IT management

The importance of innovation and education in the IT industry

The advantage of large companies: lower costs and greater volume of work

One of the most common problems many Australian IT small businesses face is the highly competitive nature of larger overseas companies in getting lucrative Government and private contracts.

Larger companies have an advantage over small businesses. They are able:

  • to spend more on high-end technologies;
  • to acquire greater resources; and
  • to complete work in a shorter time frame,

thereby saving money to those who outsource their work to the larger companies. Understandably, small businesses with their smaller annual budgets find it difficult to compete with the giants in the industry.

In an article published in 1996 by The Canberra Times entitled, Desperate Times in Canberra IT Firms, it was stated that many people working for small businesses were losing their jobs because there were not enough Government IT contracts to go around. What few lucrative contracts remain were quickly taken up by the larger IT firms.

The gloomy picture revealed in this article at the time also suggested that many small IT firms may have over capitalised on expensive new technologies and employed too many low-skilled staff members. Of course, there are other reasons to consider such as the issue of excessive government "red tape".

Post September 11, 2001 and the GST having a similar impact for small IT firms

Now after the bombing of the World Trade Centre in New York on 11 September 2001 and the introduction of the GST and other regulations in Australia by the Australian Federal (Howard) Government after 2000, even fewer people are spending money for IT services with the smaller firms. And what little money is left, the bigger companies are happy to take it.

For example, Successful Personnel Pty Ltd, specialising in the placement of specialist Canberra-based IT consultants and small firms within government and private contracts, was forced to cease business operations in 2002. As John F. P. Donovan said in a letter he wrote to an IT consultant dated 7 September 2002:

"...we [are] withdrawing from the job search and placement business....We made the decision to withdraw because our strategic review of the market indicated that new government regulations and the attack on the Canberra market by the major transnational and national firm made it untenable for specialist small firms to continue to operate...."

So what's the solution?

There is no magic wand solution to this increasingly worldwide problem. It seems the only way for small business to deal with this problem is:

  1. To use more rigorous marketing techniques to find those new specialist IT areas of the future of potential benefit to many clients, or to sell the full and flexible range of existing IT services to a much wider market at a price which almost everyone can afford;
  2. To emphasise greater personalised attention to service;
  3. To develop or choose new IT technologies (or older high-end technologies) that are low-cost to acquire and operate and yet still produce the same or similar quality output at very low-cost; and
  4. To support education and training throughout the working life of all IT professionals and staff so as to keep abreast of the latest, low-cost technologies.
  5. Or face the prospect of having to rebuild society and the way we do business to ensure everyone is able to survive on an equal footing.

Assuming we want to maintain society and business in its current form, then being constantly innovative, more training and education, and finding new technologies are the only solutions for small businesses.

The advantage of small companies: greater flexibility, innovation and personalised service

Small businesses have the power to adapt or create more quickly new low-cost technologies, as well as not being locked into a particular way of doing things. In this way, small business can concentrate on delivering a much greater personalised customer service than can normally be achieved by bigger companies.

Today, the ACT small IT business sector seems to be continually transforming itself into a vibrant, knowledge-based IT industry with training and education forming an integral part of that vision. As Prime Minister John Howard recently said:

"I know that some of the decisions that the Federal Government took after May, in the May budget of 1996, were unpopular in the ACT. But it would not have been possible for Canberra to have absorbed those changes unless there had been a willingness by the local business community to get off its tail, to use the vernacular, and attract new business. And to recognise that you have got some natural advantages such as...your region is seen as probably the most attractive, or one of the most attractive, regions in Australia for developing e-commerce because of your very sophisticated, highly educated workforce." (1)

The need to innovate in the IT industry

As Senator Kate Lundy of Canberra writes in The Chronicle on 9 December 1996:

"The ACT is the home to a vibrant IT industry dominated by small operators. Nationally, 95 per cent of these businesses employ fewer than 20 people.

These small dynamic enterprises could have been at the crest of the [worldwide IT] wave but the Howard Government lacks any vision for Australian industry. Small business operators are justifiably questioning the direction this Government is taking.

Innovation is as much lacking in this Government's industry policy as innovation will be lacking in industry itself in the next decade.

The Government's changes to industry research and development will stifle the progress that Australian industry has achieved over the past decade, especially in the everchanging world of IT."

Source: Australian Bureau of Statistics, Australian Personal Computer: The Clever Country?, May 2000, p.114.

