Examination of Witnesses (Questions 380-399)
INSTITUTE OF
DIRECTORS
13 JULY 2004
Q380 Chairman: It is an intriguing prospect
that you have outlined. It implies that within Britain there will
be a degree of connection to broadband and to the Net that at
present has not emerged and also a level of computer literacy
amongst taxpayers which I doubt exists. These are fairly substantial
preconditions.
Professor Norton: They are both
very fair points, Chairman. On the broadband one, this is not
something that requires high capacity, it just requires connectivity.
I think your point about skills is very well taken and I really
have no answer to it other than using the existing channels such
as CABs and so on to help people fill these in and perhaps giving
them a chance to do so.
Q381 Chairman: I do not want to say that
that should be a template for the UK, but it is a useful example.
There are qualifications one would have to build into it.
Professor Norton: I am an engineer,
I love the technology, but we get too preoccupied with the technology
and not with how real people could relate to it and use it.
Q382 Mr Clapham: Professor Norton, I
hear what you say about the reform of processes and perhaps that
kind of language may have helped yesterday when the Chancellor
was making his announcement. What is your view of the benefits
to employees, to business and to government from ICT?
Professor Norton: There are typically
three levels of benefit. One is that you can use ICT in the broadband
context simply to do what you do today much faster and cheaper
and there is nothing wrong with that, but it is only a starting
point. The next stage of that is to refine your business processes
to get the best out of that technology, and the final stage is
to reinvent the business. The tax example I gave would be a reinventing
of the system based on what it is now capable of doing. You do
not get there by incremental change because you have brought in
new technology, you have to have rethought what it is you are
trying to do. Too often both in the private sector and in the
public sector we just accept the incremental and do not stand
back and think, "Hang on a minute, what are we really doing
here? How could we really approach this?", and that takes
money and time and thought and resources.
Q383 Mr Clapham: Given what you have
said about reinventing the business, could you explain how, for
example, a business develops its ICT and then implements it?
Professor Norton: Perhaps I should
give some background. From 1999 through to 2001 I think I gave
250 presentations to groups of small businesses in every part
of the UK, including parts even I never knew existed. What I focused
on was the impact of e-business and I did not talk about technology
once. I talked about the fundamentals of business, how you relate
to customers, how you can improve customer service and how you
can cut costs out of your supply chain. The key thing in this
is to look at the fundamentals of the business through a glass
that says what might some new technology achieve and when you
have decided what you want to do in the business then you call
in the technologist. I found that was an approach which invariably
engaged small businesses. They were thoroughly fed up with people
coming in and telling them how wonderful technology was. They
wanted someone to come in and tell them how they could chop 10
or 15% off the cost of their supply chain or how they could improve
how customers relate to them, and that works and in some cases
it will cause them to reinvent their business. They can, I cannot,
but it is all based upon their insight.
Q384 Mr Clapham: We know that there is
reluctance certainly on the part of many SMEs to go ahead with
ICT projects. How might we be able to facilitate small- and medium-sized
enterprises to engage better with ICT?
Professor Norton: It is going
to sound trite and I apologise, first of all by not calling them
ICT projects. Secondly, it is business improvement, business transformation.
That gets the thing off on the right foot. If you have not got
a business benefit coming out of it that is very clear and measurable
then we should not be doing it in the first place. The beauty
of SMEs is they know that. Large businesses tend to lose sight
of it, but SMEs go bust if they lose sight of that, which is why
I enjoy them so much.
Q385 Linda Perham: Professor Norton,
I was interested when you said you were going around the country
giving presentations. I am really surprised that people selling
technology or ICT applications would get away with going round
and not discussing the applications. It just seems obvious that
you would not want someone to come in and sell you technology
without saying what it can do for your business. You had to go
round and tell people that rather than people coming in saying,
"You can have this wonderful new computer. I don't know what
it will do for you but it looks nicer than the one you've got."
Were people seriously going around expecting to get business that
way without either them explaining what it could do for the business
or business people saying, "Yes, that's very nice but what
can it do for me"?
