report of the current state of the software and service ... · helsinki university of technology ...

Helsinki University of Technology http://www.soberit.hut.fi/ Software Business and Engineering Institute

1

Knowledge-Intensive Service Activities and the Software Cluster:

Report of the Current State of the Software and Service Clusters from Innovation Perspective

Deliverable 1 of the KISA-INTO Project

Minna-Kaarina Forssén, Matti Heikkonen, Juhana Hietala, Olli Hänninen, Jyrki Kontio

Helsinki University of Technology

Software Business and Engineering Institute

Software Business Research Group

http://www.soberit.hut.fi/


2


3

Executive Summary This report presents an initial analysis of the knowledge-intensive service activities for the software business sector. The purpose of the KISA-SWC project is to i) survey and analyze the current situation of the offering and use of the knowledge-intensive service activities in the software business, ii) describe and analyze the innovation process in the software business sector from the point of view of these services, and iii) identify and analyze the development needs for the innovation processes and for the knowledge-intensive service activities supporting them.

The KISA OECD project is an initiative of the OECD Working Party on Innovation and Technology Policy. This report is the first deliverable of the KISA-SWC project, prepared within the KISA-INTO project at Helsinki University of Technology.

This report contains four main contributions. First, we have summarized the main characteristics of the software business sector and highlighted the main issues that affect the knowledge-intensive service activities to be used to support the innovation processes in the sector.

Second, we have synthesized the main streams of research in knowledge-intensive service activities research and propose a set of key concepts that can be used to describe the different types of services available.

Third, we have developed a conceptual framework that will be used to describe and analyze the innovation process and the services available in various stages of product, market, and company life cycles.

Fourth, we have conducted an initial empirical study of the current situation of the knowledge-intensive service activities in the sector through a series of interviews. The main, albeit tentative, findings of this part of the study are the following:

• Services related to marketing, communication and sales; legal services; and human resource development were considered the most important in the sector.

• The software development services, IT support, and IT consulting were considered least important.

• There is a trend among the companies in this sector to outsource much of the activities in the innovations process and only focus on their core processes.

• The service sector has recognized this potential and has invested in knowing the software business sector and technology better.

• The potential standardization of platforms can improve the potential for R&D outsourcing

• The difficulty of finding service providers and comparing them were cited as the main bottlenecks in selecting KISAs. Also, the SW companies in the sector do not have experience and culture for using such services.

• The role and impact of research institutions could be improved to support the development of the sector.

This report also serves as an initial platform on which the remainder of the KISA-SWC project research will be based on. The scope definitions, key terminology, frameworks, and the tentative conclusions will be used to guide the subsequent research activities in the project.


4

Contents 1 Introduction............................................................................................................. 6

1.1 KISA- SWC Project ......................................................................................... 6 1.2 Background..................................................................................................... 7 1.3 Scope of the Research Project and Goal of the Report ................................... 8 1.4 Contents of the Report .................................................................................... 9 1.5 Definitions of Terms ........................................................................................ 9

2 Definition of KISA.................................................................................................. 12 2.1 Knowledge-Intensity of Services ................................................................... 13 2.2 Knowledge-Intensive Business Services - KIBS............................................ 14

2.2.1 Levels of Abstraction ............................................................................. 15 2.3 Public Knowledge Intensive Service Activities – P-KISA ............................... 16 2.4 Internal Knowledge Intensive Service Activities – I-KISA............................... 17 2.5 Other Knowledge Intensive Services............................................................. 17

3 Initial Framework .................................................................................................. 18 3.1 Product Release Life-Cycle........................................................................... 19 3.2 Product Market Life-Cycle ............................................................................. 19 3.3 Company Life-Cycle...................................................................................... 21

4 Research Methods and Data ................................................................................ 24 5 The Current State of the Software Cluster ............................................................ 26

5.1 SW Business................................................................................................. 27 5.2 Service Business........................................................................................... 31 5.3 Software Cluster from Innovation Perspective............................................... 32 5.4 Leading Countries of the Software Sector and Finland.................................. 33

5.4.1 The Israeli SW Sector............................................................................ 33 5.4.2 Irish SW sector ...................................................................................... 35 5.4.3 Comparison Between Israel, Ireland and Finland .................................. 38

6 Knowledge-Intensive Service Activities for Software Business Sector .................. 40 6.1 Importance, Extend of Use and Motives for Using KISAs.............................. 41 6.2 KISAs in Relation to Life-Cycles.................................................................... 43

6.2.1 Product Release Life-Cycle ................................................................... 43 6.2.2 Product Market Life-Cycle ..................................................................... 44 6.2.3 Company Life-Cycle .............................................................................. 44

6.3 KISA-Sector as a Service Provider................................................................ 45 6.3.1 Strategic Consulting .............................................................................. 46 6.3.2 Legal Services....................................................................................... 48 6.3.3 Private Financial Services ..................................................................... 50 6.3.4 Human Resource Development............................................................. 51 6.3.5 Software Development Services............................................................ 54

6.4 Qualification of the Currently Available KISAs ............................................... 56 6.5 Software Business Sector as a Client for KISA-sector................................... 57 6.6 Influencers of the KISA – Software Business Sector Relationship................. 58 6.7 Actions to Support the Business of the KISA-sector ...................................... 59 6.8 Additional Comments .................................................................................... 62

7 Conclusions .......................................................................................................... 64 8 References ........................................................................................................... 66


5

Table of figures Figure 1. KISA-SWC as a Part of the KISA Finland and KISA OECD Projects. .............. 7 Figure 2. KISA Clients and Suppliers............................................................................ 12 Figure 3. Knowledge-Intensity of Services. ................................................................... 13 Figure 4. Relationship of the Product Release, Product Market and Company Life-

Cycles................................................................................................................... 18 Figure 5. Software Product Release Life-Cycle. ........................................................... 19 Figure 6. Product Market Life-Cycle.............................................................................. 20 Figure 7. Number of Employees in Different Phases of the Company Life-Cycle. ......... 21 Figure 8. Growth Financing and the Level of Experience as a Base for Company Life-

Cycle. ................................................................................................................... 22 Figure 9. Company Life-Cycle. ..................................................................................... 23 Figure 10. Description of the SW Cluster. ..................................................................... 27 Figure 11. Software Product and Customized Project Business. .................................. 28 Figure 12. Knowledge-Intensive Services in the service sector..................................... 41 Figure 13. Matrix of Survivors and Success in Start-Ups. ............................................. 47 Figure 14. An Example of HRD Service Company Customer Segmentation................. 52

List of Tables Table 1. Research Methods and Data. ......................................................................... 24 Table 2. Critical Success Factors in Israel, Ireland and Finland. ................................... 39 Table 3. Knowledge-Intensive Services Related to KIBS and P-KISA........................... 40 Table 4. Importance of Different Services for Software Business Companies, (n=7)..... 42 Table 5. KISAs Mapped with Product Release Life-Cycle............................................. 44 Table 6. KISAs Mapped with Company Life-Cycle........................................................ 45 Table 7. The Bottlenecks of the KISA Sector, (n=7)...................................................... 56 Table 8. The Shortcomings of the Software Business Sector in Using KISAs, (n=7)..... 58 Table 9. Parties Supporting the Use of KISAs, (n=7). ................................................... 59 Appendix 1. Themes of the Interviews


6

1 Introduction

1.1 KISA- SWC Project

KISA-SWC project is a part of the KISA OECD project (Knowledge-Intensive Service Activities) taking place in eight countries. The KISA OECD project is an initiative of the OECD Working Party on Innovation and Technology Policy, addressing the following three main issues: (OECD, 2003)

• The major lines of provision and use of knowledge-intensive service

activities (KISA) in selected industries. • How companies/organisations use and integrate different sources of KISA

(internal and external) to build their innovation capability? • How provision of KISA (public or private) can best build innovation

capability in the selected industries? In KISA OECD project, the four selected industries are; entertainment, health care,

forest industry and software. The project of the software industry is named as Knowledge-Intensive Service Activities in Software Cluster (KISA-SWC ) (Figure 1). The KISA-SWC Finland project started in the beginning of 2003 and finishes at the end of 2003. The main coordinator of the research on software industry is Helsinki University of Technology. (see: The KISA-SWC Research Plan)

KISA-SWC Finland is further divided into two parts according to the responsible organizations: KISA-LTT and KISA-INTO. Thus, KISA-INTO (Finnish Knowledge-Intensive Service Activities – Innovative Technologies and Organizations), is managed by SoberIT (Software business and engineering institute at Helsinki University of Technology) and KISA-LTT by LTT.

This report is the first deliverable of KISA–INTO project. The following reports of KISA-INTO will be delivered in autumn and in the end of year 2003.

The KISA-INTO project is done by the Software Business research group at the Software Business and Engineering Laboratory (SoberIT). SoberIT is a unit of the Department of Computer Science at Helsinki University of Technology. The laboratory responsible for research and education related to software business and the management aspects of software development. The mission of SoberIT is to improve the global competitiveness of the Finnish software industry by providing world-class education and research. The software business research group at SoberIT focuses its research on software company strategic management, user-driven software development, risk management, and productization of software. The group is headed by Professor Jyrki Kontio and there are ten full-time researchers in the group.


7

KISA OECD

KISA Finland

Health Care

Forest industry

Entertainment

KISA SWC

KISAINTO

KISALTT

Figure 1. KISA-SWC as a Part of the KISA Finland and KISA OECD Projects.

1.2 Background

In Finland, software industry is one of most prominent industry sectors. The industry, along with software entrepreneurship, has grown rapidly since the early 1990s (Toivonen, 2002; Nukari and Forsell, 1999). While the business ranges from infrastructure software and data security solutions to various Internet and wireless applications, the predicted growing areas of software business are, e.g., combining mobile and the Internet; data security; e-commerce: voice processing and tools for management (Toivonen, 2001).

The development of software business has an important role in contributing to employment and national economy, but also in developing other related industries. Software business has remarkable horizontal effects to the manufacturing, service business and retail sector, because information technology systems are essential for their business processes and competitiveness (Toivonen, 2002). In addition, the high growth of software industry seems to combine both an increasing reliance on services and a high level of innovation (Paper 1 of KISA OECD project).

According to earlier studies (e.g. Heeks and Nicholson, 2002; Mowery, 1996; Nukari and Forsell, 1999), the national innovation support systems and service business, especially knowledge-intensive services, as well as clustering, are one of the key factors enabling the development and innovativeness of the SW business.

Clustering, i.e. interactive networking of actors that are involved in value chain of the SW products and services, was seen as one of the success factors in growing India, Ireland, Israel software businesses (Heeks and Nicholson, 2002). Meanwhile, internal and external activities and functions of Finnish SW cluster need to be improved to exploit the existing growth potential (Autere et al. 1999).

Service business sector as a whole has grown during the last decades and it now represents about two thirds of the Finnish GNP (Kuusisto and Mayer, 2003). Knowledge-intensive services, such as computing and consulting services are one part of the service business and have experienced rapid growth and are generally acknowledged to


8

be important sources of innovation. The knowledge-intensive activities, whether provided by public (i.e. national innovation support systems), semi-public, private non-profit or fully commercial organizations as well as the development of national innovation support system are to be taken into account as attempting to improve the conditions of innovation in the companies in many different ways and to enforce the development of the potential software companies. (Kuusisto and Mayer, 2003; Hales, 2002; Nukari and Forsell, 1999).

The importance of knowledge-intensive service activities is two-fold. Firstly, they contribute to economic growth in general as well as within specific clusters. Companies are able to focus their scarce resources more effectively on their core businesses. Secondly, external services or outsourcing are used to exploit better knowledge and capabilities as part of the business processes (Strambach, 2001). Knowledge-intensive services have an important role in creation and implementation of new products, services and processes. They are crucial as carriers, shapers, facilitators and creators of both technological and managerial innovations (Kuusisto and Meyer, 2002).

1.3 Scope of the Research Project and Goal of the Report

This research focuses on the innovation processes of the software business. The selected segments within the software business are software product business and customized project business. Embedded software is an important part of the software business as well. However, the embedded software business is excluded because of the limited resources and the scope restrictions posed by the National Technology Agency of Finland. Financial areas and government policies contributing to innovation processes have been left out as well. In addition, this report focuses on external knowledge-intensive services and in-house knowledge-intensive services are excluded. The in-house services will be studied in the next phases of the project.

This report focuses on the first phase of the KISA-INTO project. The goal of the report is to describe the current state of SW cluster and especially software business and knowledge-intensive service activities (KISA) as well as to depict the initial frameworks of the KISA-SWC research project.

The report focuses on the following research questions:

1. What are the characteristics of the SW cluster? • Description of the SW Cluster; what are the segments and volumes? • What are the interesting elements in the SW business from the innovation

perspective? • What are the differences between the Finnish SW sector and leading

examples in the world?

2. What is the current state of knowledge-intensive services in the SW services cluster?

• What services currently exist and what is their magnitude and importance?


