Examination of Witnesses (Questions 61-79)
INTELLECT
20 JANUARY 2004
Q61 Chairman: Perhaps, Mr Higgins, you
could introduce your colleagues, and then we will begin.
Mr Higgins: Yes, indeed. Good
morning, ladies and gentlemen, I am John Higgins, I am the Director
General of Intellect, the Information Technology Telecommunications
and Electronics Association. I have with me two of our board members:
Dr Philip Hargrave, who is Chief Scientist at Nortel Networks,
and our Deputy President, John Woodget, who is the Managing Director
of Intel in the UK.
Q62 Chairman: Your evidence in some respects
seems to suggest that the agenda of the White Paper is exactly
relevant to what we need to do in 2004. A cynic might say nothing
seems to have happened in the intervening period. In what areas
do you believe significant progress towards a knowledge-driven
economy has been made? Do you think we have missed any opportunities
in the balance sheet over the last four or five years?
Mr Higgins: I think your assessment
that, yes, it is the right agenda we would agree with. Can I just
begin by trying to say how we see what a knowledge-driven economy
is, because we are trying to get to grips a little bit more with
what this means. In fact, the sort of expression we almost prefer
is a "knowledge-powered" economy, as it were. It is
really not a state, so I think it is reasonable we are not there
yet because I do not think it is a state where you either are
or you are not; it is really an aspiration. It is a basic aspiration,
I think, of all economies to transform human potential, or human
capital, into assets that we can then choose to do with what we
will—keep privately or deploy to have a better health service.
That is the aspiration, I think, of all economies. A knowledge
economy, to us, is simply one where that transfer from potential
capital into assets is done quickly and efficiently. If you think
(and I am mixing my metaphors, perhaps) of this as a car of some
sort, then what we want is more knowledge going into the fuel
tank than anything else, and increasingly so knowledge becomes
the driving fuel, the power that drives the car, as opposed to
human labour or anything else. So I think we will see increasingly
a transition towards more knowledge going into the fuel tank than
any other thing. I think we have achieved an awful lot, and an
example of that is the creation of the e-envoy, Alex Allen, when
the role was created on the model of Ira Magaziner, the special
representative to Bill Clinton, and, I think, the appointment
of Patricia Hewitt as the first e-minister. I think we have achieved
an awful lot, and lots of the bits of the jigsaw we have been
steadily working on across industry and government (DTI in particular),
so I think we have achieved an awful lot and it is not surprising
that there is an awful lot further to go.
Q63 Linda Perham: It is widely accepted
that there is a problem with intermediate skills, particularly
in ICT. How could that be remedied, do you think?
Mr Higgins: What do you have in
mind by "intermediate skills"? Do you mean skills to
apply information and communication technology in your everyday
job? Is it the skill of the average person?
Q64 Linda Perham: It is the application
of skills, the basic training. Not emphasising the basic skills
and the higher level but the application, is what I mean.
Mr Woodget: I think that is a
good example of where there has been just recently some significant
progress made with the Home Computing Initiative which was announced
by the DTI yesterday, which has been a long process. In 1999 tax
legislation was put in place to relieve employers of the tax burden
if they loan employees PCs for home usage. These home usage schemes
have been evident in the Nordic countries and started in Norway
in 1996, then in Sweden in 1997 and in 1999 Holland developed
a scheme. We have not seen much progress from 1999 to present
because of some complexities in the United Kingdom. Last year
salary sacrifice was allowed by the Government to fund such schemes
and the DTI has got behind that, actually motivated by the e-envoy,
so it is a good practical example of how all this stuff can come
together. It remains to be seen whether this is now going to roll
out and be accepted broadly. That is the kind of Government involvement
we need with industry to come up with something where Treasury
is helping with guidance to tax offices on how to do these schemes
and industry actively involved to provide PCs to homes. Just to
give you a feel for how we think that can help with training,
household penetration of PCs in the United Kingdom—it depends
who measures it—is about 50%. It was below 50% in Norway
and Sweden when their schemes started, it is now approaching 80%
in those countries, so they have 30% more penetration of PCs into
the household. This is a simple way of learning, it starts at
home very often with the kids and we think that is a fundamental
way of kicking off training. If you look at other countries, for
example Spain and Portugal are approaching such schemes and they
are requiring these PCs to be a training tool, in other words
provided with training software. Some of the schemes in the United
Kingdom have been implemented with training software, that is
an excellent way of encouraging fundamental IT skills training
at home that is taken into the workplace
Q65 Linda Perham: It was the UK On-line
Project I was thinking of which is good at getting people out
or going into community centres.