And now its official. According to a televised report on the ABC science television program, Quantum, dated 31 August 2000, Australia is showing its true economic colours to the world by being officially ranked the lowest country in the world for the amount of money spent in research and development, and this is due primarily to a lack of tax concessions, a fall in government and business expenditure, and the need to stick with established "rationally-developed" businesses to presumably help solve all of Australia's greatest social problems such as unemployment.

The underlying reason for the dismal showing in innovative ideas by Australia appears to be the lack of guarantee of an immediate return from an investment in new and innovative ideas. Yet the irony is that money has to be spent in research and development in order to make money in the first place and so bring about greater economic wealth and prosperity to a nation.

As former chairperson of the Australian Industry Development Program, Professor Chris Peterson, now an associate professor of computer software engineering at the University of Technology, Sydney (UTS), said:

"It would be tragic if we became a net importer of intellectual property. Yet if you look at our business expenditure on R&D [Research and Development] as a percentage of GDP [Gross Domestic Product], then it appears that we're not putting in the amount of money we need to develop high-technology intellectual property in Australia [for export to other countries]." (2)

According to the Australian Bureau of Statistics, Australian businesses are lucky to muster any more than 0.8 per cent of their total expenditure on research and development compared to over 1% in all industrialised countries like the US and Japan. Even more embarressing for us is how this Australian figure has rapidly gone down after 1995-96 when the Howard/Liberal government took over the job of running this country. Clever country? My arse!

However, the question remains as to whether this drop in Australian R&D investment is due to a rapid decline in the Australian manufacturing and mining sectors which were traditionally big spenders in R&D.

Whatever the truth, innovation has, and will always play, a significant role in the long-term profitability and success of any business, not to mention the social benefits of a healthier and happier human work force. In other words, if any government, business or individual in society has the serious intention of not only surviving, but also prospering in the modern world for a long time, it must invest in technical and social innovation. And that means people must be given the opportunity to develop and apply their creativity for the good of all.

As Chris Thomason, director of The Innovation Practice in Sydney, wrote in the June 2000 edition of the Business Review Weekly:

"Innovation is the hot topic, the keyword that must be used in every chief executive's annual statement.

...However, with the desire to be seen by stakeholders as being innovative, it is much easier for a company simply to label any routine improvement (within the bounds of good management) as innovative. Easy, but dangerous.

...Think of this: companies are innovative, individuals are creative and companies are made up of individual employees. So for a company to be innovative, the employees have to be creative. Maybe we should be encouraging employees to be more creative in their work. And with suitable corporate procedures, innovation will naturally flow...." (3)

Attempts to support innovation is slowly improving

The Federal (Howard) Government is attempting to make Australia's first report card on the ability to commercialise and sell ideas from research and development look good with money going towards approximately 250 start-up companies in 2004. The companies have been carefully chosen as having immediate financial benefit to Australia (both in terms of economic growth by way of selling fully commercialised ideas and in creating new jobs).

Government sources are saying this report card should explode the myth that Australians were good at inventing things, but pretty lousy at selling them to the world market. (4)

Then, of course, there's 2005, 2006, 2007...

And where's the money for the very crucible for creating ideas in what is known as research and development just before the ideas are fully commercialised?

We can only wonder whether this is a long-term commitment by the Federal Government to creating a truly innovative society, or whether it is to justify the government's own decision to fund specific areas of higher education in order to make the economic report card for Australia look respectable.

Support those who innovate

Thus it seems the solution to all problems in the IT industry eventually boils down to adequate support for the people to innovate, and that means:

  • adequate funding;
  • adequate time and other forms of freedom to develop quality innovative ideas and products;
  • interest from governments, businesses and the community in commercialising the ideas and products or at least allowing people to pursue them to their ultimate conclusion; and
  • access to quality education and training for everyone.

Education and training for all

The European Commission fully understands the importance of funding new and innovative technology-based businesses as well as those providing the education and training to people who will need to use the new technologies or to create them in the first place. As stated on page 2 of its Final Green Paper Report:

"What Europe needs is a substantial overhaul of education and training that can match the ICT [Information and Communication Technology] revolution and keep pace with continuing technological development during the years to come."

And on page 19 of the Report:

"...education and training should be shaped to learner needs, with particular regard to combating inequality and disadvantage, in order to unlock the productive potential of the whole population."

