The reality that a graduate shortfall is predicted and that Irish software firms need to redouble their efforts to succeed on a world stage are just some of the obstacles that face the newly appointed Irish Software Association (ISA) chairwoman Bernie Cullinan (pictured). To get to the magic €50m a year turnover goal for all Irish software firms, Cullinan argues that firms must innovate or be left behind.
The recent ISA annual conference in the salubrious environs of the corporate box area of Croke Park was the backdrop for the unveiling of some sobering truths. Although the IT industry has returned to a “raging bull” market, in the words of Trintech’s Cyril McGuire, Irish software firms embarking on research and development (R&D) strategies can get it wrong extremely easily. McGuire’s advice to Irish software companies embarking on R&D programmes is to always focus on what their customers want and not to engage in R&D for the sake of technology that no one wants. Using the analogy of Boeing versus the Concorde, McGuire said it’s easy to spend time polishing the nose cone of the Concorde instead of building jets that people will use. “In terms of technology, once a company expands very fast, it’s easy to become inward focused. R&D programmes must be about what the customer wants. Always think externally.”
Such advice is a balm to Cullinan, who prior to taking the reins of an organisation whose members employ 15,000 people in 660 companies was herself the CEO of Performix Technologies, a well-regarded local software firm that is taking the US call-centre market by storm.
In the years following the technology downturn, the Irish software industry is being relied upon to be one of the leading indigenous sectors that will spearhead Irish economic growth in the years to come. However, as Cullinane well knows, the industry is shooting from a modest base and fosters very humble ambitions, according to the ISA’s recent strategy blueprint. “Of the 90pc with revenues less than €10m, only 48pc expect to break the €10m barrier within three years. Only two companies expect to grow their revenues to more than €100m over the same period. “To achieve true international scale, companies need to have revenues approaching the €50m mark,” said Cullinan. “The report highlights the challenges companies face in achieving this goal especially with regard to funding and partner strategies. Our blueprint addresses these issues and others that Irish software companies face if they are to achieve the necessary critical mass.”
To achieve critical mass, Irish software companies as well as other high-growth sectors are being told to invest heavily in R&D and innovation. Innovation, as Cullinan is well aware, is nothing new to the software sector, but the supports available to indigenous firms are sorely lacking. One area of contention is the R&D tax credit introduced more than a year ago in the Budget, which Cullinan views is attractive to profitable firms rather than young companies striving to break even. She says: “There are a few issues surrounding R&D tax credits. The real beneficiaries of them are profitable companies, which clearly early-stage companies and later-stage companies often are not. If you haven’t got a group strategy to pass on the benefit of them this means they are somewhat limited in value so that would be a big concern to indigenous firms embarking on R&D strategies. As a result they are not going to be an incentive to invest in R&D. A company is only going to invest in R&D because it knows it is going to make money out of it.”
Cullinan also balks at the popularly held notion that companies of scale are companies that employ large workforces. This, she says, is uncharacteristic of the software sector where scale should be measured by the value of intellectual property owned by financially strong firms. “We need to separate this idea that companies of scale are companies with large numbers of employees. That’s a dangerous trap to fall into because immediately we’re competing with India which can produce thousands of workers. Scale is about focused innovation that delivers serious growth in revenue.”
Another one of the sobering truths visited upon attendees of the ISA’s annual conference was a presentation by Dublin City University’s Professor Michael Ryan who offered the revelation that four years ago its computer courses would have received more than 800 first preferences in CAO applications. In the last academic year the university received only 180 first preferences for its computer courses. Much of this is due to negative media reports on the technology downturn in 2001, which had a serious bearing on students and their parents’ career decisions. Cullinan indicates there is a serious skills shortage on the way for the IT sector, one that can only be alleviated by making progressive use of immigration.
She explained: “It will have an impact in terms of the number of jobs given to Irish people. It will have no impact on the number of jobs created because we can bring highly skilled people in from other countries and they will pay tax here. Yes, there are long-term challenges to be met there but in terms of being a limiting factor for Irish industry, no it won’t, but the reality is that graduates will potentially not come from the Irish universities but from overseas.”
Cullinan also pointed to the issue of local software companies failing to sell enough technology to the Irish Government is translating into the loss of a strong reference customer for Irish software firms selling overseas. She explains: “We’re not hung up on the Irish Government not buying from Irish software companies, what we’re saying is that at a European level there should be a commitment to buying a percentage of goods and services from SMEs.
“In the US, some 23pc of state funding into technology goes into SMEs. We don’t have any policies similar to that. We believe it is possible to create something of that nature without breaking EU competition rules. We’re as happy to play on a EU pitch as on an Irish pitch but the reality of the situation is there are more Irish software companies selling to the UK national and local government than there are software companies selling to the Irish Government,” Cullinan concluded.
By John Kennedy