Norwegian School of Management

NNrorweg inian IT: Industry and/or enzymeme??

EKN Steering Committee Meeting NHO June 16, 2011

Dr. Espen Andersen Associate Professor BI Norwegian Business School www. espen. com [email protected]

EA EKN-IT © 2011 Espen Andersen. All rights reserved. PDF version may be reproduced, with attribution 1.0 IT-industrien er sentralisert…

EA EKN-IT © 2011 Espen Andersen. All rights reserved. PDF version may be reproduced, with attribution 1.1 The IT industry’s value creation happens largely in other industries

EA EKN-IT © 2011 Espen Andersen. All rights reserved. PDF version may be reproduced, with attribution 1.2 Revenues of the main categories

60 000 000

International - eqqpuipment and software

50 000 000 International - consulting and services

Norway - equipment and software

40 000 000 - consulting and services

30 000 000

20 000 000

10 000 000

- 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

EA EKN-IT © 2011 Espen Andersen. All rights reserved. PDF version may be reproduced, with attribution 1.3 Value creation per employee, Balassa indices

Annual value creation, CPI-adjusted 1 200,00

Norway - consulting and services 1 100,00 Norway - equipment and software International - consulting and services

1 000,00 International - equipment and software

900,00

800,00

700,00

600,00 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

EA EKN-IT © 2011 Espen Andersen. All rights reserved. PDF version may be reproduced, with attribution 1.4 Centralization in numbers

IT employees, by county 14000 Akershus Hordaland 12000 Rogaland Vestfold

10000 Sør-Trøndelag Buskerud Østfold 8000 OldOppland Hedmark Møre and Romsdal 6000 Telemark Nordland 4000 Aust Agder Vest Agder Troms 2000 Sogn and Fjordane Nord-Trøndelag

0 Finnmark 2000 2001 2002 2003 2004 2005 2006 2007 2008

EA EKN-IT © 2011 Espen Andersen. All rights reserved. PDF version may be reproduced, with attribution 1.5 Centralization in numbers (relative)

2,50 Balassa indices, IT employees, by county Oslo Akershus Vestfold 2,00 Sør-Trøndelag Buskerud Østfold Hordaland 1,50 Rogaland Oppland Aust Agder Hedmark 1,00 Telemark Møre and Romsdal Troms

0,50 Vest Agder Nordland Sogn and Fjordane Nord-Trøndelag

- Finnmar k 2000 2001 2002 2003 2004 2005 2006 2007 2008

EA EKN-IT © 2011 Espen Andersen. All rights reserved. PDF version may be reproduced, with attribution 1.6 The Norwegian IT workforce is dominated by engineers and increasingly international

6,00 Education type, IT industry

5,00

4,00 ex

dd Science 3,00 Administrative/business Engineering Balassa in Foreign employees 2,00

1,00

0,00 2000 2001 2002 2003 2004 2005 2006 2007 2008

EA EKN-IT © 2011 Espen Andersen. All rights reserved. PDF version may be reproduced, with attribution 1.7 The Norwegian IT workforce is well educated, but not research-based

3,00 Education levels, IT industry

2,50

2,00

Changes Master ex mostly dd from Bachelor 1,50 recoding PhD

Balassa in High school SdSecondary schlhool 1,00

0500,50

0,00 2000 2001 2002 2003 2004 2005 2006 2007 2008

EA EKN-IT © 2011 Espen Andersen. All rights reserved. PDF version may be reproduced, with attribution 1.8 IT is no longer something you learn on the job

Education level, IT sector

100 % 0,44 % 0,47 % 0,47 % 0,47 % 0,43 % 0,44 % 0,44 % 0,42 % 11,74 % 12,29 % 12,69 % 12,79 % 13,86 % 14,24 % 14,62 % 14,94 % 90 %

80 %

70 % 36,26 % 35,79 % 36,52 % 36,27 % 36,64 % 36, 54 % 36, 55 % 35, 94 % Ph.D . 60 % Master Bachelor 50 % High school

40 % Secondary school

39,35 % 39,12 % 30 % 38,68 % 38,65 % 37,07 % 35,80 % 33,59 % 32,04 %

20 %

10 % 10,74 % 10,77 % 10,21 % 10,10 % 9,92 % 10,34 % 11,24 % 11,33 % 0 % 2001 2002 2003 2004 2005 2006 2007 2008

EA EKN-IT © 2011 Espen Andersen. All rights reserved. PDF version may be reproduced, with attribution 1.9 IT people work in IT – or telecom, consulting and media.