9

This report has been intended primary to TEKES and other members of KISA OECD project, but also to research institutes and groups focusing on SW and service business as well as SW and service companies.

1.4 Contents of the Report

Chapter 1 consists of the introduction of the KISA-SWC research project including the scope of the project, the goal of this report and definitions of the key terms used in this report.

Chapter 2 includes the definition of knowledge-intensive service activities (i.e. KISA). Chapter 3 presents the initial frameworks; company life cycle, product release life

cycle and product market life cycle. The life cycles are used to define how and when different KISA are used and mostly needed.

This first report of the KISA-INTO research project is based on both literature review and interviews. The research methods and data are presented in more detail in Chapter 4.

In Chapter 5, we describe the current state of SW cluster; software business and service business. In addition, we discuss the factors affecting the innovativeness of software business, as well as compare Finnish software business with two of the leading examples in the world, Israel and Ireland.

The results from interviews are summarized in Chapter 6. Results discuss different aspects of using knowledge-intensive service activities; KISA-sectors as a service provider; as well as problems and development ideas to improve the use of knowledge-intensive service activities.

Conclusions and discussion about the following phases of the KISA-INTO project are presented in Chapter 7.

1.5 Definitions of Terms

SW cluster is a interactive network of actors that are involved in the value chain of the SW products and services, i.e., SW companies and their clients as well as public and private organizations providing services to SW companies. OECD studies interpret clusters as reduced forms of National Innovation Support Systems and refer to two definitions in particular (Bergman, 2001 in Kuusisto and Meyer, 2003):

“Networks of production of strongly interdependent companies (including special suppliers) are linked to each other in a value-adding production chain. In some cases, cluster also encompasses strategic alliances with universities, research institutes, knowledge-intensive business services, bridging institutions (brokers, consultant) and clients”.

“A group of business enterprises and non-business organizations for whom membership within the group is an important element of each member company’s individual competitiveness. Binding the cluster together are buyer-supplier relationship, or common technologies, common buyers or distribution channels of labour pools”.

Software business refers to three segments; software product business, customized software projects business and embedded software.


10

SW product business produces software products that are traded on their own, not as part of other products. The main object being traded is software, although software product business often includes other things such as installation, training, and even customization.

SW customized project business produces customer-tailored software, i.e. software that is developed according to the needs and specifications of individual clients as a project.

Embedded software business produces embedded software that is built into other products, such as cellular phones, refrigerators, paper machines or television sets, and not sold separately.

Software industry refers to two segments: SW product and customized project business (Toivonen, 2002).

Service Business is very heterogeneous including different activities from cleaning services to knowledge-intensive services, e.g. management consulting service itself is intangible, service is more like a process or a performance than an object, and production and consumption of the service are to some extent simultaneous activities (Kuusisto and Meyer, 2003).

Innovation (outcome of an innovation process) is a rather broad concept that can be defined and understood in many different ways. Very often the term “innovation” is related with technological novelty and even the words “technology” and “innovation” have been defined as synonyms. In this report, an innovation in general is defined more broadly as an idea that has been implemented into a new product or service, process or organizational elements (e.g. communication, reward and authority structure) guiding it to technological, organizational or market change in a value-adding way (Zaltman et al., 1984; Urabe, 1988; Smeds, 1994; Tidd et al., 2001). This definition captures the crucial importance of implementation: new knowledge has to be successfully implemented before it can be called an innovation. Thus, the implementations of ideas for reorganization, cost-cutting, putting in a new reward system, improving communication, or assembling products in teams are also innovations (Kanter, 1983).

• Product innovation (outcome) refers to new, or enhanced, and commercialized products or services, for instance, the implementation of an idea for a new product or a service, or the introduction of the new elements in the organization’s production or service operations. (see: Kuusisto and Meyer (2002) use two separate terms; product innovation and service innovation instead of one term including both concepts).

• Process innovation (outcome) refers to new information and material flows within and between units and organizations as well as innovative principles of working, working methods, roles and the tools used in the business process, value chains and networks.

• Organizational innovation (outcome) refers to innovations about administrative, social and organizational elements, e.g. organization structure, management system and leadership issues, reward system, the work environment e.g., technological layout, and well-being of employees. An organizational innovation has typically high complexity because it requires fundamental organizational (e.g. culture) and managerial (e.g. more leadership type of management) changes.


11

Innovation process (activity) consists of the phase of generation of a new idea and its implementation into a new product, process or service as well as the acceptance of ideas (Forssén, 2002). Product, process and organizational innovations differ from product innovations in terms of the implementation of ideas. Firstly, process and organizational innovations are most often implemented within the company, whereas product innovations are manufactured into products and launched into external markets (Damanpour and Gopalakrishnen, 2001; Tidd et al., 2001). Secondly, product innovations are more “industry-specific”, i.e., they are more standardized across the industrial field mean while organizational and process innovations are more “organization-specific”, so they are unique to the organizations of implementation Therefore administrative and process innovations cannot be replicated without remarkable modifications to make them suitable and fitting with the implementing organization and its culture, structure and systems, and thus these innovations are less likely to be imitated (Damanpour and Gopalakrishnen, 2001).


12

2 Definition of KISA

The acronym KISA for Knowledge-Intensive Service Activities is provided by OECD (2001) and has seldom (Miles, 2003) been defined or operationalized in academic publications. However, a plethora of similar concepts with have been used by various scholars (Dathe et al., 2000; Windrum, 2000; European Commission, 1999; OECD, 1999; Dahles, 1999; Hauknes, 1998) during the past two decades. Most comprehensive and exhaustive state-of-the-art review regarding the knowledge-intensive services domain and conceptualizations can be found in Nählinder (2002).

For the purposes of this study, the dissection of all knowledge-intensive service activities is limited to three specific concepts:

1) Knowledge-Intensive Business Services, KIBS which are supplied for businesses on a commercial

bases by private companies and organizations,

2) Public Knowledge-Intensive Service Activities, P-KISA which are supplied for businesses by public

sector organizations,

and 3) Companies’ Internal Knowledge-Intensive Service Activities, I-KISA which are supplied for “clients” within companies

on an in-house basis.

These concepts are illustrated in Figure 2, where KISAs are mapped as a cross-section of the different types of service suppliers and clients.

KIBS

P-KISA

I-KISA

N/A

Com

mer

cial

Public

sec

tor

InternalExternalClient

Supplie

r

Figure 2. KISA Clients and Suppliers.


13

Within the scope of this first part of the KISA-SWC project, the extent and scope of the research is mainly on the new and emerging KIBS sector. KIBS has been the fastest growing branch of economy in Finland as in most European countries for nearly two decades (Toivonen, 2001; Miles, 1999; EUROPEAN COMMISSION, 1999) and the public sector organizations providing knowledge-intensive service activities in Finland are well-established and documented among the stakeholders of the project.

2.1 Knowledge-Intensity of Services

The logical commencement point in defining Knowledge-Intensive Service Activities is to consider first the complete spectrum of services available to businesses and public organizations1 (European Commission, 1999). These include a vast array of companies (Windrum, 2000; Dahles, 1999; Hauknes, 1998) and professionals (Miles, 2001; Werner, 2001), including services such as accounting, advertising, cleaning and rental services, security services, management consulting and research services.

Evidently, the “knowledge-intensity” among the aforementioned examples differs substantially. However, knowledge-intensity is hard to define and still harder to measure. (Miles, 2001; den Hertog, 2000; Hales, 2000; Hauknes, 1999; Bildrbeek et al., 1998) On a macro level, what is and is not considered knowledge-intensive is not only a function of the economic sector in question (ibid), but also of the extent of integration with generic or service specific science and technology base (Miles, 2001; den Hertog, 2000; Hales, 2000; Bilderbeek et al., 1998). This can be approximated as a combination of knowledge embedded in new equipment, personnel and R&D intensity (ibid). It is also a matter of historical struggle for status and influence and a result of a long sociological debate (Miles, 2001).

Low

Hig

h

HighLow

Knowledge demands on client

Know

ledge

dem

ands

on p

rovid

er

Cleaning

Accountancy

Telecom

Telecom

Transport

MedicalLegal R&D Services

Bespoke SW

COTS SW

(Applied from Hauknes, 1999)

Figure 3. Knowledge-Intensity of Services. 1 Excluded from the scope of this study, are all forms of knowledge intensive services supplied for consumers on the basis that consumer services are inherently and fundamentally different by not having the same innovation characteristics and substantial cross-industry contribution to the innovation processes of businesses and public organizations.


14

On a micro level, the requirements for the absorptive (adopting new knowledge within the organization) and transformative (transforming new knowledge from outside the organization) capacities of the companies involved in the transaction as a service provider and a service procurer can be used as a determinant of knowledge-intensity. These capacities proximate the mutual requirement for the demands of knowledge and profound level of interaction needed by both parties (ibid). A more elaborate discussion about the dimensions of knowledge-intensity can be found in (Nählinder, 2002; den Hertog, 2000; Miles et al., 1995).

For the purposes of this study, we limit our working definition of knowledge-intensity of services to be more operationalized as:

- including a major thinking or cognitive element on both sides of the service transaction

- having knowledge as both input and output parameters of the service transaction, i.e. requiring high levels of domain-specific knowledge by the service provider and resulting in contribution to new knowledge for both sides of the transaction

and thus

- facilitating learning on both sides of the service transaction.

2.2 Knowledge-Intensive Business Services - KIBS

After 10 years of increasing research interest, KIBS is currently the only constituent part of Knowledge-Intensive Service Activities, of which an established definition exists; and with which the world of academia is comparatively content and convergent2 (den Hertog, 2000; Kautonen et al., 2001; Muller, 2001; Strambach, 2001; Toivonen, 2001; Bilderbeek et al., 1998).

KIBS is generally (ibid3) crystallized by Miles et al. (1995) and further elaborated by the so-called SI4S –project in their numerous subsequent works4. Based primarily on the debate on the dimensions of knowledge-intensity, Miles et al. (1995) delivered their operational definition according to which KIBS are defined as:

- privately held companies or organizations

- relying heavily upon professional knowledge, i.e., knowledge or expertise related to a specific (technical) discipline or (technical) functional domain

and - either supply products which are themselves primarily sources of information and

knowledge to their users

2 Depending on the context, concepts such as Business Services (European Commission, 1999; Hauknes, 1998) Advanced Business Services (Dahles, 1999), Professional Business Services (Hermelin, 1997; Tordoir, 1994; Pedersen, 1992; Nachum, 1998) and Strategic Business Services (OECD, 1999) have been used synonymously with KIBS and, if operationalized, would identify the same companies. In addition, Production Oriented Services (Dathe et al., 2000), Producer Servioces (Dathe et al., 2000; Carlsson et al., 1999), R&T Services, Information and Knowledge Services (Appelbaum et al., 1990), Knowledge Based Services (OECD, 1999), Knowledge Intensive Services (Windrum, 2000) and Knowledge Firms (Roman, 1994; Blomqvist, 1994; Petterson, 1996) have been used in a remarkably similar manner. 3 Nählinder, 2002 4 Bilderbeek, den Hertog, Marklund, Windrum, Strombach, Boden, Hauknes, Hales


15

or - use their knowledge to produce services which are intermediate inputs to their

clients’ own knowledge generating and information processing activities - having other businesses as their main clients.

The most recent fine-tuning to this definition (Muller, 2002; Strombach, 2001; Miles, 2001; Bilderbeek et al., 1998) has stressed the importance of tacit knowledge as an important constituting element of KIBS and added the following characteristics features of KIBS:

- a high degree of project customization exists in production (little or no standardization)

- a high proportion of tacit knowledge is needed to produce economically useful results

- there is very close interaction between KIBS and clients. Commonly used (ibid5) operational indication build on this definition states that the

employment structure of KIBS differ from that of other services by having a higher proportion and concentration of highly educated labor force. However, there are important cross-country and cross-sectoral differentials (ibid).

For the purposes of this study, we take these well-institutionalized definitions of KIBS as a point-of-departure when building our framework and a working definition for KISA.

2.2.1 Levels of Abstraction For the purposes of this study, there are two relevant levels of abstraction on which the two KISAs and KIBS can be studied. From an academic perspective, knowledge-intensive service activities are conveniently viewed, as the name implies, simply as activities. This means not specifically considering the organizational infrastructure under which they are provided. However, in real-life, cases have to be conducted on the level of individual companies.

From the criteria presented, the number of industries (Miles et al., 1995) or sectors6 (Muller, 2002; Strombach, 2001; Bilderbeek et al., 1998) that can be classified as KIBS is fairly considerable, virtually irrespective of the method7 used in identification.