The ACT Liberal Government is tipped to follow a similar trend with Canberra poised as the centre for innovation, information technology and education in Australia according to ACT Chief Minister Gary Humphries. Humphries said on 29 January 2001:

"Canberra is a natural centre for innovation. Our educational, social, cultural, economic and political environment is unique, and our many strengths and assets are the very ones needed to develop the businesses of the future." (5)

Among the ideas publicised in March 2001 by the ACT Government as part of their innovation framework strategy paper include a well-supported and comprehensive education system, grant schemes for R&D, and improvements in the area of electronic service delivery.

And finally, on 29 January 2001, the Federal (Howard/Liberal) Government has unveiled the long-awaited AUS$2.9 billion package to boost scientific research and education (6). It has been a long time coming, but better now than never! Now the only question in the minds of everyone is for how long?

Innovation and education is definitely not meant to be a one-off funding strategy. Innovation is a continuous forward-moving process and one which requires regular funding, in return for bigger gains. The Government, therefore, has to really know the meaning of the word "budget" to ensure that there will always be adequate and respectable funds to promote innovation for now and in the 21st century and beyond.

The education market is expanding as we speak

Today, the education market in the ACT and worldwide is big business. Already the number of businesses entering the education market has increased dramatically over the past 5 years. Take for instance the new education centre at http://www.worldschool.com.au/. In fact, companies are now literally giving away IT-related course material on the Internet as a way of emphasising how important education is in this industry as well as to attract enough people to IT-related jobs.

Do I really need education and training in the IT industry?

It all depends on the area of the IT industry you wish to enter. But it is claimed in The Australian dated 17 January 2001, notably from an IT professional Phillip Greenspin, a professor at the Massachusetts Institute of Technology, that nearly one-third of our time spent working in the IT industry needs to be committed to learning and upgrading skills just to keep up with new technology. In the words of Greenspin:

"[Of the 70 hour per week that should be standard in the IT industry for everyone] Computer programmers need to spend 25 hours per week just keeping up-to-date with new technology." (7)

Australian businesses thinking too much the bottom-line and not enough consistent support from government

As of May 2006, there appears to be a couple of bottlenecks for Australian innovation. Firstly, there is a need for the Australian Federal (Howard) Government to get the infrastructure up and running for supporting innovation in Australian business. As Professor Mark Dodgson, the director of the Technology and Innovation Management Centre at the University of Queensland Business School, said:

"There's no doubt about it, the Government's taken its eye off the innovation game. They should be investing far more in infrastructure — proper management training, training for staff in how to harness new technology, and technology itself." (Cubby, Ben. Bright sparks: The Sydney Morning Herald. 20-21 May 2006, p.27.)

And secondly, Australian businesses tend to have difficulty seeing how to make money from promising ideas. It seems innovative ideas and commercial realities are two separate entities and it is not clear how to build a bridge between them until the ideas have gone overseas and turned into commercial reality.

The main priorities of a number of Australian businesses is to stick with the same products and should sales go down, managers think the most innovative solution is to cut costs or get personnel to work more efficiently. Yet what is not understood is that managers need personnel and themselves to think innovatively about the products they sell and find ways to make them better, more useful and original.

This view is summed up well by Narelle Kennedy, the chief executive of the Australian Business Foundation:

"I suspect that Australian firms, as a general rule, don't innovate in as much of a strategic fashion as much as some international competitors do. They do it to cut costs or to organise their personnel better. At this stage, it's often basically about the bottom line." (Cubby, Ben. Bright sparks: The Sydney Morning Herald. 20-21 May 2006, p.27.)

Or maybe it is because Australian businesses don't know what to do with new ideas or whether there would be a market for the ideas when they are commercialised. As Geoff McQueen, the owner of the Wollongong company called Internetrix specialising in business software, said:

"Actually, I have found it pretty reassuring and exciting as an Australian entrepreneur, knowing that there really isn't much difference between what is happening there [overseas] and here [Australia]. The one issue, I suppose, is that so many companies that come up with a great idea don't really know how to use it, or if people want it." (Cubby, Ben. Bright sparks: The Sydney Morning Herald. 20-21 May 2006, p.27.)

For the spark of innovation to reach commercial maturity, it seems everyone from the innovators (or inventors), government-grant bodies, business investors and even the people who might use it (i.e. the customers) must come together to discuss the ideas and determine quickly whether those ideas can be viable and then to go ahead and make it a reality once a decision to pursue the ideas is made.