Professor Norton: The beauty of
it was that as the IoD I am not selling anything to anybody, therefore
I am credible. The industry has got better. This was in 1999-2001.
Most large companies do not relate to small businesses, they do
not understand how to sell to them largely because it is extremely
difficult as there is no easy way of properly segmenting small
business, there is no easy way of focusing your sales and large
business finds it quite difficult to relate to that audience and
usually gets it wrong for the reasons we have just said. It is
easier to try and sell them technology. It is difficult to understand
what a lot of very disparate small businesses do. They have not
got the time, the energy or the inclination.
Q386 Chairman: Do you think in supply
chain terms our businesses are bold enough? Let us take as an
example a builders" merchant who serves a whole range of
two or three person businesses, most of whom will have a computer
for either playing games or booking their holidays but they will
not necessarily think about getting a bath or a bag of cement
online and yet it might well be that the productivity of the building
industry could be greatly enhanced by a builders" merchant
turning round and saying, "I'm sorry, I am only doing business
online now. You make your order and we will have it ready for
you, but we're not having any front office facilities anymore."
One gets the impression in the US just from looking in the newspapers
and watching television adverts that there is always a www reference,
there is always an address and one gets the feeling that part
of this productivity gap or performance gap which you have identified
could be attributable to a lack of boldness on the part of British
business.
Professor Norton: There is. There
is also a structural problem. Towards the end of my first spell
at IoD I did exactly what you suggested. At the request of a builders'
merchant in the east of England I came in and I did a private
session to all of his senior people on exactly that. I said, "This
is what it is capable of. Now you go away and work out what it
means for your business because I don't know. Given all the examples
I have given you, you ought to be relating it to your business",
and hopefully they did. The problem that has caused slow adoption
has actually been the relatively late availability of broadband.
Let me just explain why. A number of the early adopters among
small businesses got a hosted front end site up selling things,
so it was hosted by their ISP, which is not a problem except that
there was no real-time connection between the front end of it
that was selling things and the back end that did stock control,
so they ended up selling things they had not got. The reason there
was no link was that there was no cost-effective way of having
their systems always on. They could not afford the leased lines.
The broad availability of broadband now makes this the point at
which it is much more appropriate for those folk to come online.
Before they actually had quite a good excuse for not doing it
and it was based on fact. I am not quite sure why that was different
in the US. I suppose it was the local rate of calling in the US
amongst other things.
Chairman: That was something we identified
in 1999. We had discussions with them about the fact that traditionally
they had not paid for local calls.
Q387 Mr Berry: I am interested in the
distinction between the potential of ICT and what it does deliver
in the real world. I have been in too many offices where I have
thought switching computers was a matter of decor rather than
anything else. Why is it, as Graeme Leach points out in his paper,
that there is no guarantee that the UK can then reap the potential
dividend? You have already talked about the importance of people
and processes and so on. Is there anything you want to add to
that? There is a basic gap between everyone saying there is enormous
potential for raising the rate of growth by investing in ICT but
performance shows it is pretty varied across the board.
Professor Norton: I think it is
reluctance to change. I put a little quote from Machiavelli in
my paper; I think nothing has changed in 500 years. I think we
are reluctant to change and, even worse, people who are implementing
change programmes are reluctant to put the money in to explain
why people should change and what is in it for them. I have done
this, it costs a lot of money and it has to be done again and
again and again, but if you put the money into saying why it is
important to your customers, why it is important to you as an
employee, what would be the consequence of not doing it, repeating
that process, probably making incentive payments, then you can
make it happen. Obstacle to change is quite large.
Q388 Mr Berry: To claim that ICT can
raise the underlying rate of growth of the economy is an enormous
claim.
Professor Norton: I am an engineer,
not an economist. I think it raises the underlying productivity.
What you then do with that liberated capacity is another matter.
