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competitor5-1


Vol. 5 No. 1
September 2001

Strategy for Regional Business and Economic Development for Global Software Competitiveness

Critical Questions


  • What is the value add of software to the region?
  • What is global software competitiveness?
  • What is the vision for regional business and economic development?
  • Who are the stakeholders and what are their responsibilities?




Global Software Competitiveness Studies
Sponsored by the
Center for National Software
Studies (CNSS)
http://www.CNsoftware.org

Conducted by Don O’Neill
ONeillDon@aol.com
(301) 990-0377

@Copyright Don O’Neill, 2001, used by the NSC
with permission


A Strategy for Regional
Business and Economic Development
of Global Software Competitiveness


Abstract

Prosperity is the responsibility of government, and competitiveness, the responsibility of business. Both prosperity and competitiveness are tied to the well being of the software industry, and industries of all kinds are increasingly dependent on software.

The strategy for regional business and economic development of global software competitiveness begins with a software value add study to provide timely, accurate, and complete information on software and its essential uses within the region. The database of software usage and global software competitiveness assessment becomes a valuable resource and strategic advantage for the region in attracting, retaining, and promoting regional enterprise.

The promotion of business and economic development for the region’s software industry involves the coordination of economic and market forces, the establishment of networks for resource sourcing and research collaboration, and the management of a technology program. An office of business and economic development is the focal point for aligning the region’s enterprise community, university collaborators, venture capitalists, and legislative sponsors. The operations of the office center around field measurement, establishment of an infrastructure, and the facilitation of networks.

The industry software vision of the regional business and economic development is to raise the ability of industry software enterprise to improve its global software competitiveness to a core competence. Specifically:

  • Understand what business and economic factors impact and benefit industry software enterprise in pursing global software competitiveness
  • Align the best capabilities of business and economic development staff, legislative associates and sponsors, and university collaborators with what matters most to industry software enterprise in pursuing global software competitiveness
  • Understand current practice within industry software enterprise in controlling personnel resources, managing customer factors, winning over the competition, handling event threats, and managing change
  • Measure the critical aspects and assess the leading indicators of global software competitiveness
  • Plan for lasting improvement and provide the change management and training infrastructure to facilitate plan execution in the best possible way

Software Value Add

National Prosperity
The Center for National Software Studies (CNSS) has been engaged in Global Software Competitiveness Studies for several years. These studies reveal that the value of software to the national economy is not well understood. Prosperity is the responsibility of government, and competitiveness, the responsibility of business. For the most part, government leaders and enterprise executives are ignorant of software and its emerging role in obtaining and sustaining global competitiveness in the product lines of critical industries. Most view software only in terms of commodity applications for personal computers. Few understand the increasing and deepening dependency on the embedded software that lies at the core of the nation's critical industries.

While prosperity is a government responsibility and competitiveness is an enterprise responsibility, they are linked. Both prosperity and competitiveness are tied to the well being of the software industry, and industries of all kinds are increasingly dependent on software... and having a difficult time.


Software Dependency

Software has become a critical component for a large and growing number of industries in various fields. Just as Dupont is dependent on chemistry, ALCOA on metallurgy, Xerox on xerography, and AT&T on telephony, industrial organizations are increasingly dependent on software as the critical integrating element in product line processes.

While the competitiveness of these industries is increasingly dependent on software, not enough is known about how software impacts the global competitiveness of US industry and national prosperity. Unfortunately software doesn’t always produce the right answers on time every time. We need only to look at the Olympics ‘96, FAA’s Air Traffic Control, Internal Revenue Service, Year 2000 Problem, and pacemaker failures for examples of software shortfall.

Software Value Add Study
Promoting an understanding of the value of software in achieving global competitiveness for industry of all kinds is accomplished by conducting a study to reveal the scope of essential software usage and assessing the degree to which industry sector enterprises are achieving global software competitiveness.

The Global Software Competitiveness Assessment Program is designed to assist corporations in pinpointing the strengths and weaknesses in the software competitiveness of their product lines. It accomplishes this through the application of well designed instruments, a global software competitiveness database, and site visits. Leading software indicators are defined and industry specific Value Points are identified. These are software applications that are strategically essential to the competitiveness of the enterprise.

