban region, but it is very well suited forintegrating the area’s skilled designers andartists with the training that is linked to multi-media software and graphics. There is real op-portunity for the cultural assets in this rural set-ting to attract young, talented people lookingfor an alternative lifestyle and natural surround-ings with many of the cultural advantages of ametropolitan area.

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Figure 17nn

Berkshire Region IT Employment — 1995 and 1998


General Regional Patterns

One of the important trends in informationtechnology is the rapid growth and expansionof the software and systems integration sec-tors. As more and more people discover thatthey can write computer programs, the soft-ware industry will continue to take hold inincreasingly remote places. Many regionsacross the state will benefit from this trend.Areas with colleges and universities are likelyto do especially well.

Manufacturing employment seems to be flatat best, even in this fast-growing industry. It iscontinuing to decline in most of the regions,though the jobs that are lost seem to be re-placed with other IT jobs. This restructuringhas to raise concerns about retraining andchanges in our basic approach to education inpublic schools. The rapid growth in businessand IT-related services makes this a priority.

For most regions, IT investment and growthwill be influenced to a large degree by a num-ber of factors:

• The availability of high qualitytelecommunications services at areasonable cost;

• The availability of a well-trained andtalented labor force;

• Area colleges or universities offering ITtraining and programs;

• The availability of venture capital;

• Local governments that are fiscally soundand well managed;

• A competitive local tax structure andregulatory process.

Some areas of the state continue to stressquality of life over economic growth. In thesecommunities, IT may offer an alternative totraditional industrial or office park develop-ment. Many professionals in the IT clusterwork at home and telecommute, rather thanspend time at an office. This provides employ-ment opportunities and income without theimpact of commercial development.

In other regions, the information revolution willmean new large company facilities for re-search and development, production, andmanagement. Commercial expansion willmean more employment and income in thecommunity and the need to expand publicfacilities and services. Many communitieswelcome this growth and will actively competeto attract the continuing tide of IT investment.

Challenges andOpportunities

Overall employment for the state grew 4.3percent between 1995 and 1998. Overallsales increased by 17 percent. Employment inthe state’s IT cluster over the same period in-creased 24.5 percent and sales,10 percent.

Nationally, the industry grew by 24.7 percent,but the composition of growth was not thesame as it was in the Commonwealth.National IT employment expanded faster inwholesale and retail trade, communications,and construction. It was slightly higher in soft-ware and about the same in other areas.Systems integration was much faster in thisstate, offsetting slower growth in other partsof the industry. The Bay State’s net growthwas almost equal to that of the nation.

What is a reasonable expectation about futureIT growth in the Commonwealth? It is amazingthat a state with such a small population contin-ues to be ranked among the top producers in allsegments of the IT cluster. Our high tech-nology orientation and research strengths seemto give us the edge over larger states. Venturecapital continues to fund the wellspring of newideas and products. But Massachusetts is virtu-ally at full capacity; we may have reached thelimits of our “resident” productivity. Anygrowth in employment will have to come froman increased workforce with highly educatedand well-trained individuals.

Like other industries that were spawned inMassachusetts, growth spreads beyond our


borders as knowledge disseminates and barri-ers fall. Any of the highly successful, newlycreated “.com” companies, such as E-Bay,Amazon, or E-Trade, could have originatedhere. Likewise, Tripod, which was launched inWilliamstown, could have started almost any-where else. Internet commerce, while still inits infancy, will provide many new jobs in thefuture, and Massachusetts should be at theforefront of that activity. This industry is verymobile, and maintaining leadership will requirespecial efforts.

Technical Education and Training

The most important resource in this industryis human creativity. The demand for peoplewith computer science, electrical engineer-ing, software, and communications training isvery high. While engineers and computer sci-ence graduates are very important, many ofthe technical occupations in the IT cluster re-quire only two years of training beyond highschool. Others could be accomplished with atechnical high school curriculum focused onapplied math and science, communicationskills, and effective school-to-work programs.Without a serious effort to expand the supplyof people with training for this industry, itcannot continue to grow as it has inMassachusetts. Neither will the other keygrowth industries that depend on employeeswith many of the same IT talents. Where willthey come from?