Q389 Mr Berry: Yes, but a number of people,
including Graeme Leach in his paper to Committee, assert that
the IoD's forthcoming report will demonstrate this and I think
it is believed by many people that it is self-evident that ICT
can increase the underlying rate of growth. I am not sure here
whether the argument is that the higher the share of GDP devoted
to ICT the higher the rate of growth, whether it is the absolute
level of spending on ICT that increases the rate of growth or
whether it is the nature of investment in ICT. Could you assist
me by telling me what it is? Is it spending more? Is it a higher
share of national income going up or the GDP going on in ICT,
or what?
Professor Norton: It needs to
be appropriate IT, which is often not the very fastest one with
go-faster stripes on the side, and bedded into a structure of
people and processes. Often you can do very well with quite limited
IT so long as it is properly bedded into the processes of the
company. You can go to town on IT and damage the company. I would
cite in that how many companies approached e-mail. As a nation
we do not sit back and think what we are trying to do with this
and then train people. How many companies trained people in how
to use e-mail? In my own personal experience it was very, very
few. I wonder if the House even offered Members training on this.
I do not know. Inappropriate IT in a context that has not been
properly set up and trained is damaging, not supportive. Appropriate
IT is great.
Q390 Mr Berry: What role does the Government
have in encouraging the appropriate use of ICT? If we are talking
about the economy as a whole, you have said this is the key thing,
it is what you do with the kit that matters. What role has the
Government got there? Should the nanny state go round interfering
or should it be there supporting UK plc by getting more involved?
Professor Norton: We still underrate
the role of Government as an exemplar. Many people's experience
of this is when they walk into their child's school, when they
walk into their doctor's surgery, when they have an involvement
with law enforcement; and if they see systems that clearly work
and save money, they think it is good, but all too often, sadly,
they do not. Government's role is as an exemplar in what people
see and in its purchasing. It is absolutely key it sets an example
by saying they will not have a business change project without
making sure they resource the people side. I do not believe in
Government intervening other than perhaps in one area that I have
suggested in my note to the Committee and that is the issue of
clusters. I think it is critically important that we create the
right conditions for clusters and that comes back to economic
policy, for example, it does not come back to picking winners.
I do not think we can create a cluster. I wish I could. If you
can find them, you can nurture them and give them a supportive
environment in which to operate. I do think the Government has
a role there probably through RDAs.
Q391 Sir Robert Smith: Could I ask a
little bit more about clusters because your first introductory
paragraph goes against what a lot of people think the Internet
does. The Internet suddenly means that physical location is not
important because you have got all these wonderful virtual connections
and so on and you go on to say that tacit knowledge will be more
important and needs to be exploited in clusters. Then you pose
a question, how can the UK best support and grow such clusters
based on high value R&D input and best retain at least a share
in the economic value of the products and services created? You
have mentioned RDAs.
Professor Norton: The honest answer
is I do not know how to do this, let us be fair. My instinct is
it is extremely important. I think we have tried a number of initiatives
under the DTI to do this with, at best, moderate success.
Q392 Sir Robert Smith: Why does not the
Internet provide that virtual cluster? Why does it need to be
physically in the same place?
Professor Norton: Because I have
never seen creativity occur at a distance. Creativity occurs when
people come together and make comments which spark ideas off each
other. They do not reveal to the Net the underlying key knowledge
which comes out in those conversations. The value of that underlying
tacit knowledge is greatly increased by putting more explicit
knowledge on the Net. I saw a piece in the paper yesterday that
there is another venture start-up being funded in Cambridge which
relates to ultra wideband communication, which I would support.
That comes about because sitting down the road in Cambridge is
a company which pioneered the Bluetooth. So you take some knowledge
out of there and you take some skills from within the university.
There is a proximity effect here to create that idea and make
it real that you cannot do at 1,000 miles or 2,000 miles distance.
Q393 Sir Robert Smith: You do not see
chatrooms and that culture evolving?
Professor Norton: No, I do not.
Perhaps that is because I am 51. If I were 21 I might believe
it, but I do not.
Q394 Sir Robert Smith: One of the things
we were told in San Francisco is that their clusters came about
because they had lots of good universities that happened to be
there and then they had a war that produced a lot of the demand,
and they had a very tolerant society that allowed people to think
freely.