Regional business and economic department sponsors a program to improve the understanding of the value add of software to the economy. The Software Value Add Study will provide timely, accurate, and complete information on software and its essential uses within the region. These findings will be understandable and packaged for use with diverse audiences ranging from the general public to the state’s policy makers. The database of software usage and global software competitiveness assessment becomes a valuable resource and strategic advantage for the region in attracting, retaining, and promoting regional enterprise.

The Stage We Play On
Over the past 40 years, a trillion lines of code have been written. Software usage is increasing with more industries becoming dependent on software, and dependency within each industry deepening.

Yet the value of software is not well understood. While the nation’s leaders often view software as shrink wrapped commodity software for personal computers, the backbone software systems that comprise our national data systems and sustain government operations are large scale, complex custom software applications.

The Chief Information Officer (CIO) and the Chief Technology Officer (CTO) understand that the value of a software system lies in its ability to increase returns to scale. The products of software are data, information, and knowledge. Producing the software product involves a defined expense. Using the software product to produce data, information, and knowledge usually involves minimum recurring cost. Distributing the software product and its data, information, and knowledge involves a near zero cost. Hence, the value of software lies in its ability to increase returns to an uncountably large scale.

Every business enterprise and government agency is increasingly dependent on software as the engine for information technology. However, there is a shortage of software personnel and it is expected to continue and perhaps worsen. In addition there is an uncontrolled proliferation of government and industry sponsored capability maturity models. The result is an industry of practitioners who are confused... and leader less. When viewed from the factory floor, software intensive systems are developed and fielded through a process of ongoing experimentation and discovery during development and even deployment.

The strategic management of global competitiveness in software calls for setting direction, providing fuel, and controlling the business environment including the supplier, the customer, the competition, and change and event threats. Accordingly, enterprise maturity in global software competitiveness is achieved by managing the leading indicators selected to support the strategic management of enterprise global software competitiveness.

Software projects performing on the factory floor are finding that they must fend for themselves. These projects struggle to adopt competitive software behaviors capable of producing trustworthy software systems that delight customers and distinguish themselves from the competition. These behaviors range from mere competence with technology and compliance with best industry practice to management boldness and engineering innovation needed to dominate a market niche. Selecting among the supplier driven, market driven, and competition driven behaviors is done with an eye towards aligning the best behaviors to express the nature of the enterprise and address the needs of the market.

Facing Critical Issues
It is time for CIO’s and CTO’s to accept the realities of software engineering on the factory floor and to forge a new software engineering idiom, one based on preferred behaviors capable of striking a more harmonious balance among commitment management, product perfection, and people satisfaction. The challenge is to address the critical issues of the day within the context of the continuously renewing knowledge and history of the profession for example:
  • Technology is driving new business opportunities and operates as a strategic variable whose application requires innovation and not simply as a commodity whose application is routine and commonplace. Value flows from the use of technology where the application domain and its capabilities and features are simply the context of use.
  • Requirements of the application domain are fully known at the end, not the beginning. A requirement becomes valid when the customer and user agree that it is valid. In applying technology, technical personnel need time to learn the application, adapt solutions, and select the best technical and application architecture.
  • Time to market is valued over product quality. Software products are often fielded with known defects. Here the programmer’s drive towards perfection clashes with the manager’s drive to meet business commitments. Professional ethics are increasingly compromised without objection as this shortfall in product quality is decriminalized.
  • Boldness in management approach is valued over mere compliance. Boldness is about taking responsibility, the decision to lead not simply follow. In being bold, calculated risks are taken and there is uncertainty.
  • Innovation in engineering approach is valued over basic competence. Innovation is about possibility, the possibility to apply ones creativity to a situation to achieve exceptional results.
  • The superior knowledge of the technical practitioner is favored over the superior power of the manager.

Competitiveness, Security, and Infrastructure
Global competitiveness, industrial security, and professional infrastructure of the software industry are becoming leading indicators of national prosperity.
  • A few of the the factors impacting the nation’s competitiveness are wage structures, education of the technical workforce, immigration of skilled workers, and research and development.
  • Factors impacting security are the vulnerable national defense information systems, industrial piracy of intellectual property, and the privacy and hacker threats to society.
  • An effective infrastructure is required to promote the commitment, capability, and capacity needed to achieve predictable and sustained performance at world class levels. Yet 71.5% of the organizations assessed by the Software Engineering Institute’s five level software process maturity framework fell below level 3, the level of full competence.