Source new employees, 2008 Balassa index IT 7,096 Telecommunications 3,179 KIFT 2, 488 Media 1,584 Retail 0,804 RblRenewable 0,7 94 Finance 0,701 Reiseliv 0,551 Oil 0,346 Maritime 0,300 Bygg 0, 291 Metal 0,239 Health 0,224 Fish 0,150

EA EKN-IT © 2011 Espen Andersen. All rights reserved. PDF version may be reproduced, with attribution 1.10 A customer overview

Small Large

Individual Consumer Prosumer

Business SMB Corporate

Public Municipality National

International International International consumer business

EA EKN-IT © 2011 Espen Andersen. All rights reserved. PDF version may be reproduced, with attribution 1.11 5 mechanisms of knowledge in the Norwegian (and international) IT industry • Research-based technology institutions (UiO/Simula, NTNU/Sintef, UiTø, other universities) – M.Sc./Ph.D. education, research collaboration – Technology dominates • Vocationally oriented programs (HiO, NITH, BI, others) – Educating IT personnel and managers – orggganization/management dominates, technology application- oriented • Industry organizations (Dataforeningen, IKT-Norge, Abelia) – UdtUpdates and discuss ion forums, advocacy • Vendors (, Oracle, SAP, consulting companies) – Certification programs for individuals – Partnership programs for developers and implementors • Industry-oriented research and advisory groups (Gartner, IDG, McKinsey Institute) – Arbiters of taste, evolution and decision criteria

EA EKN-IT © 2011 Espen Andersen. All rights reserved. PDF version may be reproduced, with attribution 1.12 Research-based institutions deliver engineers, but have little influence (with exceptions) • IFI growing, NTNU stbltable, recruiting the best students main worry • Connections to industry mainly through students and research programs • Moving towards less technical focus • IFI’s new building new IT center in Norway?

EA EKN-IT © 2011 Espen Andersen. All rights reserved. PDF version may be reproduced, with attribution 1.13 Mid-level educational institutions provide the bread and butter IT personnel in Norway

• Focus on Bachelor programs and basic courses • Many teachers come ffmrom business • Application oriented, frequently aimed towards certification • Focused development based on student interest • Large drop in students after dtdot-com btbust, no reb oun d ye t

EA EKN-IT © 2011 Espen Andersen. All rights reserved. PDF version may be reproduced, with attribution 1.14 Industry organizations form meeting spaces and build a nascent political lobby

• The Norwegian Computing association – Meetinggp place for various interest g rop s – Organizes certification and education – 14500 members, 9 district associations, 50 interest groups – struggles with staid image • ICT Norway – industry association, primarily for vendors – documents and promotes industry – visible in ppygpress and lobbying towards politicians – Struggles with rebel image and technology focus • Abelia – part of NHO, Confederation of Norwegian Enterprise – organizes knowledge-based companies, including ICT – Documents and comments on role of knowledge in society – Struggles with industry dominance and unclear mandate

EA EKN-IT © 2011 Espen Andersen. All rights reserved. PDF version may be reproduced, with attribution 1.15 Vendors address a two-sided* market: Customers and developers cts: A 04. ee 55 10: 1494-1 etwork Eff NN ce ment Scien "Two-Sided

ge Mana tyne (2005). sign." ss ee n Product D nd M. Van Al nd M. Van oo aa of Informati n Parker, G. Based o Theory

EA EKN-IT © 2011 Espen Andersen. All rights reserved. PDF version may be reproduced, with attribution 1.16 Commercial research organizations – and independent experts – do what academia won’ t and vendors can’t

EA EKN-IT © 2011 Espen Andersen. All rights reserved. PDF version may be reproduced, with attribution 1.17 IT technology providers and service providers face different challenges, business models and futures

Technology providers Service providers • Evolution of technology is • Evolution of customer need main driver is main driver • Competition mostly global • Competition mostly local • Funding by angels or VCs • Funding from sales or from • Pricing an issue: Norwegian mother corporation market underprices IP? • Overpriced and • Exit by sale to large, underintegrated? fiforeign corporation • EiExit by consolidat ion wihith larger IT service provider

EA EKN-IT © 2011 Espen Andersen. All rights reserved. PDF version may be reproduced, with attribution 1.18 •Proprietary •Modularized •Commoditized •Ubiquitous •UtidUnnoticed

Technology providers have to adapt to evolinlving thnltechnology phases

EA EKN-IT © 2011 Espen Andersen. All rights reserved. PDF version may be reproduced, with attribution 1.19 Norwegian software IP is sold out of Norway

• Norwegian investors (stock market) do not value IP? • Lack of investor muscle for transition to platform? • Knowledge community will change – Going abroad as a result of acquirer’s decision – Reduced as a result of technology maturity • Where is the new undergrowth, the pipeline?