Mr Woodget: With over 7,000 centres
in place that is a good example of something that is helping for
those people who do not get access to PCs. Fundamentally the ability
to get PCs into the home can reach a much broader part of the
population. Of course there are some people who will never be
able to afford a PC and I know the DTI is looking at some further
initiatives to extend beyond that.
Q66 Linda Perham: The Government being
the largest employer is there anything that it could be doing
to improve the skills of its workforce?
Mr Woodget: The Government has
the same ability to use home schemes for government employees,
that would be an obvious starting point.
Linda Perham: Okay. Thank you.
Q67 Mr Hoyle: We talked about the economy
and the importance of the engine-room being driven by SMEs and
you state some worries about software and services of SMEs and
you feel they are not in a position to take advantage of the global
market and economy out there, what more can the Government do
to ensure that the SMEs have an advantage to take hold of the
opportunities that will be there?
Mr Higgins: I think UK T&I
(Trade and Investment) works with the sector bodies like the Trade
Association quite extensively to help build international networks.
We are increasingly aware that our smaller members need to understand
how to exploit development opportunities in low cost economies
if they are to be able to offer competitively priced packages
in the markets in which they operate, which might be the domestic
market but also the international market. We need to keep UK T&I
focused on providing services through the sector bodies to help
develop international networks so that SMEs can understand how
to be effective in this highly competitive, global economy.
Q68 Mr Hoyle: How much of the market
do you think we are missing out on?
Mr Higgins: I am not sure I can
put a figure on how much of the market it is, I know our smaller
companies are finding it increasingly hard to compete. It is a
broad generalisation but unless you have a specialist niche product
for which there is particular market demand I think you are under
increasing cost pressure and you need global sourcing in services
as well as in products.
Mr Hoyle: Right.
Chairman: Thank you.
Q69 Mr Djanogly: Your evidence seems
to suggest that the United Kingdom has not reached its target
in being the best place for e-commerce; how far do you believe
we are away from reaching that target?
Dr Hargrave: I think one of the
fundamental things is it is essential that economies exchange
information and it is essential to make sure that communication
infrastructure is in place that does it, therefore this is linked
to the roll-out of the new generation of so-called broadband technology.
If you are going to do business you have to create networks that
are global. The way that you do business involves connectivity;
we are talking about broadband connectivity. We have seen a lot
in recent times with the broadband initiatives and the Government
objectives regarding the broadband economy in 2005. I think we
have done a lot and we have seen the take-up and roll-out of broadband.
We are at a cusp, and this is a very important cusp, because the
broadband that has been rolled-out hitherto has been broadband
at a data rate which is just an entry point. Technology is like
ADSL that we hear about. They are fine as a starting point, they
enable you to work on the web more straightforwardly, they enable
entry level tele-working but we are on this cusp of needing to
roll out the next generation of broadband where the band widths
go beyond what you can do. That cusp involves putting in new network
infrastructure, not just putting boxes in local exchanges, and
it is driven by requirements of new civil infrastructure which
involves digging up roads. Those are some major, major challenges.
We have to recognise we are on that cusp. We should be glad and
applaud what we have achieved thus far but actually make sure
the policy and direction is in place to enable this next generation
of investment. We see countries like Korea, without getting too
technical, saying, "make sure every resident can get 20 megabytes
rather than half a megabyte by 2005". Those countries are
seeing the need to go there and putting in place top level policy,
drawing in these new networks rather than being built from the
bottom up. The work that we have done so far is fine, let us applaud
it, it is great, for the take-up of broadband we are now at three
million, it was only one million in November 2002 and it is going
to rise during the course of this year. We need to make sure we
do not sit on our laurels and the policies are put in place to
draw the next generation, which involves civil infrastructure
projects.
Q70 Mr Djanogly: What more needs to be
done to give consumers more confidence in the security of e-commerce?