The categorization of business services into knowledge-intensive by being fundamentally founded on highly specialized knowledge may seem relatively straightforward on a sector-level. Highly specialized knowledge is the kind of social and institutional knowledge involved in more “traditional” business services such as accounting or more technological and technical knowledge involved in R&D consultancy, for instance. However, on a level of individual companies, with the constrain set by the

5 Hales 2001; Haukness 1999 6 Throughout this report, we use the term “sector” as it is broader a concept and carries far little historical and field-specific connotational load than the word “industry”. 7 Methods used in operationalisation of KIBS sectors include: Listing a number of specific services (Miles et al.), not to relate a specific working definition at all (Hertog et al., Hales), identification of KIBS categories by using input-output tables (Windrum et al.), use of industrial classification codes used by various statistics bodies (Hauknes, Illeris et al, Maskel et al., Norvig et al., Skogli, Toivonen, Werner) and identification according to the characteristics of the company’s labour force (Dathe et al., Hipp). For further discussion about the dimensions of operationalising KIBS sectors refer to Nählinder (2002).


16

physical reality, a number of gray areas, overlapping and ambiguities exist (Miles et al., 2001).

Companies which perform extremely knowledge-intensive activities for their clients during some part of the service provisioning may not be considered KIBS companies if the knowledge-intensive activity is not the main business focus of the company. The official industrial classification codes, which are most often (Hauknes, 1999; Illeris et al., 2001; Maskell et al., 1999; Norvig, 1999; Skogli, 1999; Toivonen, 2001; Werner, 2001) used in identification of KIBS companies, lag behind and do not accurately describe the recent structural changes in the different sectors of national economies.

Additional incoherence arises from companies, which alter their business focus without notifying the statistics authorities that the classification under which they were originally incorporated is no longer valid. Also, according to some experts [Interview 6] (Toivanen, 2001), KISA industries are increasingly converging and consolidating, which further intricate the situation.

On both levels, a useful differentiation of KIBS that has been used by virtually all scholars is a division between technology-based and non-technology-based (Miles et al., 1995) or technology-based and managerial/business based KIBS (Muller, 2002; Strombach, 2001; Bilderbeek et al., 1998). Another possible division that may become relevant in the future [Interview 6] is segmenting KISAs to industry-specific, i.e. vertical and horizontal. The first possesses and provides highly advanced and usually technology-based knowledge-intensive service activities for clients in one particular client industry. The latter caters a bundle of one-stop-shop –type of services for the needs of several industries.

2.3 Public Knowledge Intensive Service Activities – P-KISA

So far, the debate has focused on KIBS sectors and companies. However, not all Knowledge-Intensive Service Activities are supplied by privately held companies or organizations (Miles et al., 1995). Public sector organizations, such as public laboratories, universities, research institutes, and various governmental bodies and agencies also supply services for companies with marginal or no cost. Private companies can also be mandated by a public organization to carry out a specific service assignment under public authority. Some of these services clearly qualify for being knowledge-intensive.

The most relevant established academic conceptualisation to start with when defining the components and dimensions of P-KISAs, is the multi-level RTO, (Research and Technology Organisations) framework presented in several publications (Hales, 2000; Koch et al., 2000; Norgren et al., 2000; Preissel, 2000; Whalley, 2000), which is sometimes used interchangeable with the concept of public KISAs [Interview 6].

Since more elaborate analysis on the structures of public infrastructure is narrowed out of the scope of this report, we only present the most commonly used stereotypical definition of RTOs as submitted by Hales (2000). This definition serves as a basis when discussing the other variants of public KISAs in more detail in subsequent parts of the KISA-SWC project, and extending the range of P-KISAs outside this definition: RTOs are organization with significant core government funding (25% or greater). They supply services to companies individually or collectively in support of scientific and technological innovation and devote much of their capability (50% or more of their labor) to remaining integrated with the science base.


17

While this definition is necessary to identify the research and technology –based public KISAs on the level of individual organizations, it is not sufficient to describe the entire range of publicly funded KISAs in Finland. For instance, public organizations providing services promoting the internationalization of Finnish companies (i.e. FinPro), or various programs with significant governmental funding promoting entrepreneurship (i.e. Venture Cup), provide knowledge-intensive services as their primary activities but do not qualify as RTOs.

For the purposes of this study, we define P-KISAs to be all the activities provided by a party with significant core government funding which qualify as knowledge-intensive services according to the our definition.

2.4 Internal Knowledge Intensive Service Activities – I-KISA

Many knowledge-intensive service activities are also supplied on an in-house base to “clients” within the companies (Miles, 2003). Most of these are carried out solely on an in-house basis for the parent organizations, and are not supplied to any third party outside the organization. Examples of such I-KISAs include process development, training, financial controller functions and so forth.

KISAs which were earlier “invisible” parts of the bundle of activities within a company have increasingly been differentiated into specialized occupational roles and even parts of the organization (Miles, 2001). KISAs also emerge to meet requirements associated with technological and organizational change and the challenges of changing business environments.

2.5 Other Knowledge Intensive Services

With respect to the definition of knowledge-intensity, additional types of knowledge-intensive services activities can also be identified. On a company level, these include companies, the primary business focus of which is not knowledge-intensive services but which clearly supply some such service activities at some peripheral of their operations. For instance, manufacturing companies often supply various services (mainly, but not always complementary to their material products) to their clients. In addition, non-knowledge-intensive service companies may also supply KIBS-type of outputs to their clients. And some knowledge-intensive services are also supplied mainly to final consumers, as public services (e.g. health care) or private professional ones (consumer financial advice or computer repair).

However, all the numerous activities outside KIBS, P-KISA and I-KISA, which in some circumstances qualify under the wide-arching umbrella definition of Knowledge-Intensive Service are narrowed out the scope of this research.


18

3 Initial Framework

In the beginning of this study, we developed a framework for analyzing innovation processes and the associated services. The framework consists of a set of three life-cycles and the definition of KISAs. The life-cycles were used as an initial framework to map the landscape of knowledge-intensive services with software business. The three different life-cycles are: 1) Product release life-cycle, 2) Product market life-cycle and 3) Company life-cycle. All the life-cycles are applicable to software product companies as well as software project companies.

The EarlyMarket

The EarlyMarket

TheChasmThe

Chasm

The TornadoThe Tornado

Main StreetMain Street

The BowlingAlley

The BowlingAlley

End ofLife

End ofLife

The EarlyMarket

The EarlyMarket

TheChasmThe

Chasm



The BowlingAlley

The BowlingAlley

End ofLife

End ofLife

Str

ategy F

orm

ula

tion

Busi

nes

s D

eve

lopm

ent

& M

ark

et I

nte

lligence

Feasi

bili

ty S

tudy

Req

uirem

ents

Speci

fica

tion

Desi

gn

Imple

menta

tion

Tes

ting

Launch

& M

ark

etin

g

Sal

es

& D

istr

ibution

Support

& M

ain

tenance

Aft

er-

Sal

es

Str

ategy F

orm

ula

tion

Busi

nes

s D

eve

lopm

ent

& M

ark

et I

nte

lligence

Feasi

bili

ty S

tudy

Req

uirem

ents

Speci

fica

tion

Desi

gn

Imple

menta

tion

Tes

ting

Launch

& M

ark

etin

g

Sal

es

& D

istr

ibution

Support

& M

ain

tenance

Aft

er-

Sal

es

Str

ategy F

orm

ula

tion

Busi

nes

s D

eve

lopm

ent

& M

ark

et I

nte

lligence

Feasi

bili

ty S

tudy

Req

uirem

ents

Speci

fica

tion

Desi

gn

Imple

menta

tion

Tes

ting

Launch

& M

ark

etin

g

Sal

es

& D

istr

ibution

Support

& M

ain

tenance

Aft

er-

Sal

es

timeStart-up Entrepreneurial Professional mgmt Expansion

Beginner-income

Advanced-income

Advanced-VC

S

S

S

En P Ex

P ExEn

En P Ex


Beginner-income

Advanced-income

Advanced-VC

S

S

S

En P Ex

P ExEn

En P Ex


Beginner-income

Advanced-income

Advanced-VC

S

S

S

En P Ex

P ExEn

En P Ex


Beginner-income

Advanced-income

Advanced-VC

S

S

S

En P Ex

P ExEn

En P Ex

The EarlyMarket

The EarlyMarket

TheChasmThe

Chasm



The BowlingAlley

The BowlingAlley

End ofLife

End ofLife

The EarlyMarket

The EarlyMarket

TheChasmThe

Chasm



The BowlingAlley

The BowlingAlley

End ofLife

End ofLife

The EarlyMarket

The EarlyMarket

TheChasmThe

Chasm



The BowlingAlley

The BowlingAlley

End ofLife

End ofLife

The EarlyMarket

The EarlyMarket

TheChasmThe

Chasm



The BowlingAlley

The BowlingAlley

End ofLife

End ofLife

Product

Rel

ease

Product

M

arke

tCom

pan

y

Figure 4. Relationship of the Product Release, Product Market and Company Life-Cycles.

Before introducing each of the three life-cycles, the relation between them is

explained in Figure 4. In our framework, on the lowest level (Product Release) there is the introduction of each product or service release. When a specific product or service is in the market, there is a specific life-cycle for the product or service and the associated releases and upgrades. This is represented on the second level (Product Market) of our framework. The third level (Company) represents the whole life-cycle of a software


19

business company. It is to be noted that we have further divided company life-cycle into three parts based on financial and capability factors. The life-cycles are presented in detail later in the report.

Different KISAs in this report as well as innovations and innovation processes in the next phases and reports are depicted using these frameworks.

3.1 Product Release Life-Cycle

Based on the interviews and research group’s knowledge and experience, a framework has been constructed to associate KISAs with different phases of a product release. The framework is based on product release life-cycle which is presented in Figure 5.

Str

ate

gy

Form

ula

tion

Busi

nes

s D

evel

opm

ent

& M

arke

t In

telli

gen

ce

Feasi

bili

ty S

tudy

Req

uirem

ents

Spec

ific

atio

n

Des

ign

Imple

men

tation

Tes

ting

Launch

& M

ark

etin

g

Sal

es

& D

istr

ibution

Support

& M

ain

tenance

Aft

er-S

ale

s

Str

ate

gy

Form

ula

tion

Busi

nes

s D

evel

opm

ent

& M

arke

t In

telli

gen

ce

Feasi

bili

ty S

tudy

Req

uirem

ents

Spec

ific

atio

n

Des

ign

Imple

men

tation

Tes

ting

Launch

& M

ark

etin

g

Sal

es

& D

istr

ibution

Support

& M

ain

tenance

Aft

er-S

ale

s

Figure 5. Software Product Release Life-Cycle.

In the first phase, a strategy for product development, marketing, sales and

distribution as well as after-sales is developed. The next phase is business development and market intelligence. This means organizing a team or a business unit for product development and gathering all the required data about market and its behavior as well as potential clients. The next phase is to construct and evaluate different prototypes and concepts against their feasibility in a specific market. Requirements specification specifies the features and functionalities to be included or excluded in current release of a software product. Design phase refers to product, architecture and module design of a specific software product. Implementation phase includes actual physical software development work, e.g. coding and integration. Testing of the individual modules as well as the whole product is done before launching. At the same time with launch and commercialization, marketing effort is carried out to create demand for the product. Sales & distribution refers to all the effort related to building and maintaining sales and distribution channels. Support functions serve clients in aspects related to installing and using the software as well as training. Maintenance means providing updates and patches for software. After-sales refers to activities related to client engagement and selling more products and services for current clients.

3.2 Product Market Life-Cycle

Product market life-cycle describes the different phases of a product’s life-cycle in the market all the way from new product introduction to its end of life. In the next few paragraphs, the concept of Geoffrey Moore’s technology adoption life-cycle (Moore,


20

1999), as he calls it, it presented in more detail. Although product market life-cycle is an essential part of the frameworks used in this research, it has been excluded from the analysis of the first phase. The framework will be used as a tool for analysis in the second phase as software product companies and software product market are in the focus of research.

The EarlyMarket

The EarlyMarket

TheChasmThe

Chasm



The BowlingAlley

The BowlingAlley

End ofLife

End ofLife

The EarlyMarket

The EarlyMarket

TheChasmThe

Chasm



The BowlingAlley

The BowlingAlley

End ofLife

End ofLife

(Moore, 1999)

Figure 6. Product Market Life-Cycle.

The Early Market In the first phase of Moore’s life-cycle, the early market, the new technology is arising. There are many unresolved problems and it is uncertain if the new product or service will gain market acceptance. Technology enthusiasts are eager to test these premature products and technologies. Software company cash outflow is greater than inflow.

The Chasm The greatest concern for software product companies is the next phase of the model, the chasm. Technology enthusiasts’ interest is fading, and there is no guarantee that an immature product would interest the mainstream clients. The risks and uncertainties linked to technology are greater than the anticipated benefits. Product manufacturers are desperately trying to gain a beachhead on the other side of the chasm. Identifying a well-defined market niche and satisfying their special needs is a path to survival.