Global Software Competitiveness

The Center for National Software Studies (CNSS) has been conducting a program in Global Software Competitiveness since 1995. The CNSS views Global Software Competitiveness as a critical ingredient to the nation's prosperity centered around controlling scarce personnel resources, valued customers, ruthless competitors, and chaotic event threats.

The Global Software Competitiveness Studies provide a collection of fundamental measurements and behaviors that integrate economic, business, and technology factors. Participants in regional economic and business development initiatives derive particular benefit from an exposure to these concepts.

With the emergence of Global Software Development as a business model to produce software products rapidly enough to dominate their niches in a globally competitive workplace, there is a need to obtain the deepest possible understanding of global software competitiveness and the leading indicators that permit systematic reasoning about it.

An enterprise wishing to advance its global software competitiveness needs a framework to organize these leading indicators and a mechanism to assess its readiness to compete. The Global Software Competitiveness Program is evolving and prototyping such a framework. While the framework rewards those who effectively compete with others, it reserves extreme rewards for those who dominate their niche. Mere competition is distinguished from competitiveness.
Global competitiveness in software is accomplished by setting the enterprise direction, providing the fuel, and controlling the businesses environment. Over seventy leading indicators selected to support the strategic management of enterprise global software competitiveness form the basis for the Global Software Competitiveness Program. Assessments assist an enterprise in pinpointing strengths and weaknesses in the software competitiveness of its product lines.

Value Points within product lines are identified, and leading indicators are assessed to determine global software competitiveness. A Value Point is a computer program or software system within an enterprise product line that is strategically essential to the competitiveness of the enterprise. Once identified, Value Points are tagged as strategic assets subject to the rigors of the enterprise strategic planning process. The competitive enterprise is the one that exerts sufficient control over its suppliers, customers, competitors, and event threats.

The vision for achieving global software competitiveness is presented as a strategic plan composed of direction setting themes, objectives whose achievement locks in the gains, and leading indicators whose assessment guides improvement.

The successful enterprise realizes some important things about competition:

  1. The value of software is not well understood. It is not simply a commodity on a floppy disk; instead it includes large scale backbone systems, often legacy systems with e-commerce front-ends.
  2. Software is research and requires a process of experimentation. It is not simply project management, product and engineering practice, and process management; instead it is setting hypotheses, establishing success criteria, collecting and analyzing data, choosing among alternatives, and iterating in search of the best balance among function, form, and fit.
  3. Software personnel are the most precious resource a globally competitive enterprise can possess. It is not simply a human resources task of correcting turnover through recruitment; instead software and its people impact the culture of the enterprise... profoundly.
  4. Controlling the customer has many faces. It is not simply satisfying and delighting; instead it is delivering value and achieving total customer satisfaction through an increasingly intimate relationship.
  5. Controlling the competition is the preferred tactic. It is not simply competing head on head with falling margins; instead it is inventing a new niche, occupying it alone, and avoiding head on head competition... perhaps even cooperating.
  6. Controlling event threats and change introduces uncertainty... where luck plays a role in the process of experimentation, and chaos is the ethos of competitiveness.

Alfred P. Sloan instructed, “There is no resting place for an enterprise in a competitive economy.”



Business and Economic Development Vision
The promotion of business and economic development for the software industry involves the coordination of economic and market forces, the establishment of networks for resource sourcing and research collaboration, and the management of a technology program.

An office of economic and business development is the focal point for managing, networking, and coordination among legislative associates and sponsors, university collaborators, venture capital community, and software industry enterprise community.

The Global Software Competitiveness Program has identified seventy-seven leading indicators to understand and guide progress towards competitiveness. Some of these indicators are the prerequisite states or pre-conditions within the business and economic environment necessary for industry software enterprise capability development and performance.

These indicators are factors beyond the control of the enterprise. Providing a welcomed and attractive business and economic environment depends on the control of these factors. The table below identifies these indicators, organizes them into categories, and establishes ownership for each indicator among business and economic development staff, legislative associates and sponsors, and university partners.

