National Software Strategy for Scotland : The Strategic Options
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National Software Strategy for Scotland : The Strategic Options |
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One option available to Scotland is to concentrate on the technologies and markets in which it performs best. This strategy would involve identifying Scottish strengths and matching them with technologies and markets that demonstrate the highest potential for growth.
For example, Internet usage has grown at an astonishing rate; it doubles in size about every 53 days. This has led to a significant number of start-up firms - mainly in the US - offering Internet services or developing Internet software; spurred by the JAVA programming language. Clearly, there are significant opportunities for Scottish firms.
Figure 3.5: Global Market for Internet Development Tools
Source: Forrester Research via The Economist
However, as a central pillar to the strategy, technology and market focus offers significant challenges to Scotland in terms of both identifying strengths and aligning them with growth markets. This is because the Scottish software sector demonstrates little coherence. Indeed, no two of Scotland’s star software firm’s operate in the same technology and vertical market segments. Scotland has a number of games software firms but these are relatively small and do not represent a coherent entity or critical mass.
“Reverse engineering” the markets by looking at key market growth areas and examining what Scotland has to offer does not lead to any strong direction. IDC predictions of the most promising packaged software segments show that, within software products, consumer applications are likely to enjoy very high growth rising from a UK market size of $170 million in 1997 to over $250 million in the Year 2000.
Figure 3.6: Most Promising Packaged Software Segments in the UK to 2000
Source: IDC
However, analysis of the current state of Scottish industry shows that - of the ten product sub-sectors (within the IDC segmentation system) - consumer applications is the seventh most frequent with only 8 citations out of 248.
Figure 3.7: Product Offerings - Citations by Scottish Software Firms (1996)
Source: E&Y/SSF Database
In addition, four of the most promising growth segments are in applications development tools; all being connected to the recent take up of object technology (eg Object CASE, Object DBMS). Again, there are very few Scottish firms producing such development tools. Systems utilities - a sub-segment where Scotland has significant capability - is expected to decline over the next three years.
In the light of the apparent mismatch between Scotland’s strongest areas and market-segments with the strongest growth, using prescriptive market and technology focus as the lynch-pin of the strategy would not be successful.
In any case, we would have strong reservations about such a strategy in practice because the nature of software mitigates against such a prescriptive approach. Whilst growth predictions concerning certain market segments are fairly reliable, future markets will be characterised by unpredictable benefits. Business formation of software firms tends to be ad hoc; relying on the particular aspirations (and often frustrations) of technocrats who identify a specific market opportunity.
However, there are important lessons of success in the experiences of some of the star companies referred to earlier. (Scotland’s Potential: Scottish Supply). These companies have succeeded in niche (often product) markets. In many of these firms, their ultimate success did not occur within the market originally selected for focus. Flexibility, nimbleness and a willingness to change early characterised several of these businesses. In many respects this contravenes much conventional business advice regarding consistency of purpose and maintaining focus.
The exemplars demonstrate the significant role that networks - particularly those of experienced Venture Capitalists - play in accessing:
Access to advice may be a crucial factor in helping to shape and reshape these early strategies into eventually focused winners.
Established software firms - looking to grow - are usually aware of the specific constraints facing them in market development. They are unlikely to respond to pressure to move into unfamiliar markets. A much more effective approach would be to enable firms to overcome the barriers they face in becoming established and growing rapidly. We address such an approach below.
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