The Bowling Alley The bowling alley is the part of the Product Market Life-Cycle, where a new product achieves success on a niche level, but is not accepted for general adoption. The old paradigm is still present and although the new product is recognized, there is no demand for it. Mainstream clients don’t want to risk adopting new technology too early.


21

Inside the Tornado When mainstream clients discover that the new product is viable and in fact compelling to them, they will rush to buy it. The consequence is that the demand will exceed supply substantially. This is very attractive situation for vendors, because they can grow extremely fast. The ultimate goal is to achieve dominant market leadership. Mainstream clients pick up a most suitable vendor, who will be a dominant market leader and set de facto standards.

On Main Street When market growth stagnates and supply catches up with demand, it’s a clear sign that the market has moved on the main street. Because growth in the tornado stage was exceptional, companies may find it frustrating to adapt to the main street. There are still good opportunities to collect profits, but high-tech companies usually underestimate or neglect these opportunities. Instead of generating profits, companies try to find a new tornado although there aren’t any promising discontinuous innovations.

End of life Companies must sooner or later leave the main street, if they want to grow and prosper. When market passes the main street stage, products become obsolete and the only way to generate revenues is by providing services to clients, who still have operations that utilize these “ancient” solutions.

3.3 Company Life-Cycle

In the context of this research, a software business company’s life-cycle is broken down to four phases: 1) Start-up, 2) Entrepreneurial, 3) Professional management and 4) Expansion. The model indicates the maturity of a company. There are no unambiguous measures for maturity. In the context of this research, the number of employees is used as a proxy guideline.

time

Nu

mb

er

of

em

plo

yees

530

70

Sta

rt-u

p

Entr

epre

neurial

Pro

fess

ional

mgm

t Exp

ansi

on

Figure 7. Number of Employees in Different Phases of the Company Life-Cycle.


22

Based on the interviews, the phases of the product life-cycle have been divided by the number of employees as displayed in Figure 7. [Interview 1]

Company life-cycle of a software business company is affected by two factors: 1) human resources and 2) financing. Typical set-up is that entrepreneur invests his own money and finances the business by income from the business operations. Another option would be to include venture capitalist or associated financier to boost the business growth. Other axis against which the growth financing is mapped with is the level of experience of entrepreneur. The majority of software entrepreneurs are on their first round of entrepreneurship. In Finland, it is not too common to have entrepreneurs with experience of 2-3 established businesses [Interview 3]. In Figure 8, growth financing and level of experience have been mapped together to form the three possible paths for a software business company. It is to be noted that in the current economic situation, the combination of venture capital and entrepreneurs with no experience seems to be irrelevant. [Interview 3]

Inco

me

Ven

ture

capital

AdvancedBeginner

Gro

wth

fin

anci

ng

Level of experience

N/A

Inco

me

Ven

ture

capital

AdvancedBeginner

Gro

wth

fin

anci

ng

Level of experience

N/A

Figure 8. Growth Financing and the Level of Experience as a Base for Company Life-Cycle.

Thus, there are two major parameters affecting the form of company life-cycle:

financing and experience. In the context of this research, it is assumed that these two parameters will affect the time each phase in the company life-cycle takes to complete. The model presented in Figure 9 shows the difference between income financed start-up with low experience (beginner-income), income financed start-up with experienced management (advanced-income) and venture capital financed start-up with experienced management (advanced-vc).


23


Beginner-income

Advanced-income

Advanced-VC

S

S

S

En P Ex

P ExEn

En P Ex


Beginner-income

Advanced-income

Advanced-VC

S

S

S

En P Ex

P ExEn

En P Ex

Figure 9. Company Life-Cycle.


24

4 Research Methods and Data

This first part of KISA-INTO project was conducted by a literature review and interviews. The research methods and data are presented in Table 1. The study started by a literature review of the current state of the SW cluster (Research question 1). The review drew mainly on earlier studies, OECD KISA documents, and information from statistics.

The current state of the knowledge-intensive services (Research questions 2) was studied using interviews. Interviewees were selected from the following organizations providing knowledge-intensive services:

• Business consulting • Human resource development • Legal services • T&E Center • Centres of Expertise (Osaamiskeskus)

as well as from a software business industry association and one software company (a representative of service buyers). In addition, these interviews will function as a pre study for the next phases of the research project as well.

Table 1. Research Methods and Data.

Research question Method Data What are the characteristics of the SW cluster?

• Literature review

• Earlier studies • Data bases and statistics • OECD KISA project’s

documentation What is the current state of KISAs in the SW services cluster?

• Interviews • Literature review

• Interviewees from SW and service clusters N= 7

• Earlier studies, data bases

The analysis of the interviews was conducted as follows:

1. The seven interviewees were chosen to represent an overall picture of the service sector providing services for software business sector.

2. The themes for the interviews were constructed (Appendix 1). 3. The semi-structured interviews were conducted. In four interviews, there were

two researchers present and in three interviews one researcher. 4. Interviews were recorded on a digital recorder. 5. The interviews were listened and converted into mind-map like write-ups. 6. The mind-maps were rearranged according to the themes. 7. The mind-maps were further coded and analyzed by a matrix indexing each

interview by theme, interviewee, stage in the three life-cycles (product release,


25

product market, and company), relevance with KISAs, importance, indication of a problem, indication of an issue to be developed and source of information.

8. Two interviews were cross-checked by another researcher to ensure data validity.

9. Two matrices based on the life-cycles were created based on the interview data.

10. The interviews were reported according to the themes and written down as the final deliverable.

11. The referencing was maintained throughout the report to maintain traceability.


26

5 The Current State of the Software Cluster

Economic activity can be defined through clusters. SW cluster includes actors that are involved in the value chain or networks of the SW products and services, i.e., SW companies and their clients as well as organizations providing services to the SW companies. KISA OECD project defines the actors of a product-service system, i.e. cluster as follows (Paper 1 of KISA OECD project):

• Suppliers, competitors and clients of the core companies. • Related R&D services providers (public or private). Universities and government

laboratories appear in this category. • Related regulatory actors. • Suppliers of financial services related to research & technology (e.g. venture

capital, public funding for R&D, public-private partnerships, etc). However, clustering is not only a set of actors. The main reason for building a cluster

is to provide benefits for all actors compared to situation where actors are scattered. Clustering should form and offer a network between actors, which enable the mutual and shared knowledge and technology base (Toivonen, 2002). Heeks and Nicholson (2002) found in their studies of India, Israel and Ireland that clustering brought a number of benefits: rapid interchange of information and knowledge (about best practices and market opportunities), regional economies (it is cheaper to provide infrastructure in all its forms to a cluster of software companies than to the same number of companies that are scattered), and a raised marketplace profile.

Some companies may act both in SW business and in service business providing both products and services for other companies in the SW industry or other industries. Therefore, instead of depicting SW cluster by actors, we describe it by activities, i.e., businesses. Thus, the definition of SW cluster starts by segmenting cluster into two activities: SW business and service business (Figure 10).

SW business has three segments: (Autere et al., 1998; Nukari and Forsell, 1999; Toivonen, 2002),

• Software products; designing, implementing and maintaining • Customized Software projects and services • Embedded software, which has strong relation to other industrial businesses.

In addition, product and customized project business have remarkable horizontal effects to related industries, e.g. to manufacturing, service business and retail sector, because information technology is essential for their business processes and competitiveness (Toivonen, 2002).

Service Business is divided into two categories: • Knowledge-intensive services • Other services.

Both consumers and companies use knowledge-intensive services. In this research, we are focusing on the knowledge-intensive services provided to companies, i.e. KISAs. KISAs can be provided by public organizations (P-KISA), private organizations (KIBS


27

companies) or by company itself (I-KISA). The other services include non-knowledge-intensive services, e.g. cleaning and maintenance.

Distinction between SW business and service business lies in their material form. Services are mainly intangible in nature. The following features can distinguish services from manufactured goods: service itself is intangible; service is more like a process or a performance than an object; production and consumption of the service are to some extent simultaneous activities (Kuusisto and Meyer, 2003).

SW productbusiness

Embeddedsoftwarebusiness

SW business

Service business

Customized project business

Customers

Related business

Related business

Knowledge-intensiveServices for companies (P-KISA and KIBS) and consumers

Other services

I-KISA

Figure 10. Description of the SW Cluster.

5.1 SW Business

Software activities deal with the codification of knowledge and information, types of inputs and outputs of these activities being virtually immaterial (Torrisi, 1998). Software can be a packaged program or developed specifically to the needs of some particular client, as well as a combination of these two. This degree of productization is crucial in understanding a difference between software product and customized project business. The degree of productization can be defined as a level and quality of requirements, level of packaging and the standardization of the delivery processes (Hietala et al., 2002).

The differences in productization between software product business and customized project business are depicted in the Figure 11. In addition, product business companies sell products but in customized project business, they sell working hours and man-hours as projects. The management of these two different kinds of business is not similar and it is pivotal to recognize this difference. (Toivonen, 2002)


28

Degree of productization

Low Medium High

1

10

100

1000

10 000

100 000

1000 000

10 000 000

SW Customized Project Business

Pre-developedenterprise solutions

Packaged mass-marketsoftware

SW Product Business

(see: Hoch et al., 1999)

Figure 11. Software Product and Customized Project Business. Pure software products are highly productized and often referred as standard

packaged, mass-market software. These products are delivered to a large number of clients in exactly the same format, without any tailoring. A typical example of packaged software products is word processing package. Some software products need to be customized (because of their complexity or some other reason) in order to integrate the software to clients’ other information systems. However, it is still a highly productized business and these so called enterprise solutions are based on pre-developed software products (Hietala et al., 1999).

Customized project business consists of tailored software developed to the specifications and needs of individual clients. As there are differences between client’s ways of conducting business, there are needs for tailored software projects. This business is based on selling projects, not software, and therefore it has many characteristics of a service industry (Hietala et al., 2002). Therefore, customized project business is often referred to as service business (e.g. Hoch et al., 1999). In this report, we use the term “customized project business”.

The third category of the software business is embedded software. Embedded software is built inside other products, e.g. mobile phones, printing machines, and not sold separately. The product release life-cycle of embedded software has several features which are similar to those of a software product. However, the value chain and logistics in embedded software business differs from product and customized project business, since the product a client buys is more concrete a product embedded to hardware than a pure software product. The embedded software is developed once and sold in many identical copies. It’s replication has high development costs, and low manufacturing costs (Hietala et al., 2002).


29

Future Development of the Software Industry The software business industry is continuing to develop rapidly and some of these changes will affect the innovation process and the KISAs used in it.

One such change is the increasing emphasis on customer-orientation. In most industries, product development has shifted from being technology driven to being driven by the customer needs and the need to solve customers’ problems. This means that the technological innovations alone will not be enough to gain market presence or share, the innovation process needs to interact with the customer frequently to steer the product development towards solutions that satisfy the customers.

The market situation has also reduced the cycle times of product development due to competitive pressures and increasing customer expectations. This puts high pressure to the entire innovation process: the elapsed time from a conception of an idea to its delivery to the market needs to be short and competitive advantages are available to those firms that can shorten this time.

A particular challenge for the Finnish software industry is that Finnish software companies are small and there are limited risk-taking capability and financing available to them. Given the international markets and competition, these constraints may be a major potential hurdle for growth in the sector.

On the other hand, the Finnish software industry can also benefit from some of the strong industry cluster that the country has, e.g., mobile telecommunications and forestry sector. As some of the companies in these sectors, such as Nokia, and Kone, are world-wide leaders in their field, small software companies can find synergy benefits with the brands, distribution channels and market presence with these companies.

SW Business in Finland Finnish software companies, like other European SW companies, have quite low degree of productization and internalization compared to US companies. However, the trend seems to be towards greater degree of both productization and internalization. In software product and customized project business, that means development and shift from tailored software for local markets towards mass-market software for international market, i.e. expectations to grow the Finnish software product business and its exports (Nukari and Forsell, 1999; Hietala et al., 2002).

In addition, more than two out of three Finnish software companies develop and produce traditional ICT software. The international software vendors have, however, rapidly increased their shares on the Finnish market. This trend is expected to continue in the next five years, forcing the Finnish software houses to search for other business opportunities that are based on utilization of the latest technologies (USA commercial Service, 2003).

The Finnish software business is characterized by the following trends (USA commercial Service, 2003):

• Expanding focus and application areas beyond traditional ICT software market • Fast-growing number of new start-up software companies • Increasing role of web-related software • Fast-growing role of embedded software • Increase in software exports


30

• Consolidation of the software industry (mergers, acquisitions) • Increase of mobile software.

Product and customized project businesses are referred conjointly as software industry (Toivonen, 2002). The software industry is still relatively small, although it has grown rapidly during the last decade. The total revenue of the industry was estimated at € 1.68 billon in 1999. The industry employed approximately 20,000 people in 1999 (Nukari and Forsell, 1999; Hietala et al., 2002). The estimated shares of different businesses in software industry are as follows: software products 20% and software customized projects 80 %.