Dr Hargrave: The technologies
are there. I think that confidence is going to come with more
and more use. People are concerned about the unknown. There are
technologies, my company makes things that are secure that cannot
be spoofed, and such like. The trouble is you hear horror stories
and always in the roll-out of new technology you are going to
have that problem of those stories. The technologies are there
and I am sure the confidence will grow with time.
Q71 Mr Djanogly: Do you think things
like spam and concerns for child safety are actually having a
negative impact on the growth of ICT at the moment?
Dr Hargrave: They are concerns,
they worry me. I look at the amount of spam that comes to my private
e-mail accounts and fortunately my ISP blocks it. I look at the
inappropriate material that comes in some of that spam and I do
not like it. As with all technologies that have major, major capability
of changing the world they can be exploited for the good and the
bad. It is therefore important that things are done to minimise
unsolicited things, to close it down. It is a very challenging
problem given that the whole point of this network is that it
communicates globally, anywhere in the world can make connections
to it and connect to anywhere else in the world. It is the capability
of the network and its availability for good e-commerce that is
good, however it has this dark side as well and we are doing all
that we can to stop it.
Mr Woodget: The fact is that growth
continues. Your question was, is it holding things back? The answer
is no.
Q72 Mr Clapham: Mr Higgins, some studies
that have been done making a comparison between the United Kingdom
and the United States suggest that the United Kingdom has the
second best environment for e-commerce. Bearing that in mind and
also what we heard from the people that were here before you about
the difference in structures, there is a suggestion that the infrastructure
environment is really driving the gap between the two countries.
Is it possible to say what is being done to actually narrow that
gap and whether it is making any difference?
Mr Higgins: I begin by totally
supporting what Sir John Chisholm was saying and his colleague
Dr Mears about the top pool of the Federal Government having clear
directions for the US economy of how they want to deploy information
and communication technologies in pursuit of their own public
agendas like health and defence. I think that is a huge driver.
I think that combined with these small local economies, as in
California or Virginia or many other parts of the United States,
is a powerful combination. It has been said many times that the
cultural risk averse nature of European cultures as opposed to
US is clearly a factor, and that has been said many, many times.
I begin by supporting what my colleagues from QinetiQ were saying.
It might be interesting to get a particular perspective, both
Philip and John are from North American based companies and we
thought it might be helpful for you to have a view of what it
is like on the ground in those companies and what the attitudes
are.
Dr Hargrave: We talk about having
the infrastructure in place, the second thing is that you have
to use it effectively. You have to embrace it. I know in my company
for example with a North American culture one embraces technology.
It was rapidly deployed when it first became available in order
to ensure that it was used for business benefit. I think more
needs to be done to help, shall we say, those areas of society
where the embracing culture is not quite there. We see metrics
on government services being available on-line rather than the
take-up and use of those services by the end citizen. I come from
a culture where it is embraced, maybe that culture embraces more
straightforwardly and therefore to help to move from "available"
to "embrace" you need some sort of initiative in the
United Kingdom to benefit from that North American culture.
Mr Woodget: Intel has pioneered
e-commerce and e-business, 100% of our customers place their business
with us over the internet, 90% of our business is placed with
our suppliers over the internet, in fact we are the world's largest
transactor across the internet, larger that Amazon.com, larger
than IBM, and many people do not know that. This is something
that has taken us eight years of hard work to achieve and it comes
from a culture of our belief that the technology does bring efficiency
and we have experienced that and we have been able to grow over
the last eight years with a relatively flat head count, and so
on. We come from a position of believing this. Looking at the
uptake of e-commerce globally we have been looking for measures.
You mentioned that the United Kingdom is number two, if you look
at work done by INSEAD with the World Economic Forum they do a
global information technology report and as part of that they
produce a technology readiness index and it is interesting to
see how the countries change year by year on this. We are just
about to get some new data in fact so it will be interesting to
see. The United Kingdom was at number 10 in 2001-02 and number
seven in 2002-03. I suspect the United Kingdom has probably slipped
back behind countries like Korea that are making some significant
investments and that technology readiness is looking at economic
factors as well as technology deployments: internet usage, household
penetration, broadband deployment, et cetera. Getting back to
the sense of your question, how is the United Kingdom doing? I
think it is a moving target, that is the point, there is no room
for complacency or pausing. We have to look at the various elements
that push us forward. The other part of the question is, what
is the difference between the USA and the United Kingdom? I think
John mentioned the top of the mind attitude in the political environment,
I think that sort of approach in political thinking is essential
to create an environment in a number of areas.