EA EKN-IT © 2011 Espen Andersen. All rights reserved. PDF version may be reproduced, with attribution 1.20 Three possible platform plays

• Kongsberg Maritime – 60% market share as control systems integrate across the ship and to the shipowner/manager • DNV – global knowledge network as certification and maintenance switches from periodic inspection to constant monitoring – Synchroport initiative as example of the new maritime industry, software-enabled • Opera – enabling mobile browsing by centralizing screen rendering and lowering the cost of mobile surfing in developing markets

EA EKN-IT © 2011 Espen Andersen. All rights reserved. PDF version may be reproduced, with attribution 1.21 The march of IS: From internal provider to external partner (I)

CEO

Staff

SBU CEO SSO CEO SBU CEO IT SBU CEO IT dtdpt IT dpt Strategic Strategicdpt IT Business dpt UitUnitBusinessStrategic Step 1: UnitBusiness Centralization of distributed IS UUtnit departments

EA EKN-IT © 2011 Espen Andersen. All rights reserved. PDF version may be reproduced, with attribution 1.22 The march of IS: From internal provider to external partner (II)

CEO

Staff

SBU CEO SSO CEO SBU CEO IT dpt SBU CEO Central IT IT S Strategic dpt L IT dpt BusinessStrategic dpt A UitUnitBusinessStrategic UnitBusiness Step 2: Formalization of customer UUtnit relationship, process organization EA EKN-IT © 2011 Espen Andersen. All rights reserved. PDF version may be reproduced, with attribution 1.23 The march of IS: From internal provider to external partner (III)

CEO

Staff incl CIO

SBU CEO CEO SBU CEO IT avd SBU CEO AS IT S avd IT Strategic L IT Service BusinessStrategic avd A UnitBusinessStrategic UnitBusiness Step 3: Unit IS as captive (and compulsory) subsidiary

EA EKN-IT © 2011 Espen Andersen. All rights reserved. PDF version may be reproduced, with attribution 1.24 The march of IS: From internal provider to external partner (IV)

CEO

Staff incl CIO

SBU CEO SBU CEO AS IT avd SBU CEO IT IT S avd Service Strategic L IT BusinessStrategic avd A UnitBusinessStrategic UnitBusiness Step 4: Unit Sale to external vendor

EA EKN-IT © 2011 Espen Andersen. All rights reserved. PDF version may be reproduced, with attribution 1.25 The march of IS: From internal provider to external partner (V)

CEO

Staff incl CIO

SBU CEO SBU CEO AS IT avd SBU CEO IT IT S avd Service Strategic L IT BusinessStrategic avd A UnitBusinessStrategic UnitBusiness Steg 5: Unit Offshoring, growth in cloud- based distributed apps EA EKN-IT © 2011 Espen Andersen. All rights reserved. PDF version may be reproduced, with attribution 1.26 Norwegian IT is very consolidated, but integration proceeds slowly

• EDB Ergogroup – 4bNOK marke t cap, goodw ill 4bNOK (2009) – C&SI, outsourcing, growth by acquisition • Atea ASA – 6bNOK market cap, goodwill 2.3bNOK (2009) – SMB-oriented sales, support, infrastructure • VISMA – 11bNOK acquisition by KKR, goodwill 2bNOK (2009) – Vertically oriented admin software

Future targets: HilHospital and utility IT services

EA EKN-IT © 2011 Espen Andersen. All rights reserved. PDF version may be reproduced, with attribution 1.27 The IT services industry in Norway Numbers from 2008 unless otherwise noted. Listed in terms of service size

Revenues Mrk cap Employees Business Ownership

EDB Business $1.3* 6,000* 55% operations, 19% solutions, 51% owned by Telenor, rest on 266ppn.% applications. Little OSEX. Grow th by acqu isition of PrtnrPartner $700m synergy between divisions. contracts and boutique consulting (merged Strong in banks and industry companies. 2011) Ergo Group $1b* 3,700* Mostly post office and other 100% Post Office public services + Netcom Accenture $300m* n/a 1,000 Telenor partner, large Norwegian office also Nordic HQ. companies, 40% public sector Avanade has about 200 empl. Tieto $200m $1.3b 670** Norway is 5% of their Finnish/Swedish, listed NASDAQ. business), application Rejected $1.1b offer 2008. mmngmnanagement, developmen t. 25% offshore Cap Gemini $195m 700 Focus on application 100% Cap Gemini management (ops by EDB) Logica $166m 571 Retailers, utility, oil and gas. CMG, listed, came from WMData, Strong Indian connections. acquired SBS. Steria $127m* 391*,** Mostly applications and French owned, listed, comes from systems development. Bull (which came from Norway). Offshoring to Eastern Europe IBM $210m *** 1000 (tota l) 60% services, rest HW/SW. 100% IBM. BiBusiness probblbably Oil industry and health focus. higher (HW sold through Ireland.) HP/EDS $100m 400* Some services, primarily in oil 100% HP and gas. Atea $2b $1b 4, 800 Infrastructure Listed on OSEX sales/service/support.