The statistical description of the Finnish software sector is presented in TEKES report (Lith, 2003). However, the data is from the industrial classification NACE 722 (computer and related activities), which does not include all SW business companies, but on the other hand, includes companies from different industries than SW industry. It shows some interesting information about the current state and trend. Firstly, companies providing computer and related services purchase only minor sub-contracted services of their own sector or other business services from external service provider. Secondly, 70 percents of the companies in the NACE 722 sector had been involved in innovation activities (own R&D, innovation related investments, education and training) which is clearly more than in all sectors on the average (44%) (Lith, 2003).

Thus, one problem in defining Finnish software industry and business by volumes and statistics is that software industry has not any statistical industrial classification code of its own in Statistics Finland, EU or OECD. This far, the statistics have been collected by separate projects. For example, the on-going OKSA project of TEKES (managed by University of Jyväskylä and University of Oulu) is studying the SW business in general and will deliver the final report in autumn 2003.

The best statistics of individual segments of the software business are found in software product business. The national software product business has been studied by a survey, which has been commissioned by the Finnish Centre of Expertise for Software Product Business since 1998.

Software product business In Finland, software product business includes approximately 900 existing companies (i.e., companies which have product business), which have revenues of € 900 M and employ 10,000 professionals. Software product companies are defined as companies, which sell software products they themselves design, implement and maintain. In the product business, the income consists of license selling, customizing, maintenance, user training, helpdesk, etc. The revenue logic can vary a lot depending on product complexity, nature of the product, markets etc. For example, for packaged mass-market software license selling share can be up to 85 %, or for the enterprise solution companies license selling typically brings about 30% of the total income. (Hietala et al., 2002)

The industry is quite young and most of the companies are small, owned by their founders and family members. Minority of the companies had foreign and external owners. Software product companies are mainly located in large cities (which have universities) and very close to technology centers, which offer possible ties for networking and support. In addition, over half of the companies are centralized in the Uusimaa province. The growth expectations among companies of the software industry


31

are high and nearly half on the companies have indicated that they intend to look for external financing. The role of public funding seems to be essential especially for the product business (Hietala et al., 2002).

According to Toivonen (2002), product business is the center-stage in the SW business in terms of exploiting the potential of global markets. Smaller companies emphasize most R&D and productization as well as networking and partnering. Bigger companies (turnover € 1-1.99 M) emphasized strategic planning in addition to the same improvement areas than smaller companies. Larger companies put emphasis in international activities, sales and marketing, as well as product localization (Hietala et al. 2002). More than 1/3 companies of the software industry are operating in international markets and they have a higher degree of productization than those operating only in domestic markets (Hietala et al., 2002).

5.2 Service Business

Intangibility is the key feature of a service. Service business is very heterogeneous including different activities from cleaning services to knowledge-intensive management consulting. The characteristics such as intangibility and heterogeneity alone make the service concept difficult to cope with. Service business can be divided into two parts: Knowledge-intensive services and other services. Furthermore, knowledge-intensive services can be divided to KISAs and services provided to consumers. KISAs are provided to SW companies by public organizations (P-KISA) or by private companies (KIBS companies) or as in-house service (I-KISA) (Figure 10).

According to Sundbo (2002) (in Kuusisto and Meyer, 2003), the service activities can be defined as follows: “Service activities help clients to solve problems. In many cases, problem solving involves both physical goods and services. Research, development, consulting and technology transfer are examples of knowledge-intensive services that are useful in problem solving”.

As service sector in general, the volume of knowledge-intensive service activities has grown dramatically. The share of personnel within knowledge-intensive service activities in Finland has shown a growth of 64 % from year 1995 to year 2000. During year 2001 the share has more than doubled. This development is way ahead of consolidated trend among different clusters. A consolidated view over all clusters indicates a 20 % growth of personnel and 57 % growth of turnover from year 1995 to year 2000. Computer and related services are the fastest growing category of services. Business and management consulting have also grown significantly (Statistics Finland).

KIBS are more concentrated in Uusimaa than services in general. However, there are differences between different kinds of KIBS. Technical services are the least concentrated in Uusimaa, while most of the marketing, computer and related services, consulting and R&D services are concentrated in Uusimaa. Thus, there might be a need to promote a higher intensity of P-KISA activities in the regions (Kuusisto and Meyer, 2003). The knowledge-intensive services in Finnish SW cluster are described in more detailed in the following chapter of this report.

KISAs typically perform a catalytic role in knowledge-creating or innovation processes of the client company. The role of services can be (see: Kuusisto and Mayer, 2003; Bolderbeek et al., 1998):

• As a source of innovation: adding their own innovative knowledge to the client


32

• As a carrier of innovation: transforming innovative knowledge from other source to the client

• As a facilitator of innovation: o facilitating the knowledge-creating process within the client company

(Nonaka and Takeuchi, 1995) o facilitating the joint knowledge creation or production of new

knowledge within a network (e.g. including suppliers) o helping the client in implementing new knowledge developed in-house.

5.3 Software Cluster from Innovation Perspective

Software production shows some special features that make it a quite special activity positioned in between the manufacturing industries and the service sector (Torrisi, 1998). Special characteristics of software development are (Brooks, 1987; Mowery, 1996; Torrisi, 1998):

• Software production is almost by definition an innovative activity because it aims at producing new products or new ways of executing known tasks and functions, more than other industrial activities (Torrisi, 1998). Software is a human, creative phenomenon as well as abstract and complex (Brooks, 1987).

• Software development has low physical capital-intensity; it is an intellectual, labour-intensive activity (Mowery, 1996; Torrisi, 1998). Technology transfer takes place at the level of design know-how and training, whereas in many engineering industries, technology transfer involves activities like factory planning (Torrisi, 1998).

• The absence of any manufacturing dimension in software activities affect the division of labour across companies and countries. This division of labour may have negative effects on innovative performance because the software parts of the information system are much more interdependent and interact in more complex ways as compared to other industrial products, e.g. cars (Torrisi, 1998).

• User expectations have increased over time (Brooks, 1987); however neither users nor producers can easily predict the outcome of development of packaged or customised software because it is intrinsically difficult to define clearly the problem to solve at the beginning or anticipate the outcome of learning by using and interactions between the user or the producer. It is difficult to codify the software development process and the uncertainty surrounding this process (Torrisi, 1998).

• Software is developed, not manufactured. Software projects have long cycle times and are costly (Brooks, 1987). Software product production costs are all fixed development costs. Once developed, the costs of fabricating a copy of a software program are almost negligible, expect the cost of packaging and distribution in packaged products as well as sales and marketing costs (Torrisi, 1998).

• Software technology and its characteristics evolve over time (Brooks, 1987; Torrisi, 1998).


33

Despite these special features, the “evolutionary” approach to production and innovation, which is required by software technology, is not completely new to other problem solving, intellectual activities (Torrisi, 1998).

According to Torrisi (1998), product innovation is a multi-dimensional activity, which includes R&D, and activities like the introduction of a new functionality to existing product or preparation of user documentation, which are needed to bring an invention to the market. Process innovation in software is the use of new methods and techniques to develop existing or new software products and services. Both process and organizational innovations affect the performance of the organization in addition to product innovations. There is a complex interaction between process innovations and product innovation (Alasoini, 1998). New products need new process technology, and implementing new technology requires new ways of organizing the work and tasks. These process innovations are able to make a product or service in a better way, and, therefore, are a powerful source of competitive advantage (Tidd et al., 2001). Process and product innovations should be seen as representing a continuum rather than a dichotomy, as they are typically interrelated (Palmgren et al., 1999).

In software technology, new technology plays a role similar to that of flexible manufacturing system in manufacturing industries. The time to response to users’ needs has become the most important determinant of process innovations. The obstacles to process innovations have been incompatibility with familiar techniques, the difficulty for project managers to learn new types of organisation of work associated with new techniques, lack of information on the techniques, and uncertainly arising from expected significant changes in new existing techniques. However, the obstacles to process innovation seem to be less important nowadays than in the past due to improved effectiveness and user-friendliness of the tools and techniques. (Torrisi, 1998)

When we focus on SW companies of different size, the following three main categories show the different patterns of innovation (Torrisi, 1998):

1. Entrepreneurial start-up companies operating on the technological frontier 2. Small and medium-sized SW companies specializing in one or a few software

products or services 3. Large companies offering system software or carrying out system integration

activity. The innovative competence of employees at the SW company (in-house) can be

distinguished in general-purpose competence, e.g. skill in mathematics and computer science, which provide an absorptive capacity, and context-specific capabilities e.g. skills based on experience accumulated in developing specific applications or services. Torrisi (1998) propose that software companies should invest more in general-purpose skills because these skills increase the ability to absorb knowledge from outside, i.e., external source of knowledge for innovation and innovation processes.

5.4 Leading Countries of the Software Sector and Finland

5.4.1 The Israeli SW Sector Israel has succeeded to grow its software industry substantially during the last decade. Therefore, it is interesting to study more elaborately the successful implementation of the national development strategy in Israel. In addition, Israel has some similarities to


34

Finland as a country regarding the population, GNP and knowledge of high technology. The Israeli software industry is more mature than the Finnish one. Therefore, it is an interesting country to be used for benchmarking.

The very early roots of Israel's software success lie in the post-independence, government-funded drive to increase technical expertise. A technically-proficient cadre trained by the military in the 1950s found themselves in key positions from the 1960s onwards. This cadre formed a network that spanned the military, the government and the private sector. As computer hardware and then software became commodities, an opportunity presented itself. The cadre was able to see opportunities for private sector commercialization of software developed through military- and government-funded R&D. (Heeks and Nicolson, 2002; Ariav & Goodman, 1994). In addition, from the 1960s onwards, Israel has been losing managers and other professionals to the lure of the green card. Often maligned as a costly 'brain drain', this diaspora formed the basis for contacts and then contracts that set each country's software export market in motion (Heeks and Nichloson, 2002).

According to Software Houses (2001) Israeli software industry’s export were 2.0 billion U.S. dollars in 1999 and 2.6 billion in 2000. In 1996, The number of new, established software companies was the second largest in the world (Nukari and Forsell, 1999), and most of these 200 companies were started in incubators.

Israel's main strength has been the export of niche market software products. The export has increased about 25% in the 1990’s (Heeks and Nicholson, 2002; Nukari and Forsell, 1999). The export of Israeli software business was 5-6 times bigger than the exports in Finland. However, the total software sales, including those to the Israeli domestic market, have been growing slower than the value of exports.

The explanations for this successful growth have been found while studying the implementation of the national development strategy (Nukari and Forsell, 1999):

• The developed strategy or activities have lead to very good results in the first phases of commercialising the research findings as well as enabling the start-ups.

• Technological incubators were established in 1991. They enabled high-educated people to move to Israel to start own business and to become an entrepreneur.

• Technological incubators improved the commercialising of research findings at the universities, in where had been a lack of well-organized support for new entrepreneurs.

• In more detail, the development of these public incubators had at least the following advantages: resources for testing product ideas, professional help for starting the commercialization process, and the system covering the whole country. All together, there are around 30 incubators in all over Israel.

• In Israel, the amount of venture capital in start-ups and in the early phases of new software business was the second largest in the world, after U.S. The instruments for early stage financing have been developed and used in evaluation (Nukari and Forsell, 1999).

In addition, the following critical, country-specific, success factors have been found in studies of Israeli software export (Heeks and Nicholson, 2002):


35

• Strong domestic demand.

• Human capital and skilled people: people have an excellent education; they are good at English, which is global business and IT language; and they have strong knowledge base about overseas markets and business.

• Overseas linkages: diaspora has formed the basis for contacts and trust was built when people got closer to customers (expanding customer-developer relationship, especially with single, large, multinational customers).

• Presence of a national strategy for software.

• Shared national vision: a shared vision by relatively small but committed group of government officials and private entrepreneurs. Such visions first emerged in the 1970’s.

• Access to technology, a strong technological infrastructure of both hardware/software and digital telecommunication.

• Software Industry characteristics: there is a competition between companies in the national level; SW industry has been found on clustering; and there exists collaboration that is enabled by software associations and government agencies.

• Financing: a raft tax breaks for private R&D, for both domestic and foreign; marketing subsidies; as well as grants, loans, legislative updates are available for SW companies.

• Research and development: investment in software research and development (Military-funded research and development).

• Enabling transportation, utilities and business accommodations, especially to software export cluster locations provided by government.

• Government has assisted the knowledge infrastructure of ideas and best practises in their support for ISO 9000 and for software industry associations.

