APPENDIX 14
Memorandum by the Institute of Directors
NOTES BY GRAEME LEACH, CHIEF ECONOMIST, THE
INSTITUTE OF DIRECTORS AND PROFESSOR OF ECONOMIC POLICY, THE UNIVERSITY
OF LINCOLN
The IoD's evidence is drawn from a forthcoming
report on the impact of the new economy in the UK. The discussion
points below are both general and specific. General—the
impact of ICT on economic growth. Specific—the views of
IoD members towards ICT and their business:
ICT AND ECONOMIC
GROWTH
— In the future, ICT has the potential
to raise the underlying rate of economic growth in the UK. However,
there is no guarantee the UK will reap this potential dividend.
— Certain markets, such as education,
could be transformed by the impact of ICT on the current business
model. Some commentators have speculated that on-line education
could become the economic growth opportunity of the 21st century.
— ICT is no panacea. All aspects of
economic policy relating to productivity need to match global
best practice (competition, taxation, regulation, investment,
innovation, skills etc). ICT diffusion will be hindered by failure
in any of the areas above.
— There is a critical role for competition
in driving innovation and GDP growth. Much of the future benefit
of ITC will stem from enabling businesses across the whole economy
to innovate.
— Having the equipment or networks
is not enough to derive economic impacts. Countries with equal
rates of diffusion of ICT will not necessarily have similar impacts
of ICT on economic performance.
— Studies suggest that the impact of
ICT investment on recent GDP growth, has been around 0.5% per
annum in the UK and the EU, compared with 1% in the US. The EU
faces a significant—a triple whammy—threat to future
relative growth prospects due to:
(1) Lower contribution of ITC to growth compared
with the US.
(2) Weaker productivity performance owing to structural
rigidities.
(3) Longer term decline in working population.
IOD MEMBER
VIEWS (BASED
ON DECEMBER
2003 SURVEY)
— 63% of respondents stated there was
still too much hype surrounding discussion of the impact of the
new economy.
— 39% of respondents stated that the
Internet and e-commerce had provided a significant boost to productivity
in their organisation over the past five years. 43% stated that
it had provided a slight boost. 15% stated that it had no impact.
— 40% of respondents stated that they
expected the Internet and e-commerce to provide a significant
boost to productivity over the next five years. 50% stated that
they expected it to provide a slight boost to productivity. 8%
stated that they expected it to have no impact.
— 18% of respondents stated that the
Internet and e-commerce had a radical impact on their organisational
structure over the past five years. 47% stated that it had a moderate
impact. 35% stated that it had no impact.
— 19% of respondents expected the Internet
and e-commerce to have a radical impact on organisational structure
over the next five years. 58% state that it would have a moderate
impact on organisational structure over the next five years. 21%
stated they expected no impact on their organisational structure.
— 87% of respondents stated they still
had an overhang in information technology as a result of previous
over investment (14% stated they had a significant overhang, 34%
stated they had a slight overhang).
— Over the 2004-05 period, 33% of respondents
planned a small (below trend) increase in IT investment, 39% planned
a trend increase and 19% planned a large (above trend) increase.
Notes by Professor Jim Norton, Senior
Policy Adviser, IoD
There are three areas that I would like to touch
on in evidence to TISC.
THE IMPORTANCE
OF CREATING
AND PROTECTING
TACIT KNOWLEDGE
Frances Cairncross in her otherwise excellent
book "The Death of Distance" suggested that the Internet
would facilitate mass migration of key activities to lower cost
economies and would weaken so called "clusters". . .
I disagree. I believe that by facilitating the global availability
of "explicit" knowledge (that knowledge which can be
captured in databases and expert systems) the Net places a high
premium on "tacit" knowledge (that knowledge and experience
which resides only in the heads of key individuals). Such tacit
knowledge is surfaced and exploited where individuals from related
industries come together formally and informally to create new
concepts and ideas. Such creativity is focussed on physical
presence in so called clusters. Far from destroying such clusters
(focused on specific locations or regions), the Net increases
their importance. The key question is thus: 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? Clusters represent a complex
ecology, they need a certain critical mass and a certain diversity
(vertically up and down the supply chain and horizontally across
similar industries) to be viable in the long-term. It is unclear
whether they can be specifically created, but nascent clusters
can probably be nurtured and supported. . .
RECOGNISING THAT
TECHNOLOGY IS
NECESSARY BUT
NOT SUFFICIENT.
. .
The UK (both public and private sector) finds
the "management of change" a particular challenge. The
words of Nicolai Machiavelli, in "The Prince" nearly
500 years ago could scarcely be bettered now:
"Nothing is more difficult than to introduce
a new order. . . Because the innovator has for enemies all those
who have done well under the old conditions and lukewarm defenders
in those who may do well under the new."
I would contend that there is no such thing
as an "Information Systems" project. There are merely
business change projects facilitated by new, often networked,
information systems. I believe that the UK (both public and private
sector) systematically under-estimates the investment required
in people to make such change successful. This "people"
investment includes:
— communications—(why are we
making this change? who benefits?. . .);
— training—(what new skills are
required to exhibit best practice in the use of new processes
and tools?);
— testing—(does the new approach
work as well in practice as it did in theory!);
— changes to performance measurements
and pay—(to provide incentives for the new behaviours sought
and to discourage old approaches);
— evangelisation—(winning the
hearts and minds of individuals at each level in the organisation
such that they go out and argue for the change).