*2009 **FTEs ***estimate

EA EKN-IT © 2011 Espen Andersen. All rights reserved. PDF version may be reproduced, with attribution 1.28 11 hypoteser om norsk IT JA • Norsk IT-bransje er større enn vi tror, men usynlig - delvis fordi bransjen er ung og mangler selvfølelse, delvis fordi teknologien forsvinner inn i andre bransjer. JA • Norsk IT-bransjjpge har, historisk sett, mest drevet med tilpasning av utenlandsk teknologi til norske forhold, men dette er i endring JA • Norsk IT-bransje er i stor grad konsulentselskaper - delvis fordi de kan tilby en fleksibilitet det vanlige arbeidsmarkedet mangler. TJA • Norsk IT-bransje er i stor grad fokusert mot det offentlige marked, men spydspissene er rettet mot spesifikke nisjer innen privat næringsliv JA • Norsk IT-bransje ligger etter engelsktalende land med offshoring, men er relativt aggressive i fo rho ld til andre euro peiske land. NEI • Norsk IT-bransje har klare konstellasjoner av selskaper som jobber sammen mot de samme kundene. JA • Utenlandske samarbeidskonstellasjoner er i liten grad førende for samarbeidskonstellasjoner i Norge. TJA • Når folk flytter seg i IT-bransjen, skjer det i større grad mellom firma innen samme tjeneste eller produkt, enn mellom kunder og tjenestebedri ft. NEI • Personlige relasjoner betyr mer i Norge enn i andre land, også i IT-bransjen. JA • Alle konsulentselskaper ønsker å løse problemer, men de fleste er timeselgere. JA • Dramatisk lavere teknologi- og personalkostnader vil bety store endringer for IT- servicebransjen.

EA EKN-IT © 2011 Espen Andersen. All rights reserved. PDF version may be reproduced, with attribution 1.29 Funcom and Playfish epitomize the advanced/immersive vs. the light/platform-based software company

• Two-year product relsleasecycle • Immersive games, CGI- based, need games machine • ”Bet your company” every two years

• Social network games (Facebook) • Rapid release • Occasional use • Viral marketing

EA EKN-IT © 2011 Espen Andersen. All rights reserved. PDF version may be reproduced, with attribution 1.30 Value creation per employee is the name of the game

EA EKN-IT © 2011 Espen Andersen. All rights reserved. PDF version may be reproduced, with attribution 1.31 Where will the future come from?

EA EKN-IT © 2011 Espen Andersen. All rights reserved. PDF version may be reproduced, with attribution 1.32 The new face of IT…

EA EKN-IT © 2011 Espen Andersen. All rights reserved. PDF version may be reproduced, with attribution 1.33 Industry implications

• Norway is too small to let international rivalries limit cooperation • The industry needs to act as one to assume the responsibility of increasing public sector productivity – See consulting industry as resource – Take responsibility for effects – Do not respond, as industry, to dysfunctional RFPs • The industry needs to stop recruiting copies of itself – The future IT emppyloyee sips latte at Grünerløkka and does not want a Volvo – Start industry promotion at younger age levels • Streng hten collaboration with universities and research institutions • Entrepreneurs need to think beyond earning a comfortable living

EA EKN-IT © 2011 Espen Andersen. All rights reserved. PDF version may be reproduced, with attribution 1.34 Public policy implications

• The industry is valuable, but value creation from IT happens outside the IT idindustry itse lf – hampered by lack of available technological talent – new IT companies will not have many employees even if they grow quite big • Scale up from simple projects rather than down from complex ones • The IT industry is best supported by addressing the problems ffyelt by the industry y(fgf (lack of general financing, g,f lack of talent) – Stop forcing it to fit geographical pipe dreams • The centralization of IT to Oslo is not a problem – the reltilative provinc ilitiality of OlOslo tdtowards the rest of the world is • Norway needs an aggressive, strategically oriented, authorized Chief Information Officer, like the USA

EA EKN-IT © 2011 Espen Andersen. All rights reserved. PDF version may be reproduced, with attribution 1.35 An idea for Norway?

Vivek Kundra U.S. Chief Information Officer

EA EKN-IT © 2011 Espen Andersen. All rights reserved. PDF version may be reproduced, with attribution 1.36