Professor Norton: It came about
because there are a number of small restaurants in which venture
capitalists got together, and they are on their fourth cycle anyway.
I spent a lot of time in the Silicon Valley in the early 1980s
in a previous iteration and it was a very fun place to be.
Q395 Sir Robert Smith: So it is government
funded cheap restaurants?
Professor Norton: No.
Q396 Sir Robert Smith: Are you saying
you cannot see an answer but you think it is something that government
has to try and grapple with?
Professor Norton: If clusters
are not sufficiently broad, for example, they will not survive.
You put funding in to broadening an existing cluster based on
the knowledge that unless it achieves a certain mass it will fail.
Q397 Linda Perham: In your submission
you said that the impact of ICT investment in GDP growth in the
UK is around about half of that in the US and you actually said
we were probably better than Europe for a number of reasons. The
gap between us and the US, is that because of a lack of investment
in ICT or other factors? I know ICT is not the be-all and end-all.
There is the productivity gap between us and the US.
Professor Norton: I think there
are at least half a dozen factors; some of them are structural,
some of them are cultural. There is a greater willingness in the
US to embrace change, so there are fewer obstacles in that respect.
There is certainly greater labour mobility there. There is probably
a stronger competition environment. I do not think there is any
one show-stopper. I think it is a combination of factors which
taken together slow us with respect to the US. I would argue that
tax credits were something IoD argued for. I will tell you my
personal experience of that. An old friend is a professor at the
University of Ulster in Coleraine. Full of enthusiasm, he went
to a start-up company and was on the board and said, "We
ought to be claiming these tax credits." So they went to
their local tax office and the tax office said, "We don't
believe in these tax credits and for the temerity of asking we
will give you a full tax audit." So he damn near got voted
off the board. There was nothing wrong. It was entirely in line
with the policy the Treasury was trying to push but it simply
had not got through to the tax inspector in that place and this
is our problem, even when the policy is right sometimes it does
not get delivered on the ground.
Q398 Linda Perham: That happens quite
frequently. Previous witnesses have suggested that the UK has
not reached its target of being the best environment for e-commerce
but it has made substantial progress. What is your view about
that? Has the dot com boom and bust hindered progress or has that
not been a crucial factor?
Professor Norton: The dot com
boom and bust was inevitable. I was telling IoD audiences—and
I would cite Gartner Group as one of the consultants who were
saying this, too—before the bust that the bust was coming.
I said to our audiences in the latter part of 1999-2000 before
the crash that I wanted them to understand what I was saying.
I told them a crash was coming and that they should remember I
told them, and they should remember afterwards that I told them
that tools were still important. So the crash was overcompensation
on the upside followed by overcompensation on the downside. The
underlying technologies are still important. We will see another
one soon in nanotech with exactly the same characteristics. These
do matter and they still matter.
Q399 Linda Perham: You were talking about
Finland and how they had worked with local government in Chicago.
How can we give consumers more confidence in e-commerce in this
country or is it something which needs a boost from Government,
or is it something which will evolve more slowly?
Professor Norton: I think we are
on the cusp of a very, very serious problem. To the best of my
knowledge there are 110 million broadband attached computers worldwide
at the moment. If I made the heroic assumption that 99% of them
had virus protection—although I doubt it is even 60—that
would still leave more than a million PCs open to attack. The
National Bureau of Standards in the US ran a test by attaching
PCs to broadband lines and left them to see what happened just
two hours before infection. So after two hours they were busy
preparing for an attack. So it was a million PCs around the world
willing and able to be commanded to attack sites. I think we are
going to have a great deal of difficulty commanding consumer support
for this based on spam, based on "phishing" and based
on attacks which will move to higher profile sites than ones which
cause alarm and the pain of attacking Microsoft. When they start
attacking banking systems and stock exchanges then I think we
will have a much more serious problem. I believe we will see a
fundamental change in the architecture of the Net, which I dislike.
We are going to see the processing sucked back into the network
where it can be protected, away from the people who in the British
tradition cannot be trusted. I wish I could see a way out of that
because I do not like that model at all, I like having my processing.
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