I believe that the people elements require at
least as much funding as the new ICT elements in any major "Knowledge
Economy" project. I would further argue that much underperformance
in this area stems from lack of recognition and funding of the
"people" dimension rather than technology failure. The
key question is thus: How can we best convey the message that
Knowledge Economy success hangs more on managing people and process
than it does on technological adeptness?
CREATING A
KNOWLEDGE ECONOMY
VIRTUOUS CIRCLE
THROUGH THE
VARIOUS ROLES
OF GOVERNMENT
Whilst the challenges of Knowledge Economy development
are certainly not restricted solely to the public sector, how
can the real strengths of the public sector's various roles as
purchaser, exemplar, sponsor and regulator be developed into a
virtuous circle to the benefit of the UK economy as a whole? In
summary, I suggest that we need to contract for "outcomes"
rather than technology recognising that many citizens impressions
of the Knowledge Economy are shaped by there experiences of it
through public services in Health, Education, Law Enforcement,
. . . and whilst a basic framework of regulation is both necessary
and desirable it should be minimised to allow genuine creativity
a chance to develop. This is covered in slightly more detail in
my attached article published last May in Computing's Agenda Setters
series.
Professor M J Norton
Senior Policy Adviser e-Business & e-Government
Institute of Directors
7 July 2004
Government and the ICT industries: Divorced
or just good friends?
How might Central Government and the Information
and Communications Technology (ICT) industries better build on
their mutual strengths for the economic benefit of us all? Many
acres of newsprint have been used over the years in an attempt
to describe this complex linkage. At the risk of threatening another
forest, perhaps the starting point is to tease out the different
facets of this tortured relationship. . . There are at least four
main areas, Government as:
Being an exemplar for success or failure?
Perhaps the least understood of these roles
is Government as "exemplar". Highly successful ICT systems
can contribute to enhancing our children's' education, improve
the quality (and lower the cost) of our healthcare, boost the
effectiveness of our police and armed forces, and improve our
personal experience as "customers" across a swathe of
Government administration from tax to passports. I believe that
the extent to which these public sector applications are seen
to be successful greatly influences, albeit often subconsciously,
the thinking of small and medium enterprises in their own exploitation
of ICT. The reverse is sadly also true, high profile failure breeds
more general aversion to innovation.
Turning purchases into outcomes?
The most visible area of late has been Government
as "purchaser". Through the good work of Sir Peter Gershon
at the Office of Government Commerce (OGC) and NHS IT Director
General Richard Granger, much has been done to both boost the
efficiency and improve the project management of the technology
elements of public ICT procurement. But what of the outcomes?
It takes a combination of people and process as well as technology
to deliver improved services. To paraphrase a report by the then
CSSA some three years ago, "there is no such thing as a Government
ICT project, only business change projects mediated by ICT".
After more than 40 adverse reports by the House of Commons Public
Accounts Committee into major failures presided over by Governments
of both parties, Government gradually seems to be getting the
message about the principle of investing in people and process,
for example through the welcome appointment of Dr. Aidan Halligan
as co-leader on the national IT programme for the NHS. However,
follow through on the ground with real cash is still sadly
lacking. On delivering such real improvements in outcomes will
hang the value of "Government as exemplar" as well as
perhaps electoral fortunes. . .
A canny sponsor?
Government has a key role in creating the most
appropriate environment within which ICT industry innovation and
investment is attracted into the UK. Within an increasingly global
economy, I believe that the outsourcing of a tier of service jobs
to lower cost countries is just as inevitable as was the loss
of the equivalent manufacturing roles. What is crucial is to create
new, higher value, service and knowledge-based activities (backed
up by high investment in education) rather than behaving like
King Canute whilst the water laps towards our necks. How the Government
supports both inward and local investment, through simplifying
general taxation and industrial policy and specific areas such
as broadening the scope and value of R&D tax credits, will
be crucial. At present local tax offices seem sadly out of touch
with even the limited policy advances already being promoted by
the Treasury.
A retiring regulator?
Whilst there is an essential legislative
role for Government to ensure that minimum standards of good corporate
behaviour are established and policed and to manage the fair distribution
of nationally held resources (such as radio spectrum), the aim
should be to stimulate competitive markets and to minimise the
need for intervention. Often the best role for Government is simply
to step out of the way.
The summation . . .
Let's see a virtuous circle created from these
four roles. Government should make the UK an increasingly attractive
home for ICT R&D clusters and their spin out service and product
companies. It should nurture these with the necessary minimum
of regulation and through canny use of tax and investment incentives.
If successful, these will be recoverable from the Page two of
three normal tax take on the economic growth engendered. More
investment in people and process would turn parochial success
in better ICT procurement into publicly recognised success in
service delivery and then the public sector would at last "punch
its weight" as a fine exemplar.
Prof Jim Norton
Senior Policy Advisor—e-Business & e-Government
Institute of Directors
19 April 2004
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