The road ahead: Shane Dempsey, director, Irish Software Association

2 Jan 2009

The indigenous Irish software sector employs over 15,000 people and exports technology to the four corners of the globe. Shane Dempsey is director of the Irish Software Association at IBEC.

Q. In a very short space of time, both Ireland and the world’s economic fortunes have changed. In your opinion, what are the priorities that need to be addressed to steer this country back to a sound economic footing?

We need to focus on productive sectors. These will yield the greatest return in terms of economic and social value in the coming years. Inevitably, a national stimulus package will have to be rolled out to complement our attempts at cost-cutting measures. The Government needs to demonstrate vision and bravery, and focus resources on sectors that will yield returns.

The technology sectors have the most latent economic and social potential. The indigenous software sector, in particular, is full of battle-hardened serial entrepreneurs who can fill the market gaps that larger companies that are rationalising leave behind. Indigenous sectors in general can find these profitable niches, create value and futureproof the Irish economy from further economic shocks.

Whenever I hear Frank Ryan of Enterprise Ireland (EI) speak, I’m struck by the fact that he sees indigenous sectors as the future of the Irish economy and is aligning EI’s support structures accordingly. More vision like this from other policymakers and influencers is required.

When you see the likes of Thirdforce, Fineos and Cúram being recognised as global players in their field, you have to ask why there are not more of these companies. The Government must be prepared to back this potential and take the hard decisions to support the technology sectors. That requires tackling a few thorny issues such as:

Addressing the funding gap: Venture capital funding is difficult to get and unsuitable for start-ups. Very often, companies scrape together capital from many different sources, which limits the scale they can achieve, stunts their growth and pushes them inevitably towards a trade sale. The net effect of this is a ‘glass ceiling’ at around €2m in turnover, where companies struggle to grow further.

It was interesting to hear some venture capitalists and technology leaders who attended the ‘Silicon Valley comes to Ireland’ event recently. Their start-ups acquire €5m in first funding rounds and they go public within a couple of years. This has created a critical mass of technology companies and academics that feeds into a virtuous innovation circle. Ireland can’t expect to emulate this environment tomorrow, but we should have a plan at least.

Tackling Maths:Maths will be the lingua franca of the knowledge economy, and our education system isn’t equipped to prepare our students for this. Increasingly, knowledge-intensive, high-value roles will be based on maths competence. The numbers of students taking honours maths in the Leaving Cert is way too low, around 15pc or 7500 of the student population. Everything must be done to raise the standard of maths teaching in our education system.

We learned the importance of education in societal development in the last three decades, but nobody is willing to take a brave decision like O’Malley in the Sixties to take control of the system.

Some statistics that highlight the direness of the situation: 8 out of 10 maths teachers aren’t qualified to teach the subject. 1 in 5 schools don’t offer students the option of honours maths. This points to systemic failure in how we approach the teaching of maths, and we cannot consider ourselves even approaching a knowledge economy until it is addressed.

Worst of all, we are effectively limiting the options of young people in the education system because when they drop out of honours maths after Junior Cert (43pc of Junior Cert students do honours maths – just 15pc do it in the Leaving Cert) they deselect themselves from the majority of science, technology, engineering and maths subjects at third level. This is a national shame.

Levelling the public procurement playing field:Throughout the public procurement process, there are a number of unnecessary barriers to SME involvement. The process is costly, convoluted and opaque. For larger companies, this is inefficient and frustrating. For the SME, who feels costs more acutely, it effectively rules it out of the process.

This stifles innovation amongst our indigenous companies. A public-sector buy is an essential if selling in international markets. Our exceptional software companies, however, have all had more success selling to foreign public sectors than at home. The ISA has consistently asked for the removal of unnecessary barriers to the process, such as requiring indemnity in the millions for contracts in the thousands and having to provide accounts for the previous three years.

Recently, an EU Directive on procurement has encouraged public sectors to adopt best-practice guidelines to stimulate innovation. These include more engagement with the private sector before contracts in order to create better mutual understanding of requirements and constraints. This has led to better value for money for taxpayers in other EU jurisdictions, and less project failures. These practices need to be bedded down in the Irish public sector immediately.

The public procurement function needs to be professionalised immediately. Standardised competencies, job roles and training must be funded by Government. The returns in terms of innovation and value for money will outstrip any cost.

Q. More than ever, Ireland needs breakthrough science and technology business stories, with local companies reaching global markets. What’s missing and what areas of technology could deliver rewards?

A. Before the economic downturn, innovation was the path to future economic success. The way out of the current economic morass is still creating innovative products and services through R&D. The Strategy for Science, Technology and Innovation (around €8bn) is the Government’s effort to transform Ireland into an innovation island. The first stage of the delivery of this funding was to lay down a research infrastructure in our colleges and institutes of technologies. This has been a huge success.

Now our efforts should turn to commercialisation, We need to build a national commercialisation process that stimulates our research infrastructure to produce valuable intellectual property (IP). State agencies such as SFI and EI, in conjunction with groups like the ISA, are coalescing around this objective. But a set of hard metrics needs to be put in place so we can measure our conversion rate of turning research in IP and/or companies, otherwise our significant investment in the SSTI will be squandered.

Q. Ireland is continuing to win its share of foreign direct investment (FDI). Why is this, and how sustainable is this going forward?

Ireland continues to attract FDI in specific areas because of a few pull factors that have remained in place since the Sixties. Paramount is the excellent work done by the IDA in identifying companies and making a compelling case for their investment. Our corporation tax rate is still a major attraction, but, increasingly, this is being undercut by other nations, and we now have to use other positive pull factors to attract FDI.

We are currently attracting technology companies because the negative effects of our education system in relation to maths have been offset both by our location in relation to Europe and a fairly efficient approach to highly skilled immigrants. In addition, I think we are moving in the right direction, but not quickly enough, in driving industry/academic collaboration.

Let me repeat, if we do not increase the numbers of graduates who have a competence in maths and sciences, then we are shuffling over the edge of the cliff. Better corporation tax rates can be found in jurisdictions where the cost of doing business is significantly lower. If companies do not see a base of talented, well-educated people from which they can offset valuable innovation against the cost of doing business in Ireland, then the economics dictate that they locate elsewhere.

If this occurs, and we have not created healthy indigenous technology sectors, then we will have consigned future generations of Irish people to low-grade, low-value jobs, and we will suffer long-term, insipid growth rates.

Q. In terms of infrastructure, is Ireland, in your opinion, adequately equipped to perform as an agile economy in 2009, and do you think it could emerge stronger as the economic storm clouds clear?

A. There’s a lot of pessimism around at the moment. Storm clouds are gathering. There’s a tendency in a downturn for everyone to hunker down and focus on the problem.

One thing Ireland has proved is that with leadership you can turn ‘a basket case’ into an ‘economic miracle’. By taking the brave decisions now, we have enough potential to be eminently placed to take a leadership role in the global knowledge economy. I believe that if we address some of our infrastructure deficiencies now, through continued investment in the NDP, we will be poised to seize opportunities when the economic storm clouds dissipate.

We’re all aware that infrastructure is an important foundation for growth. If we look at the existing knowledge economies, such as South Korea, near-universal access to broadband was a key driver in its transformation. So we welcome the announcement of the National Broadband Scheme.

The cost of doing business in Ireland has eroded our competitiveness, and the Government must address this area to reduce cost wherever possible.

By John Kennedy

John Kennedy is a journalist who served as editor of Silicon Republic for 17 years