5.4.2 Irish SW sector Ireland has emerged as the capital of Europe for software localization and production. Five of the world’s top ten independent software companies have major operations in Ireland and over 40% of all PC packaged software and 60% of all PC business application software sold in Europe are produced in Ireland. In addition, a third of the PCs sold in Europe come from companies based in Ireland. According to an Organisation for Economic Co-operation and Development (OECD) report, Ireland has actually overtaken the U.S. to become the leading exporter of software products in the world. However, these figures include software developed in Ireland by foreign based companies. Nevertheless, Irish software industry has gone a long way from the 1970s, when the Industrial Development Authority took first actions to promote the Irish software industry. Similarly to Israel, Ireland has certain similarities to Finland regarding the population, GDP and high technology. However, the background and the actions taken to promote the industry are quite different from Finland. (Commonwealth of Pennsylvania, 2003)

Ireland has few natural resources and has traditionally relied on agriculture and fishing to provide its population with a living. In the 1960s and more particularly the


36

1970s, a successful government-backed effort was launched to secure industrial investment from abroad. This resulted in importing a range of industry and many of whom were employing workers from various levels of educational backgrounds, much of it at the low-skills end of the scale. In the late 1970s, the Irish government made a decision to concentrate on attracting industry of a high value-added nature, preferably employing a high proportion of university graduates. In 1981, through its agency, the IDA, it launched its international services program, indicating a shift away from manufacturing industry. This involved adjusting its financial incentives away from supporting investment in fixed assets and towards supporting investment in highly skilled staff. This program was particularly successful in attracting American software companies who began to use Ireland as a base for localising their products for the European and other markets. Early invaders included Lotus, Digital Equipment (now Compaq, Hewlett-Packard) and Microsoft. Ireland rapidly became the automatic choice of software companies for the localisation of products, subsequently attracting Oracle, Novell, Informix and SAP, among others. Foreign companies also came to develop new software, including Sun Microsystems, EDS and Motorola. Other companies having previously operated in hardware manufacturing in Ireland also turned to software during the 1990’s. These included Ericsson, Amhahl (now DMR) and Nortel Networks (previously Northern Telecom). In the 1980s, Ireland produced more technical graduates than it needed, and this surplus helped to attract foreign companies to locate in Ireland. (Enterprise Ireland, 2003) One key factor explaining the success of Irish economy, including software industry has to do with the Irish entry to the European Community, which provided substantial assets in order to create a competitive infrastructure in Ireland (Heeks & Nicholsson 2002).

A campaign by the Ireland’s industry's trade association (now known as the Irish Software Association) led to government recognition of the software industry in 1989 and the setting up of the National Software Directorate in 1991. Other benefits accruing to the industry out of this included a low (10%) rate of corporation profit tax, previously applicable only to manufacturing industry. The work of the National Software Directorate led to the creation of a state-sponsored venture capital fund in 1996, a key infrastructural development, and a major reason for the acceleration of growth in the late 1990s. (Enterprise Ireland, 2003)

Characteristics of the indigenous industry until 1990 included a reliance on services (mainly customized software development), low profits and few exports. From then until the mid-1990s, a major shift took place from services to products, and from servicing the local market to exporting, but venture capital was still in short supply. Even the American market, previously regarded as a graveyard for the Irish companies, began to show returns. However, the most dramatic growth occurred from 1996 onwards, coinciding with the availability of venture capital. Once the state-backed fund became available, other funds appeared as well. Since then, raising finance has become relatively easy, and the rapid expansion of companies into foreign markets has become a common occurrence. The difficulty now is more to do with deciding which financing proposal to accept rather than finding a funding source. (Enterprise Ireland, 2003)

At the end of 2000, it is estimated that the Irish software industry consisted of more than 900 companies, 130 of them foreign, employing 30,000 people and exporting over € 8.5 billion worth of products and services. Irish companies account for € 0.875 billion of that. (Enterprise Ireland 2003)


37

Some of the success explaining actions (of which some have been taken accidentally and some deliberately) taken by the government factors are (Enterprise Ireland 2003):

• Backing a series of incubators to encourage start-ups in less populated areas.

• The low rate of corporate tax.

• Other financial incentives from the Irish government.

• For the companies engaged in research and development intensive activities, patent royalty income on products developed in Ireland is tax free.

• The government offers numerous incentives to companies, particularly foreign high-tech companies, looking for to establish or expand their operations in Ireland.

• Prepared availability of world-class support services from banking and trade finance to efficient transport logistics and sophisticated telecommunications.

• Government grants, seed money and advice and assistance.

• The telecommunications infrastructure meets the world standards.

• The supply of quality graduates has provided the main raw material required by the industry.

Some other factors that have been backing up the Irish software success are the standard of living in Ireland and the flexibility of the Irish people in adapting to changes in the workplace. Ireland also has a tradition of strong collaboration between universities and industries, particularly in the technology-intensive sectors. This has proven to be a strategic advantage in its quest for foreign information technology companies. Also, the advantage of having native English speaking personnel is a tremendous advantage in software business. Another key factor contributing to Ireland’s high-tech success is its strong workforce. Ireland has a young, skilled, well-educated workforce, with abundant technological and business skills.

From 1996 the Irish software industry has grown at an annual rate of approximately 20%. The success of Irish owned software companies is based on a small number of common characteristics in addition to government actions stated earlier:

• The majority of the Irish software companies build their business around a product offering rather than services. They invest in the development of IPR and derive revenue streams from the related services.

• Export markets are a priority. Ireland is a small market, and products are more easily exported. Some 85% of the total sales for the industry come from abroad.

• The target market is typically a niche (or vertical) market where the competitor is not a massive company such as Microsoft or Oracle. This has been a crucial success factor, and Irish companies have shown a remarkable ability of picking suitable niches.

• There is an emphasis on quality processes and products, and a significant percentage of Irish companies have quality certification.

• Attention is paid to the management of the business, and this is encouraged by the industrial development agencies.


38

If the Irish innovation system in software is to be criticized, one could argue that the Irish software industry has built its success largely on the basis of applying imported technologies, rather than by creating its own. Some see this as a lack of innovation, and, in the longer term, a weakness. Also, the government funded R&D activity has been a weakness for Ireland as Ireland placed only 15th (out of 16 post-industrialized countries) in National Competitiveness Council Report (In “R&D Securing the Future of ICT in Ireland). However, the recent allocation of significant sums of money for basic research by the Irish government (through the Science Foundation of Ireland) is aimed at addressing this weakness, and may result in the development of some original technologies. (Enterprise Ireland)

5.4.3 Comparison Between Israel, Ireland and Finland Some of the success factors that seem to affect the innovativeness in software industry (Heeks and Nicholson, 2003; Toivonen, 2002) are listed in Table 2. The factors presented do not automatically influence innovativeness. In addition, there are many factors not listed here at all that can essentially influence the innovativeness in software industry. Israel, Ireland and Finland are compared in terms of some of these affecting factors.


39

Table 2. Critical Success Factors in Israel, Ireland and Finland.

Key success factor (Strong / Medium/ weak) Israel Ireland Finland

Size of domestic markets Strong Medium Weak Market knowledge and drivers

Competition Strong Strong Medium

Governmental policy/presence of national strategy

Strong Strong Weak

Access to technology /infrastructure Strong Strong Strong Assisted ideas and best practices by government

Strong Strong Medium

Governmental intervention

Actions supporting entrepreneurship Strong Medium Weak General education of people Strong Medium Strong Languages Strong Strong Medium Knowledge of other related businesses

Strong Strong Medium

Marketing, logistic Strong Weak Weak

Human capital

Knowledge of software engineering Strong Strong Medium International linkage Strong Strong Weak International trust Strong Strong Weak

Internation- alization Enabling facilities travellers abroad

provided by government Strong Medium Medium

Clustering Strong Strong Strong Collaboration Strong Strong Medium

Networking

Incubators Strong Medium Strong Financing Strong Strong Weak Public investments on software R&D Strong Medium Strong Technological competence Strong Medium Strong

R&D

Foreign R&D activity Strong Strong Medium


40

6 Knowledge-Intensive Service Activities for Software Business Sector

This chapter of the report describes the current state of the service sector providing knowledge-intensive services for the software business sector. The results are based on the interviews performed during the first phase of the KISA-INTO research project.

In the context of this report, the quantitative analysis of the magnitudes (in turnover) has been excluded. Instead, the qualitative importance is studied in more detail. The reason for this lies in fundamentals of statistics collected from the Finnish service industry. Currently, there is no method for separating knowledge-intensive services from all the other services.

Strategic Consulting, Software Development, Legal, Human Resource Development and Financial services were selected for the first phase of the project to be studied in more detail. The reason for choosing the services mentioned is to study the areas where the research group believed the current volume is significant and where the growth potential is at its largest. At the end of this section, conclusions and recommendations are presented for the software business sector and the service sector as well as the related third parties.

Knowledge-intensive services are divided into two categories: 1) KIBS, knowledge-intensive business services and 2) P-KISA, public knowledge-intensive service activities. The difference between these two is the nature of service providers. KIBS provider is a private company earning its profits through invoicing its customer for the services it delivers. P-KISA provider is a publicly funded organization providing the services with marginal or no cost. P-KISA provider can also be a private company being mandated by a public organization to carry out a specific assignment under public authority.

Table 3 presents different knowledge-intensive services recognized in the interviews categorized into KIBS and P-KISA [Interviews 1-7]. An association between knowledge-intensive service and KIBS or P-KISA is marked with “X”.

Table 3. Knowledge-Intensive Services Related to KIBS and P-KISA.

KIBS P-KISA I-KISAStrategic Consulting X X XBusiness Consulting X X XIT Consulting X XResearch Services X X XMarketing & Communication Services X X XSoftware Development Services X XSales & Distribution Services X XAfter-Sales & Support Services X X

Legal Services X X XHuman Resource Development Services X X XFinancing services X X XIT Support Services X X


41

The results in Table 3 are based on the interviews and research group’s estimates on

the service sector. The first eight services are categorized based on their association with a specific business function. The latter four are categorized separately due to their relevance in every business function of a company.

Figure 12 visualizes the service sector and the KISAs defined within. The bolding in the figure indicates areas to be discussed in detail later in this chapter.

Str

ate

gic

, Busi

nes

s &

IT

Co

nsu

ltin

gSer

vice

s

Res

earc

h S

ervi

ces

Mar

keting &

Com

munic

atio

nSer

vice

s

IT S

upport

Ser

vice

s

Soft

ware

Develo

pm

en

tSer

vice

s

Sal

es &

Dis

trib

ution

Ser

vice

s

Aft

er-S

ales

& S

upport

Ser

vice

s

Leg

alSer

vice

s

Hu

man

Reso

urc

eD

evelo

pm

en

tSer

vice

s

Fin

an

cialSer

vice

s

Service Sector

Figure 12. Knowledge-Intensive Services in the service sector.

6.1 Importance, Extend of Use and Motives for Using KISAs

The interviewees were asked how they would evaluate the importance of different KISAs from the software business point of view. Table 4 shows the results from seven interviews.

The results in Table 4 indicate a consolidated view on the whole service sector. The interviewees were asked to rate each KISA areas by a value of 1-7 based on their importance for software business companies (1=of no importance, 7=very significant). The results have been reordered in reference to their significance. Results are displayed in Table 4.

This result leads us to further research the areas that have been indicated as important. It is further to be noted that there are fundamental differences between pure product businesses and pure project businesses in the external services they use.

Based on the results in Table 4 we can see that although legal services and financial services were emphasized in the interviews, there are other services that are at least as important. Such services could be marketing and communication, human resources development and sales and distribution services. This possibly leads us to further study these services in the next phases of the project.


42

When reading the data, one must keep in mind that it is based on seven interviews and cannot be generalized.

Table 4. Importance of Different Services for Software Business Companies, (n=7).

1. Marketing & Communication2. HRD & Training3. Sales & Distribution4. Financing services5. Legal Services6. Business Consulting7. Strategic Consulting8. Software Development9. After-Sales Services10. Research Services11. IT Support12. IT Consulting

Important Issues in Project-Based Businesses The reasons for the differences in external services acquired lies within the business models of software companies. In project-based businesses, it is important to focus on knowing the client business area and environment, project management skills -especially work amount estimation and scheduling, requirements and expectation management, as well as client and internal communication. It seems to be very common in software project business that work estimates are exceeded and schedules delayed [Interview 7].

Important Issues in Product-Based Businesses In product business the most important issue is to know the markets, the clients and how to fulfill their demand [Interview 7]. Another important area is to develop a replicable, customizable product and protect it against competitors [Interview 3]. It was mentioned that product business requires upfront investments, and newcomers should not start with product-based revenue or business model [Interview 3]. As these challenges are overcome, company has to find a way to sell and distribute its product. For Finnish software companies this has been one of the most challenging areas [Interview 2].

When prioritizing the external services used by a pure software product business, the most important service area seems to be legal services. This is due to the nature of revenue logic of the business and the fact that most of the products are sold on license basis. [Interview 5] Legal services are typically used for making license and distribution contracts [Interview 2]. Another critical service for product business would be services related to marketing and communication [Interview 5].