Q73 Mr Clapham: Thank you. We see there
is a cultural problem, the need to embrace, are our competitors
embracing the culture better than we are, for example Korea?
Mr Woodget: In some ways, yes.
In some ways it is easier for the smaller countries to be able
to make policy decisions and execute them. The extent to which
progress has been made in the last five years in the United Kingdom
has shown it is possible for us to do more of the right thing.
The question is, what are the key areas for us to do better in?
I think we are doing many of the right things, it is doing more
of the right thing that is the challenge here.
Mr Clapham: Thank you.
Q74 Chairman: Mr Woodget, before we leave
this area, do you think you could as an organisation give us your
view on the INSEAD information when it becomes available. You
have alluded to the next report coming out, perhaps Intellect
could give us its comment on the information when it comes out
because it is obviously the kind of question that had we had it
we would have asked you.
Q75 Mr Woodget: I was talking from an
Intel point of view, looking as a global company and as an American
company.
Q76 Chairman: What I was really getting
at was the INSEAD report is not insignificant, obviously, because
we were talking earlier about one of the listings and how competitive
Britain was.
Mr Woodget: We could do that.
Q77 Chairman: You might argue that there
is such a flurry of information of that kind that it is difficult
to distinguish.
Mr Woodget: It is very interesting.
Q78 Chairman: If you have a series it
would useful to get your view, either your organisation or your
company, whichever take on it.
Mr Woodget: I would be pleased
to do that. You would be interested to know that I think INSEAD
nicked some of the information, age partnership, dashboard, metrics,
much of their structure maps very nicely on to the United Kingdom's
initiative for the Information Age Partnership, I think it will
be very interesting to do that.
Q79 Richard Burden: Can we go just back
to the emphasis you put on the need to create a more effective
national communications infrastructure. You have talked about
the role of broadband within that and the need to move horizons
beyond where they are at the moment. I have just struck in your
evidence 478, where you said "the United Kingdom is to reach
100% broadband availability to all communities by the end of 2005.
Decisions will need to be made as to which model of public sector
intervention is most suitable to do that". You then say,
"Intellect recommends that the Government continue to work
with industry to ensure we have the right regulatory framework
and incentives to invest in such networks". What is the model
of public sector intervention that you would like to see?
Dr Hargrave: I think the key thing
is there should be some form of public sector intervention. Obviously
we are working in an environment where it is often said that the
market should decide and if there is an economic value or value
to business and commerce these things will happen. If you look
at many of the components of the knowledge economy for electronic
devices it might not matter ultimately whether they are developed
or researched and made in the UK, they can be imported. There
is a fundamental thing which is the actual communication infrastructure
linking together. It is like the roads in the twentieth century
and the railways in the century before and the canals before that,
individuals cannot put it in place if they need it. If you are
going to be a knowledge worker of the new economy and you want
to sell your skills to an international company who does not happen
to have a site that you can go to work to, they might in the future
quite reasonably expect you to work from home. If there is no
communication infrastructure in place to enable you so to do you
cannot be employed. You would not have built a factory in the
last century if there were not roads in and out to get the raw
materials. Because it is so important and so central it cannot
just be left to be created bottom-up by market forces. We are
talking about the next generation of broadband, a lot is being
done and most of the numbers here relate to the roll-out of the
first generation, that was even more straightforward. This next
generation requires digging the roads, getting fibre closer to
the user, the use of fibre and radio alongside these. Unless that
is pulled through it will not be there. It is like if there are
no roads in the country and expecting the market to build the
right road network. It seems so fundamental to the economy that
that must be pulled. There needs to be a vision in the United
Kingdom as to what that should be and as it says elsewhere in
this document someone needs to be empowered within Government
in order to make sure that vision takes forward. The particular
nature of interventions I think are open to debate but it has
to be pulled rather than pushed. It is so central to the economy
that it is argued that the person who actually monitors that and
looks at it should be in the Treasury within the United Kingdom
administration. That is the sort of concept behind those comments.
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