Charles Ward, Chief Operating Officer at Intellect

The consensus amongst the analyst community at the 2008 Intellect Regent Conference was that industry growth in 2008 would be “GDP plus” tracking between 1-3% above GDP, with software at the higher end of the forecasts. By September 1-2% points were being chipped off these forecasts and the view was that 2009 would be, at best, flat.

In the past 10 years the underlying growth in the IT and software markets has been modest, (bear in mind that double-digit growth rates were the norm for many for long periods pre-2000). There have been two interruptions, Y2K and shortly afterwards the dotcom boom. The latter being a combination of high demand, albeit short term, as well as plentiful investments funds. Things are different now and the challenges of being a small player in this industry as are as tough as ever but equally the opportunities are there, although they require a different approach to convert them into business.

It’s easy to forget that information technology is largely a foreign owned industry. The number of global scale UK tech businesses can be counted on the fingers of one hand and there is belief that £10m turnover is the milestone that European software companies have difficulty passing without being acquired or, alternatively, stalling. This could be as much a consequence of recent market dynamics in which the large powerful global players are forced to be predatory in order to achieve growth above market rate. Therefore anyone with interesting products, a pool of satisfied customers and a healthy prospect pipeline will be a target. Should such companies decide to go it alone at the this point in their evolution the US market often beckons, which presents a fresh set of management and funding challenges.

Whilst a listing brings some status and credibility the reality is that size matters. Between £50m and £100m is where institutional interest starts and so a smaller company would have to weigh up the credibility advantages of going for a listing against the costs and distraction to the business. Furthermore many AIM listed companies complain of the lack of liquidity in the market distorting their share prices. Add to this the fact that a steep growth trajectory typically consumes a lot of cash then the problems of being a small quoted company become quite evident.

Nonetheless the UK has spawned some hugely successful software companies growing fast and enjoying success in overseas markets. The common characteristic of the majority of highly successful UK software companies is that they are in niche markets or highly specialist at what they do, solving real problems for customers.

The UK exhibits a number of attributes that make it a pretty exciting place. At a headline level UK market growth has been consistently above European average. The UK is home to a fast growing digital economy stimulated by consumers who are comfortable on-line and with a voracious appetite for new technology. The UK’s leading industries such as financial services, aerospace, pharmaceuticals and the emerging games sector are heavily reliant on IT innovation. Finally we have a government committed to the modernisation of delivery of services, which itself has contributed to the buoyancy of the UK market in recent years. Credit crunch aside, the UK is pretty attractive market for an IT company.

So where are the upsides? With a few exceptions, particularly in the consumer market, there is little appetite for technology itself. Businesses are increasingly tech savvy and there is not so much demand to do new things using technology. For example most people have their websites now and have worked out their on-line strategy. However what customers are interested in is the ability with minimal capital investment to transform a business process and, ideally, take cost out as well. More often than not the way of achieving such objectives is not through technology innovation but through application innovation: in other words the creative use of existing technologies. A perfect and topical example is the current US Presidential Election contest in which the Obama campaign has re-engineered the whole support generation process through clever use of technologies such as social networking, blogging, on-line video and collaborative working resulting in huge campaigning funds being raised from millions of small donations. Simply put the Obama campaign team worked out how to tap into the vast on-line community of grass roots supporters. Existing technologies enabled them to do it. The innovation was in the thinking and deployment.

The challenge for companies in the IT industry is to promote innovation in these terms and make the business case so compelling that customers will willingly invest in our products, services and ideas and stimulate a new growth phase in spite of the economic conditions.

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Intellect is the UK trade association for the IT, telecoms and electronics industries. Its members account for over 80% of these markets and include blue-chip multinationals as well as early stage technology companies. These industries together generate around 10% of UK GDP and 15% of UK trade. For more information go to www.intellectuk.org