The industry software vision for regional business and economic development is to raise the ability of industry software enterprise to improve its global software competitiveness to a core competence. Specifically:
  • Understand what business and economic factors impact and benefit industry software enterprise in pursing global software competitiveness
  • Align the best capabilities of business and economic development staff, legislative associates and sponsors, and university collaborators with what matters most to industry software enterprise in pursuing global software competitiveness
  • Understand current practice within industry software enterprise in controlling personnel resources, managing customer factors, winning over the competition, handling event threats, and managing change
  • Measure the critical aspects and assess the leading indicators of global software competitiveness
  • Plan for lasting improvement and provide the change management and training infrastructure to facilitate plan execution in the best possible way



Regional Business and Economic Development


Program Planning
Plan Phased Program
  • Regional Companies Dependent on Software
    1. Identify companies
    2. Populate a database- geographic region, industry sector, product type, organization type, key personnel, personnel resource profile, assessment ratings, training history
  • Plan Regional Global Software Competitiveness Program (GSCP)
  • Phase 1 focus is on awareness, commitment, sponsorship, and assessment
  • Phase 2 focus is on capability realization and improvement
  • Phase 3 focus on dissemination of results

Industry Software Enterprise
  • Prepare industry orientation package for Regional GSCP
  • Create a Regional GSCP web page
  • Form a Regional GSCP executive council
  • Prototype orientation package with executive council
  • Rollout Regional GSCP orientation package to companies dependent on software by geographic region
    1. Introduce the program to company representatives and executives
    2. Request a letter of commitment to participation in the Regional GSCP
  • Schedule a kickoff and followup for each company making the commitment
    1. Conduct GSC Seminar
    2. Pinpoint Software Value Points
    3. Perform a GSC assessment on each Value Point
    4. Identify findings and consequences for each Value Point
    5. Present findings and consequences to company executives and assessment participants
    6. Prepare recommendations and rationale
    7. Present recommendations and rationale to company executives and selected assessment participants
    8. Facilitate preparation of an action plan by company staff

Venture Capitalist
  • Prepare Venture Capitalist orientation package
  • Rollout Regional GSCP orientation package to Venture Capitalists
  • Focus on balancing commitment management, product perfection, and personnel resources

Legal Profession
  • Prepare Legal Profession orientation package
  • Rollout Regional GSCP orientation package to Venture Capitalists
  • Focus on research and engineering tax credit, standard of practice for software engineering, standard of excellence for software product quality

Legislative Associates and Sponsors
  • Prepare Legislative Associates and Sponsors orientation package
  • Rollout Regional GSCP orientation package to Legislative Associates and Sponsors
  • Focus on the issues of UCITA, personnel certification, tax policy, outsourcing

University Associates and Partners
  • Prepare University Associates and Partners orientation package
  • Rollout Regional GSCP orientation package to University Associates and Partners
  • Focus on the research, education, and training to promote the knowledge, skills, and behaviors of Global Software Competitiveness


Appendix: Stakeholder Responsibility Leading Indicator Descriptions

State Indicators
Antitrust Litigation The ignorance of the nation’s leaders, the litigiousness of the business environment, and the Microsoft antitrust lawsuit combine to make the possibility of a government intervention a risk to be considered.

Competitive Wage Structure The enterprise maintains a competitive wage structure for its software personnel and understands the tradeoffs of outsourcing both domestic and offshore.Foreign wage structures may be dramatically lower than domestic. Where well trained programmers are in short supply, these competitive wage structures are an attraction to offshore outsourcing. India has 1.2M programmers and one-third of the world’s PHD’s half of whom were educated in the US.

Customer Bargaining Power The enterprise understands the degree to which its customers are able to bargain or believe they are able to bargain, the control the enterprise exercises to counter customer bargaining, and the strategies for exercising control. In the highly contested market niche, customer bargaining power is high in both lowering price and increasing features.

Export Control The enterprise understands the probability of government imposition of export controls on current and future products. For specialized high technology products, the government imposes export controls. While many of these controls have been relaxed with the collapse of communism, computer security products with encryption technology remain objects of government control. The focus of government control is individual espionage and organized crime and the need to tap electronic media. This has set up a built-in conflict between the government and technology entrepreneurs, between superior power and superior knowledge.

