REPORT NO 11. JUNE 2011 KNOWLEDGE-BASED IT & SOFTWARE By Espen Andersen Knowledge-based IT & software Espen Andersen 2011 Forskningsrapport juni 2011 Handelshøyskolen BI N-0442 Oslo Tlf: 4641 0000 www.bi.no Printing: Nordberg The report may be ordered from our website www.bi.no/research Espen Andersen: The Norwegian IT Industry 2 β release, June 24, 2011 Contents Preface – why a β release? ................................................................................................................. 4 Executive summary, with policy implications ................................................................................. 5 Background – the elusive industry .................................................................................................... 8 The Norwegian IT industry ............................................................................................................... 11 Historical development ................................................................................................................. 11 Current market structure .............................................................................................................. 28 Competition ................................................................................................................................... 30 IT providers and IT services .............................................................................................................. 47 Industry and public policy implications ......................................................................................... 76 Appendices .......................................................................................................................................... 80 Espen Andersen: The Norwegian IT Industry 3 β release, June 24, 2011 Preface – why a β release? Reports are meant to inspire discussion – hence, this “beta” release, indicating that this is not meant to be the final word on the Norwegian IT industry and its role in Norwegian society, but more a description, analysis and foundation for discussion about the industry’s future. This report is, purposefully, not heavy on statistics. This is partly because others already produce those, but mostly because trying to say something definite with numbers about the IT industry is an exercise in definitions – how to draw the line between IT and telecom, IT consulting and regular technical or managerial consulting, IT products and IT services? Rather, I have followed a strategy of studying companies, typical and important, describing their trajectories drawing conclusions based on theory, patterns, interview data and, yes, some numbers. This has allowed me to capture some of the richness of detail and the speed with which the industry changes. I would like to thank Anders Gjermshus for research assistance, Amir Sasoon, Torger Reve, Ragnvald Sannes and Bo Hjort Christensen for research guidance and lively discussions, Marius Nordkvelde for competent project management, the students of GRA6821 Technology Strategy who rather enjoyed writing HBS-style cases rather than regular term papers. Thanks to my friends in the Norwegian Polytechnic Society, in particular Kirsti Kierulf, Petter Merok and Trond Heier, for interesting discussions about the future of IT in Norway. And lastly, thanks for the many people throughout the industry who have patiently lent me their time and given me their perspectives. I hope the following can contribute to the discussion about the future of the Norwegian IT industry, and, perhaps more important, the discussion about what role IT should play in Norwegian society. Espen Andersen: The Norwegian IT Industry 4 β release, June 24, 2011 Executive summary, with policy implications This report describes and analyzes the Norwegian IT industry, focusing on two categories of companies: Those that provide information technology as a product largely developed by themselves, and those that provide information technology services – mostly by taking foreign technology and making it available to Norwegian companies and organizations. Contrary to Norway’s classic knowledge hubs – petroleum, maritime, seafood – the Norwegian IT industry, though large, profitable, and knowledge-based, does not see itself as a hub and does not act like one. With a few exceptions (Horten, Trondheim) the Norwegian IT industry is overwhelmingly located in the Oslo area: Along Akerselven, in the City centre, at Skøyen, Lysaker and Fornebu. Few Norwegian IT companies paint on a global canvas, and those that do tend to be acquired by large international companies when they reach a certain size or maturity – growing out of Norway, as it were. In some cases, the companies continue and thrive in place, usually when they address a very specific global (GE Vingmed) or local (Visma) need, in others, they gradually disappear, subsumed into the acquiring organization (FAST into Microsoft development center Norway, Tandberg becoming a unit of Cisco, Trolltech becoming and part of Nokia and then sold to a Finnish software company). The IT industry’s main contribution to Norwegian society comes in two flavors: Firstly, it provides a group of companies (the large IT service providers and consultancies) with a body of knowledge on how to develop and implement information technology in Norway, increasing the country’s productivity through smart use of administrative and customer-facing systems. The relatively large size of the consulting industry and the extensive use of consultants both by the public sector and the larger companies ensures that the scarce knowledge of IT development and implementation both can be nurtured and rewarded as a core activity inside specialized organizations, and also makes sure that this knowledge is available in a more flexible form than the rather rigid hiring and firing practices of Norwegian working life. Secondly, the technology provided by the large, international technology providers, by the open source movement, and by administrative software providers ensures an available infrastructure for entrepreneurs in almost any industry: Few, if any, new startups today do not spend time We have to distinguish between IT on systems development as a major activity. Furthermore, as an industry and IT as an enzyme extensive use of IT lowers the bar for starting new companies, Petter Merok, Microsoft both in terms of their relationship to the public sector, in their mobilization of resources, and in their access to markets. Thus, IT is, at the same time, a competitive arena and a coordination facilitator – an industry as well as an enzyme – in terms of increasing Norwegian innovative performance, productivity and competitiveness. Espen Andersen: The Norwegian IT Industry 5 β release, June 24, 2011 Knowledge creation and dissemination Knowledge comes into the IT industry from three main sources: From foreign technology providers, from companies’ own development work, and from academic research in Norway. The latter transfer mechanism happens largely through the production of graduates from computer science and engineering programs – the single-most scarce factor in the industry, underscored by practically anyone interviewed. Academic research in itself, with a few, celebrated examples such as Simula (University of Oslo) and search technology (from NTNU), is not tightly integrated with the industry. Companies are often started by students from the engineering schools and computer science departments, but faculty involvement is largely missing – with a few important exceptions – after the companies are formed. This is partially because contributing to industry goes against the culture of many academics – the universities and colleges do not recruit faculty with entrepreneurship in mind – and partly because company-specific knowledge quickly outruns the more general academic knowledge as soon as development speeds up. Industry challenges The IT industry provides a general purpose technology (Basu and Fernald 2008), where value creation is more visible in the industries that use it than in the technology industry itself. The industry is largely located in Oslo, finances its R&D out of own funds or general tax refund programs, and does not to a large degree partake in more long-term research funding. It is an industry where everyone competes and collaborates – there are few, if any, long-term collaborative patters. The IT industry scores relatively low on several cluster dimensions, in particular knowledge dynamics. The industry needs to raise its profile in order to do better recruitment and increase its chances to enhance value creation, by jointly documenting and exemplifying how it creates value in the Norwegian society. In order to attract talent outside the traditional male, engineering-oriented candidate pool, the industry would benefit from trying to portray itself as urban, cool and interesting – a career choice not just for the technically inclined but for the ambitious and culturally dexterous candidate. Lastly, the industry needs to address the thorny problem of improving productivity – in particular, decision making productivity – in the public sector, by collectively taking a more proactive stance not just on technology direction, but also recommend actions to increase organizational efficiency and goal effectiveness. Public policy implications Public IT policy can be divided into policies directed towards the industry, and policies directed towards the use of information technology in public administration