“There are three indicators in measuring success in software business: team, team and team.” [Interview 3]


43

Extend of Use of External Services The interviewees (n=7) were asked to give their best estimate on the volumes of external services acquired by software business sector. Each interviewee indicated three services which were used the most (in turnover) by software businesses from year 2002 until now.

The three services most used by software business sector are: 1) Legal Services (n=4) 2) Financial Services (n=4) 3) Marketing & Communication Services (n=3).

The three services least used by software business sector are: 1) IT Consulting (n=4) 2) IT Support (n=3) 3) Strategic Consulting (n=2).

“Knowledge-intensive service sector has an essential role in increasing the national productivity level.” [Interview 6]

Motives for Using Knowledge-Intensive Services The interviewees stated that the three main reasons for using external knowledge-intensive services are:

• Lack of in-house competencies, • Lack of in-house resources, • Lack of time.

Other reasons mentioned were: corporate strategy, need for premium quality and need for state of the art knowledge. [Interview 1-7]

“When arguing a business issue, there is no option of: we don’t agree, so let’s do nothing. One should always seek for better options” [Interview 5]

6.2 KISAs in Relation to Life-Cycles

6.2.1 Product Release Life-Cycle Table 5 shows a mapping between the software product release life-cycle and KISAs offered to software business sector. A colored box indicates that KISA offering is relevant and applicable in that certain part of the life-cycle.

“A traditional problem in software business is the challenge of commercialization in technology based environment.” [Interview 5]


44

Table 5. KISAs Mapped with Product Release Life-Cycle.

Stra

tegy

For

mul

atio

n

Bus

ines

s D

evel

opm

ent

& M

arke

t Int

ellig

ence

Feas

ibili

ty S

tudy

Req

uire

men

ts

Spe

cific

atio

n

Des

ign

Impl

emen

tatio

n

Test

ing

Laun

ch &

Mar

ketin

g

Sal

es &

Dis

tribu

tion

Sup

port

& M

aint

enan

ce

Afte

r Sal

es

Strategic ConsultingBusiness ConsultingIT ConsultingResearch ServicesMarketing & Communication ServicesSoftware Development ServicesSales & Distribution ServicesAfter-Sales & Support ServicesLegal ServicesHuman Resource Development ServicesFinancing servicesIT Support Services

Noticeable in the table above is that software business companies tend to do the

requirements specification-design-implementation phase with their own resources. Strategy formulation is the first phase of the life-cycle. Interviews show that currently only strategic consulting and financing services contribute to this phase. Legal services would be the next to come along, but this is not yet the current situation. Services related to phases after testing seem to be more popular. This indicates a possible development that software business companies’ businesses and success depends more and more on networks of companies rather than the company itself.

6.2.2 Product Market Life-Cycle In the context of this first phase of the project, the product market life-cycle was excluded from the analysis.

6.2.3 Company Life-Cycle

“Critical success factors of a start-up software business company are entrepreneur’s creativity, communicational skills, social skills and ability to change.” [Interview 7]


45

Table 6. KISAs Mapped with Company Life-Cycle.

Star

t-up

Entre

pren

euria

l

Prof

essi

onal

mgm

t

Expa

nsio

n

Strategic ConsultingBusiness ConsultingIT ConsultingResearch ServicesMarketing & Communication ServicesSoftware Development ServicesSales & Distribution ServicesAfter-Sales & Support ServicesLegal ServicesHuman Resource Development ServicesFinancing servicesIT Support Services

It is typical for software business start-ups to use legal and financial services. The

typical services used are contract development and accounting. Another typical service areas are public financial services and related human resource development programs. Third often mentioned service areas were private financing services and strategic and business consulting. [Interviews 1-7]

If the start-up is financed by venture capital, it seems to be that competencies outside the core business are outsourced as much as possible, e.g. acquired as external services. [Interview 3]

The trend in Table 6 seems to be that companies in the entrepreneurial phase seem to use less external services. Another trend to be noted is that services related closely to information technology (IT consulting, software development services and IT support services) are excluded in the start-up and entrepreneurial phases. This is because those competencies exist in-house and normally the related task can be done together with the tasks of the core business.

6.3 KISA-Sector as a Service Provider

In a continuously changing environment, it is essential to focus company’s scarce resources on the core of the business. There are neither management resources nor time to focus on non-core areas. Especially in the software business sector, the trend seems to be to use as much external resources as feasible.

On the other hand, service sector has noticed the growing trend of outsourcing and is allocating increasingly its resources to learn the fundamentals of software business to


46

understand their clients better and to form more sustainable customer relationships. The ultimate aim is to form a win-win long-term partnerships.

How to build a partnership?

There were four critical issues mentioned in the interviews for the service providers to cover: [Interview 1]

1) Knowledge of clientele 2) Personal relationship with the client 3) Personal skills and experience 4) Personal contacts in the clientele. The real challenge is how to build the partnership between two companies that is not

dependent on individuals. Under the next five heading, we introduce some of the knowledge-intensive service

activities based on the interviews. Under each KISA we present topics like service offering, customer relationships, typical assignments, bottlenecks and estimates on market change in the near future.

6.3.1 Strategic Consulting

Service Offering The strategic consulting service offering included services for assessing a business model, consulting start-ups, designing and managing a development program for entrepreneurial companies as well as strategic consulting related to many areas of software business.

“In pure product business the fundamental success factor is market knowledge and assessment of client needs.” [Interview 7]

Customer Relationships There were two ways indicated to segment the market of software business companies from a consultant point of view: 1) Management style and 2) Business model. Management style was broken down to three parts: a) start-up (1-5 persons), b) entrepreneurial, a “one man show” (5-30 persons) and c) professionally managed, organized business (30+ persons). [Interviews 1, 7]

Typical Assignments A typical assignment would be to evaluate a business concept of a start-up company. Normally, the consultant assigned to the task holds a strong background in the business and is able to evaluate the potential of a plan within a few days. [Interview 7] In a start-up there is “nothing more important than the entrepreneur”. It is essential to have dispersed competencies in the company to have many different perspectives on the business. In Finland, the start-ups are often too homogeneous in the sense of human resources and people’s backgrounds. [Interview 3]


47

“A software business company needs a mentor-like consulting to support and spar it as the business develops. The needs are very different as the business is a start-up or when the business is about to be listed in a stock exchange. The mentors participating should also change according to this development.” [Interview 3]

If the quality of business concept is low there is practically only one way to succeed in the business. If the entrepreneur is highly skilled, he will work out the short-comes of the plan and develop if further. On the other hand, if the quality of the business concept is high, the business can turn out to be a success story if the entrepreneur is highly skilled. If not, the business can survive with successful recruitments. Figure 13 below illustrates the four possible scenarios in the case.

Quality of business concept

Ski

lls o

f en

trep

reneu

r

low

low

hig

h

high

No chance of survival

Likely to survivewith lots of work Success story

Survives throughsuccessful recruitments

Quality of business concept

Ski

lls o

f en

trep

reneu

r

low

low

hig

h

high

No chance of survival

Likely to survivewith lots of work Success story

Survives throughsuccessful recruitments

Figure 13. Matrix of Survivors and Success in Start-Ups.

It seems that the quadrants of “likely to survive with lots of work” and “survives

through successful recruitments”, in Figure 13, may also act as guides to 1) recognize different KISA service needs of start-ups and 2) help position and identify potential KISAs to be offered to these start-ups. In other words, these two quadrants may identify the critical services that most important in enabling start-up success.

Programs like Spinno and Venture Cup, financed by the National Technology Agency of Finland, are good for evaluating the business concept and finding the next steps to implement. [Interview 7]

When to Use the Service The role of strategic consulting should be to replicate the best practices in the software business sector. Consultants hold a horizontal view on software business as such.


48

“If you want to play football in the European league, you should behave like it all the way from your back yard when you see a football for the first time.” [Interview 3]

Bottlenecks One of the bottlenecks in consulting business is the lack of replicable best practices for the software business to implement. The reason for this seems to be the immaturity of the software business sector and the recent major changes in the structure. Another reason seems to be that there is no central authority to support the development of implementing a “common way of working” in the business. [Interviews 3, 7]

6.3.2 Legal Services

Service Offering Legal advisers for software business sector provide services related to corporate law, agreements, financial and capital markets, dispute resolutions, litigations, insolvencies as well as technology, media and intellectual property [Interview 4].

Legal service providers want to position themselves as advisers whose priority is to understand client’s business and environment. The aim is to participate in clients’ businesses as early as in the business planning phase. There are issues like business and trade secrets as well as business know-how to cover. Protection of various rights and elimination of related risks is the most appropriate to do in the strategic planning phase. The key issues in today’s legal environment are anticipation and prevention. [Interview 4]

“Legal advisers are strategic tools of the new economy, and management should be aware and understand that.” [Interview 4]

In product development the case is to decide what to protect with legal tools and what not. Various issues about the product should be protected before commercializing it. In marketing, a company should check that it is not violating any rights of third parties. [Interview 4] One should still note that legal protection is not the ultimate protection against rival competitors. Disputes take years and cost money. On the other hand, software technologies are developing fast. Litigation is rarely a profitable option for a software business company to defend its business. In this context, protection should be seen more like a merchandise than a tool for risk management. [Interview 3]

“The challenge in today’s software business environment is that the businesses are global but the rights are local.” [Interview 4]

Essential areas to cover are errors of software and the related services. In addition, employees and rights related to them should be taken into consideration. [Interview 4]

Sales is traditionally the core area of legal advisers. In software product businesses there are license agreements and support and maintenance agreements. In project business, one needs proposals, non-disclosure agreements (NDA), memorandums of


49

understanding (MOU), letters of intention (LOI), as well as project agreements. [Interview 4]

Customer Relationships Legal service providers are investing in learning the software product business and its fundamentals. It was mentioned that up to 25% of customer related work is consulting provided as a convenience for the client. The aim is to be a strategic partner for the client. The methods to realize this are flexibility, efficiency, reliability and participation. On the other hand it is good for a software business company to compare different legal service providers to find the one most suitable. [Interview 4]

Although the legal service sector is more knowledgeable about software business, it is still very important for software business companies to hold the elementary knowledge to use the legal services as needed and efficiently. [Interviews 3, 4]

Typical Assignments Currently, typical legal assignments are related to marketing, sales and distribution. This accounts to majority of sector turnover. [Interview 4]

“Software product business is a business where you can conquer or destroy your market with just a one wipe of a pen.” [Interview 4]

When to Use the Service It is suggested that the basic legal issues are managed as a company is established. Legal services should improve the chance of succeeding in the business. On the other hand, the legal issues are getting increasingly significant all the time. Especially software business companies are competing in global environment but in local markets with local legislation. [Interview 4]

Bottlenecks According to the interviews, the crucial bottleneck in using legal services is the lack of understanding of legislation’s significance in software business. Another bottleneck relates to transferring and communicating all the essential data related to a specific project between the associated parties [Interview 4]. Legislation is getting more complex all the time. Luckily, at the same time there are many projects in EU-area aiming at unifying and standardizing the procedures related to many issues in software product sector. In some cases the win-win combination is lost among parties of agreement when applying too strictly their legal requirements [Interview 3].

Market Change One development seems to be that legal service companies are taking an active role in educating and training companies to understand and use legal services [Interview 4]. Technology centers and incubators are playing an essential role in changing the culture of using legal services.


50

Legal service companies have gained more momentum in internalization through their knowledge on international and target market legislation, as well as good contact networks. The development has been very encouraging lately. [Interview 5]

6.3.3 Private Financial Services

Service Offering In this section we give just a narrow view of private financing services. Only some services targeted at software business companies in the form of equity are presented. The offering discussed in this section consists of seed financing and growth financing of small to medium size software business companies.

“Money is not on the critical path in financing, the managerial skills are.” [Interview 7]

Role of Service Provider The role of a financier in software business companies is to contribute to the business so that it grows with optimal speed in reference to an approved risk margin. Normally the entrepreneur sees only days ahead, but financier should see the upcoming future of the business. [Interview 7]

“The role of investor is not to give half-an-hour lessons in the board of directors meeting, but to actively participate in developing the business with the core people.” [Interview 5]

There seems to be quite a lot of differences between different financiers’ in their way of working with clients. In software business people talk about “smart money” and “passive money”. This refers to the real contribution of the associated financier to the business. Further, it seems to be that “smart money” is quite rare and in demand. [Interviews 3, 7] It is still so that investors’ most important task is to make sure the business strategy of its client is “right”. [Interview 7]

Investors hold an essential role in internalization. They should act as communication hubs to form contacts and networks abroad. The task includes knowing the service companies providing services contributing to the software business. [Interview 3]

Bottlenecks Seed financing is declining. This leads to two problems: 1) There is limited amount of money available for start-ups and 2) The knowledge and experience of financiers is not transferred to start-up companies. [Interview 7] One bottleneck in financing sector is the focus on new deal flow and moving away from contributing to the existing clients [Interview 3].