Government Research The enterprise understands the scope of government research and how to obtain its results for the benefit of the enterprise. Government research and development has fallen from from 2.8% to 2.2% of GDP over the past ten years. [Software Maintenance and Global Competition, O’Neill 1997]

Immigration Policy The nation’s leaders understand the use of immigration policy to balance supply and demand in personnel resources. Well trained high tech workers accept lower wages and work longer hours. The limit on qualified high tech immigrants under H-1B was 65,000 in 1996 and 200,000 in 2001. They come from India 44%, China 9%, U.K. 5%, Philippines 3%, Canada 3%, Taiwan 2%, Japan 2%, Germany 2%.Pakistan 2%, France 2%. They work in job shops like Mastech Systems Corp. 1689, Tata 1285, Syntel 750, HCL America 396, Computer People Inc. 380, Wipro 368, Indotronix 254.

Intellectual Property The enterprise understands understands the importance of intellectual property and the need to safeguard it. Intellectual property is an active object of piracy and competitive intelligence gathering.

Software Piracy The enterprise understands the illegal and destructive practice of software piracy and the need to involve government in eliminating it. Software piracy is over 90% in China.

Supplier Bargaining Power The enterprise understands the degree to which its software suppliers and labor force are able to bargain or believe they are able to bargain for increased rewards, the control the enterprise has over suppliers and its labor force, and the strategies for exercising control. With demand exceeding supply, programmer bargaining power is increasing substantially. Programmers are motivated by the challenge of the project and have not systematically exploited their supplier bargaining power.

Tax Policy The enterprise understands the influence that tax policy exerts on business practice. Tax policy has been considered to control business practice on network and computer security and the Year 2000 Problem. The mechanism considered is to permit annual expensing for these costs.

Unionization The enterprise reviews the prospect for the organization and unionization of its software personnel and its posture towards that possibility. The programming work force lacks organization and unionization. With the need for secure medical and retirement benefits by programmers and with the need for certified personnel by industry and society, unionization of programmers may be in the future. Unions already involved are International Brotherhood of Electrical Workers and Communication Workers of America.

University Research The enterprise is associated with the university community, understands how to blend its internal research with university programs, and succeeds in motivating the university research agenda to undertake projects. With the government retrenchment in research and development (2.8% to 2.2% of GDP in ten years), university research programs have sought industry partners. The result is short term focus at the expense of basic research, a threat to future competitiveness.

Pre-Condition Indicators
Personnel Certification The enterprise establishes and applies a training and experience criteria for each software skill type and level of achievement. Although programmer certification programs are established, they are not in widespread use. There is not an industry consensus on the knowledge, skills, and behaviors in the engineering, management, and operation of software systems. The professional and ethical foundations of software engineering are immature and require upgrading.

Software Skills The enterprise understands the software skills it needs and the software skills it possesses. Industry software skills are in short supply. Enterprise personnel recruiting programs are unable to staff current projects Openings for programming position go unfilled. The Information Technology Association of America (ITAA) reported that 200,000 open requisitions for information technology positions are unfilled. U.S. computer science graduates fell from a high of 50,000 in 1986 to 36,000 in 1994.

Domestic Outsource The enterprise considers engaging in some level of domestic outsourcing in order to obtain and sustain this capability. The enterprise that understands what its customers need most aligns its best capabilities and core competencies to provide that. Operations that fall outside of these core competencies are being outsourced. Outsource vendor demand is growing substantially.

Offshore Outsource The enterprise considers engaging in some level of offshore outsourcing in order to obtain and sustain this capability. Benefits of outsourcing: lower cost, flexibility in manpower load leveling, accounting advantages.
Risks of outsourcing: shirking through under performance, poaching through unauthorized sharing with other clients, opportunistic repricing Managing the risk: understand the project, divide and conquer, align incentives. The shortage of skilled programmers, competitive wage scale differentials, and the enterprise retrenchment into core competencies are fueling offshore outsourcing. Where the enterprise has a capable software requirements determination and specification practice, the offshore outsource is highly effective. Industry requirements determination and specification practice is not well developed.