There is a reservoir of women who left profes-sional careers to raise their children. Duringtheir years at home, the technical worldchanged dramatically, leaving many reluctantto reenter the workforce. If IT skills-trainingprograms were made available over theInternet or elsewhere, these women might beencouraged to enter high-demand occupa-tions. We can use technology itself for newinitiatives that will expand our workforce in theIT sector.

As certain industries downsize, other workersbecome available. In a classic example of

retraining, a production supervisor who hadbeen “downsized” from a bottling plant took ayear off to update her computer skills. She gota job as a programmer/systems analyst. Thesalary in her new job is almost as high as inher previous position and, unlike the stagnantsalary she left behind, is expected to riserapidly during the next few years. Though tak-ing a year out to retrain cost her most of hersavings, it was a sacrifice that she will recoverfrom quickly. This type of retraining can beencouraged through retraining loans, taxincentives, and other programs.

As the Commonwealth’s population continuesto decline and our workforce ages, the short-age of skilled workers may well become acrisis. Headhunters in the IT industry areincreasingly focused on foreign workers whospeak English and have good computer skills.This accelerates a brain drain from countriesthat need skilled workers to develop, and itdoes little to increase the prosperity of ourown citizens.

We must create retraining initiatives, innova-tive education programs at all levels, retentionof our best graduates, and collaborationbetween educational institutions andcompanies in this industry. A continued em-phasis on higher standards in K-12 is essential,as are new curricula — geared toward lowerachievers — that focus on real-world problemsolving rather than abstract thinking.

Telecommunications Infrastructure

Another major factor in influencing growth andinvestment in this sector is the availability oftop-quality telecommunications services —low-cost service with very high band width.The recent efforts of businesses to acquirethese services in Berkshire County under-scores the importance that this industryplaces on network access.

Cape Cod is another region that is frequentlymentioned as needing modern telecommuni-cations services. The Commonwealth has


supported these efforts, along with theMassachusetts Information Turnpike Initiativethat provides a fiber optic spine across the BayState. Every effort must be made to extendservices across the state at a reasonable cost.Deregulation has not yet been successfullycarried out in this or most other states; moreefforts must be made to ensure full accessand effective competition.

Convergence is not just a buzzword anymore.Telecommunications integration is a reality.Networks of various sizes and types will con-tinue to use a variety of services and may belinked by very different means. No oneapproach is likely to dominate the industry inthe near term, and advances in technologykeep providing more and better alternativesfor both home users and businesses.Continued competition is vital. Effective regu-lation is essential to assure that Massa-chusetts customers have access to the bestand broadest set of services across the state.This is an area where the Department ofPublic Utilities must be proactive, not merelya forum to settle disputes.

Other Factors

While workforce and infrastructure concernstop the list of industry executives, there areother important factors. These include thecontinued availability of venture capital, astrong flow of research and developmentmoney from the government, competitivebusiness taxes and regulatory process, afiscally stable government, a reasonable costof living, and a physical environment thatpeople find attractive.

Among these, the high cost of housing in theeastern part of the state is seen as a seriousimpediment to attracting people from otherparts of the country. Traffic problems andairport access are also favorite themes. Notunique to the IT cluster, these problems arepart of a general concern in the businesscommunity about the competitiveness ofMassachusetts.

The information technology cluster continuesto be a key sector in the Massachusetts econ-omy. While manufacturing in this industry islagging, software and systems integration aresoaring. These two sectors of the industry arecritical to the future prosperity of theCommonwealth, not just for their direct bene-fits, but for the extraordinary access they pro-vide to other key clusters in the state.Information is the new foundation of our econ-omy, and the technology used to gather, man-age, distribute and communicate it is the keyto our future.

ENDNOTES

1. Numbers in this study reflect second-quarter 1995and second-quarter 1998 Dun & Bradstreet data. (Thisinformation has not been deseasonilized.)

Since the completion of this study, more recent datahave become available. Taking these data into accountdoes not change the overall conclusions of the study.

2. This significant decrease may, in part, reflect areclassification of firm activity, rather than an actualdecrease in employment.

Creative Services provided by Plouffe Inc., Amherst, MAApril 1999

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