Key Employee Status The enterprise provides key employee status and special benefits and compensation to strategically essential software engineering managers and programmers. The enterprise is permitted to identify key employees considered critically essential to current operations, future prospects, and competitiveness. Key employee status brings with it special benefits, such as, stock option retirement accounts taxed at capital gains rates. Key employee status is only infrequently assigned to software personnel. A 1997 Price Waterhouse ranked retaining key employees as the 8th most pressing concern, up from 14th a year ago.

Collaborative Research The enterprise establishes collaborative research relationships with industry partners and universities and understands how to participate for the benefit of the enterprise. With the reduction of government research and development, the network of enterprises in the business ecosystem collaborates and co-evolves.

Domain Architecture The enterprise understands that it must obtain a profound knowledge of its application domain and architecture.Capable domain architecture practice provides the foundation for software reuse. This practice is generally not well developed.

Innovation The enterprise understands that innovation in the product is intended to distinguish the enterprise from the competition, both current and future. Microsoft insists its practice of bundling internet access in its operating system is simply innovation. The Justice Department insists it is monopolistic.

Post-Condition Indicators
Open Requisitions The enterprise understands that it must fill its open requisitions. The ITAA reports that there are 200,000 (191,300, e-Gov ’98) unfilled open requisitions.

Personnel Turnover The enterprise measures the turnover of software personnel and establishes a policy with upper and lower control limits for its management and control. Programmer turnover is high. Happy, productive programmers tend to leave the enterprise for greener pastures within four years. Less happy, less productive programmers tend to remain. Enterprises that view programming as a commodity do less to retain programmers. The result is staff churn. Enterprises that view programmers as a critical resource take steps to reduce turnover. Programmers seek out challenges and are only marginally controlled by financial rewards.

Price Elasticity The enterprise understands the degree to which it must achieve price elasticity. The enterprise that achieves price elasticity increases customer control and control of competition including new entrants.

Integrated Bundle The enterprise understands the value of integrated bundles and positions software product line components and their organization to enhance competitive position without attracting anti-trust attention. The Justice Department is suing to restrain Microsoft from bundling Internet Explorer and Windows 95, applications and operating system.

Product Line Practice The enterprise understands that it must achieve product line practice in order to set the industry product standard, control event threats, and control competition. The enterprise with a product line in a niche well positioned to compete for the future is able to deliver value first in a cost effective manner in the context of a longer range strategic planning process.

Reuse Technology Practice The enterprise understands that it must practice software reuse in order to increase span of control. The enterprise with a capable reuse technology practice is able to roll out products and features on very short and predictable cycle times. Reuse practice is dependent on capable domain architecture practice and benefits from capable requirements determination and specification practice. These practices are in short supply.

Network Security The enterprise takes active steps to ensure network security and provides oversight for their effectiveness. National, industrial, and society security is threatened by the technology shortfall in network security. 250,000 attempts have been made to penetrate the nation’s data systems; 80% were successful. Only 17% of such computer intrusion attempts are reported by industry. A Russian hacker stole $10M from Citibank. The Justice Department called for a Manhattan Project to solve this problem. The promotion and growth of electronic commerce is being throttled by lack of confidence in network security.

Outcome Indicators
Staff Churn The enterprise understands the increasing risk of staff churn, its impact on current operations, and the personnel practices needed to counter it. As the pull of new challenges and increased financial rewards are combined with the push of low employee morale, excessive overtime, and off the clock time, the rate of programming staff turnover increases. The result is increased costs for hiring and training, impact to current commitments, and loss of knowledge and information to the competition. In high turnover skill areas, employees are required to sign non-compete covenants.

Disintermediation Disintermediation is a term used to describe the “disintegration” or extinction of the middle men in the training chain as we know it today, ie, the distributors, wholesalers, and retailers. In electronic commerce, manufacturers want to trade directly with the consumer. Insurance brokers are a target for disintermediation.

Setting Industry Standard The enterprise understands the degree to which its success is dependent on setting the industry standard for future products. The enterprise that competes for the future is the one that sets the industry standard for the future market niche and arrives at the future first with the capability to deliver on the standard set. This strategic advantage allows the enterprise to reap the rewards of the market niche uncontested.