Market Development Financing services sector has changed dramatically during the last few years. The software business is very challenging area for financing. This is because the sector is


51

still immature and widespread. The companies are many and the average size of a company is small. [Interview 7] When making a financing decision, the financiers are relying on people like entrepreneur or management. The business model or operative plans come second.

There has been a major change in financiers’ approaches to software business. Now the financing decisions are carefully qualified and cross checked in business, legal and financial wise. The funding itself has changed to a limit based system, where only a certain limited amount of funding is available per period. [Interview 7]

It is also important to note that at present the role of financier is changing from cash flow balancer to adviser with exhaustive contact networks and management skills [Interview 3]. The financiers’ role in software companies’ boards of directors should change from analyst to active participant and developer.

In the context of “smart and passive money” it seems to be that the market is moving towards “smart money”. It means that the financier sincerely makes his best effort to understand the business model of a software business company and actively participate in making the business a success story. [Interviews 3, 7]

“Smart money has not turned out to be exceptionally intelligent after all.” [Interview 5]

Currently, venture capital investors value a software company with a ratio between 0.8 to 1.5 times to annual turnover. And it seems to be that only experienced teams with track record get the money. The focus is in financing growth and internalization instead of product development. [Interview 3]

6.3.4 Human Resource Development

Service Offering Service offering of a HRD service company consists of services for new personnel, existing personnel and departing personnel [Interview 1].

Areas of offering include services for executive search, recruitment, assessment, competence development, change and transition, management due diligence, contentment and motivation, coaching and leadership development, outplacement and career planning up to human resource outsourcing [Interview 1]. Services related to training are discussed only briefly in the context of this report.

Customer Relationships HRD service companies are developing their businesses from transaction and project-based customer service model towards long-term customer relationships and partnerships. This change requires HRD service companies to acquire knowledge of their clientele, software business in this case, and establish relationships with the main influencers of the clientele and the media. Another development is outsourcing of HR functions. It is estimated that 99% of all HR functions can be handled through outsourcing. [Interview 1]


52

“Software companies are unable to sustain a balanced growth as they lack the competence of human resource management. The key areas are education and training as well as recruitment.” [Interview 5]

A way to segment HRD company clients is presented in Figure 14. The horizontal axis represents clients’ need for competencies to compete in their business. Software business companies reside in the right-most part of the axis, as being competitive in software business requires more than just moderate competencies. The vertical axis represents company’s speed of change. In the software business sector there are companies that change very fast due to the rapid growth of demand for their products. On the other hand, there are software business companies, especially those in project business, that change and grow only moderately fast. The latter companies would lie in the middle of the horizontal axis. Third dimension in the figure is company size, indicated with crossing lines in each segment. In all the segments there can be companies with small, medium or large size. [Interview 1]

During the late 1990’s most of the software business companies resided in the upper right corner of the matrix. Later when the sector matured, some companies, especially larger ones, resided lower in the vertical axis. For HRD Service companies, the late 1990’s was the era of high competence, fast change companies as their clients. Later as the clientele has matured, the majority of business resides with high competence, slow change companies. [Interview 1] Usually these are the companies that have established their position in the market, have a solid product or service offering and have successfully focused on their core businesses.

The upper right corner is not that attractive any more, because of short and project-based customer relationships [Interview 1]. The more stable companies are more willing to develop their relationship with HRD service companies towards partnerships and long-term planning.

small

medium

large

Need for competencies

Spee

d o

f ch

ange

Com

pany

size

low high

slow

fast

small

medium

large

Need for competencies

Spee

d o

f ch

ange

Com

pany

size

low high

slow

fast

Figure 14. An Example of HRD Service Company Customer Segmentation.


53

Typical Assignments A typical assignment by order of a software company relates to one of the following two scenarios: 1) Building a new subsidiary or a business unit or 2) Need for change because of e.g. strategic change or capability gap in management. When building a new business, a company is normally foreign and needs a managing director or a country manager to organize a new business and penetrate to local markets. When the case is a need for change, normally strategy has changed and board of directors or managing director has decided to make changes in management. Marketing and sales are typically the business functions in focus. A typical position to be fulfilled is sales director. Sales and distribution was mentioned to be the most critical function for software companies from HRD point of view. [Interview 1] Often the bottlenecks and problems for software companies are in finding better and more efficient ways of selling a product or a project.

Management, board of directors or owners of a software company are typical initiators of a HRD project. Especially, when the case is changing management of a company, the assignment is highly classified and very sensitive to carry out. [Interview 1]

“One has to keep in mind that people get tired of their routines and responsibilities in the long run.” [Interview 1]

When to Use the Service When a software company is a start-up, it seems to be a matter of great importance to use HRD services. Another critical phase in company life-cycle would be when assigning middle-management, when the company size exceeds approximately 30 people.

When the company is in its expansion phase, it normally has its own HR operations. Services like executive search and management due diligence are essential. Management due diligence relates to mergers, acquisitions and restructurings of a software company. Traditionally, due diligences are done in the areas of legal, financial and business matters. The management due diligence is not included by default. On the other hand, the importance of capabilities and competencies were emphasized in many interviews [Interviews 1, 2, 3, 5, 7].

Another area of importance is the functionality of management team and team organization [Interview 3]. It seems to be that owners, investors and corporate finance service providers should recognize the management due diligence as a new potential and essential option to lower the risks related to mergers, acquisitions and restructuring transactions. Another area for the use of management due diligence services is in making capital investment decisions [Interview 1].

Bottlenecks One of the future challenges in developing relationships between HRD service companies and software business companies is the lack of HR processes in the software business companies. It was mentioned that now would be the right time to concentrate on making long term (3-5 year) plans and programs to develop and maintain HR as a key competitive advantage for Finnish software companies. [Interview 1]


54

Companies should allocate more time and effort to manage their Human Resources. The business processes are easy to outsource as a whole or partly as soon as they are designed and implemented in the organization. [Interview 1]

“It’s like I have this bicycle here (business process) and I run with it. At the same time I’m too busy to jump on it and roll away. So, my choice is to keep on running.” [Interview 1]

Market Change As the Internet economy expanded, the HRD service companies feared they would lose their business to the Internet portals focusing on recruitment and to other web based HRD services. Everyone’s surprise it turned out to be that Internet is just another media and does not fundamentally change the business models of HRD businesses. [Interview 1]

As in the software business, in the HRD service business the market has witnessed a fundamental change during the past few years. Before the dip of the economy, the software companies were recruiting skills to build new businesses and conquer new markets. Back then people with short employments with many different software companies were highly valued. The belief was that these people hold new knowledge and insight into software business. [Interview 1]

Later as the economy turned into recession, the focus has turned into people with capabilities to implement a sustainable development and people with strong functional knowledge. The need for capabilities has turned from horizontal to vertical. Long-term planning and tranquility are highly respected in the employment market. [Interview 1]

Future Development The growth potential of HRD service business lies with companies of 30-70 people in size [Interview 1]. The size is appealing for HRD because typically companies above 30 employees have their business processes in place –a development enabling outsourcing. On the other hand medium size companies rarely have their own Human Resources department. [Interview 1]

It is also anticipated that HR will gain more momentum in strategic planning. Although companies change their strategy frequently, they can’t change their people. Outsourcing is coming. It just takes the time it needs [Interview 1].

“Strategy changes, people don’t.” [Interview 1]

6.3.5 Software Development Services

Service Offering Software development services can be categorized into three segments: 1) project partnering, 2) project subcontracting and 3) resource hiring services. First of these three refers to situation where responsibility of a deliverable is divided among the trading parties. It is excluded from the scope of this chapter.


55

Second segment is project subcontracting. It is where the party holding the end-product outsources a part of a development project for the subcontractor for design and implementation. Normally, the responsibility of delivering the part or module for the end-product lies with subcontractor.

“When your business is providing software development subcontracting, you don’t need to know the end-customer’s business. It is enough to know the business of software development.” [Interview 7]

The third segment is resource hiring services specialized in software development. The client gives service provider specifications about the skills needed and service provider supplies the appropriate resources for client’s use. Typical arrangement is that the personnel from a service provider are managed under client’s project management and they work in the client’s premises. [Interviews 2, 3, 5]

Bottlenecks in Project Subcontracting In software product business, the major bottleneck in project subcontracting is the challenge of designing a product. Typically, product development is the core of a company’s business and it is not to be outsourced. On the other hand, product design represents so essential part of the whole implementation that there is not much left to outsource after the design is frozen. Another difficulty is communicating the design to a person not familiar with product and company’s procedures. [Interview 2]

In project-based businesses the outsourcing is easier. Bottlenecks lie with estimating the scope and the schedule of a project. Engagement of service provider is a priority for the client [Interview 2]. Although the subcontractor delivers an appropriate documentation with the project, it is easiest to maintain the subcontractor relationship as long as the end-client makes modifications and additional orders related to the project. Optimal process in project subcontracting is when client defines what to do and service provider designs and implements the deliverable [Interview 2].

“If Finnish software business companies don’t learn to subcontract software development from e.g. Russian software project subcontracting companies, they will lose the whole business to them.” [Interview 5]

Bottlenecks in Resource Hiring Services Resource hiring services have witnessed a big change after the demand for IT-personnel has collapsed with the economy. At the current state it seems to be a very tough market. The premium prices of the late 1990’s have come down to a level of expenses + 15% premium. It is estimated that resource hiring service business will become transparent in the means of pricing. Also the client criteria for the competence of resources have risen. [Interview 3]

“If you want to be in a high value-added business, you have to supply some of the missing pieces, not just the self-evident parts.” [Interview 3]


56

Customer Decision Criteria In resource hiring services the customer decision criteria are: [Interview 2]

- references of the company - experience of the resource in question - processes of the service provider - quality of the physical programming code of the resource - possibilities for long-term relationship.

Market Change A view of the software development service business is that it will develop with whole software cluster to resemble the form of the clothing or automotive industries. The different parties would be OEM manufacturers, component manufacturers and subcontractors – not to forget the whole service sector contributing to the software cluster. The products would develop in a way that makes this development possible – modularization and standardization would be the key issue. [Interview 3]

All the current forms of software development services will continue to exist, but there will be saturation concerning pricing and added value [Interview 3].

6.4 Qualification of the Currently Available KISAs

Bottlenecks and Resolutions in Using KISAs The interviewees were asked to evaluate the bottlenecks of the KISA sector in providing services for the software sector. The question was to rate the following statement: “The following are bottlenecks for software businesses to use external services”. The scale was 1 to 5 (1=I totally disagree, 5=I totally agree). The results have been reordered in reference to their significance. The results are displayed in Table 7.

Table 7. The Bottlenecks of the KISA Sector, (n=7).

1. Lack of best practices 2. It is hard to find the appropriate provider 3. Lack of sw business knowledge4. It is hard to compare different providers 5. There are no suitable services available 6. Pricing models are unapplicable 7. Quality of services is poor

Based on the results, it seems to be that the most relevant bottleneck is lack of best practices. Another major issue is that it is hard to find an appropriate provider. Both these bottlenecks can be resolved at least partly by focusing on external communication. It is notable to see that quality of services is rated fairly high.

In addition, the variety of courses of action was considered as a bottleneck [Interviews 4, 6, 7]. Based on some interviews, the problem seemed to relate to money – added value ratio. It was said that the real added value of using external services was


57

missing [Interview 1]. In some occasions, expenses may run out of hand if buyer has no knowledge on the service or experience about acquiring it [Interview 2].

The current services are quite dispersed [Interview 4]. It would be a good idea to organize more occasions for suppliers and buyers to meet each other in non formal surroundings [Interview 3, 4].

6.5 Software Business Sector as a Client for KISA-sector

The monetary resources in software business sector have grown smaller during the last few years [Interview 1]. On the other hand, the software business as a sector has increased in volume for the service sector. Anyhow, it seems to be that the usage of external services in not well planned and companies tend to use less services as the times are tougher [Interview 6].

Actions for the Software Business Sector Software business sector should now focus on streamlining its processes and make long term plans (3-5 years) [Interview 1]. Companies should do what they do at their best. They should also recognize where the real competition and core competencies are. Another essential issue is to maintain and extend the surrounding contact networks [Interview 3].

“Go with process excellence instead of fire-fighting.” [Interview 5]

Customer Demand Based on the interviews, there seems to be demand for a financial controller service. The services could cover all the financial tasks of a small to medium enterprise. The tasks could involve investment management and budgeting as well as accounting and cash flow management. [Interview 2]

Another area of demand is sales and distribution. An agent pool providing services for building a contact network and acquiring information on foreign markets would be of interest [Interview 2]. Another area would be to actively participate in establishing sales and distribution channels as well as networking abroad [Interview 3]

Knowledge and contacts related to Internalization were mentioned. One approach could be that consultancies would provide services for implementing a contact network and acquiring information from markets abroad [Interviews 2, 5]

What Are the Shortcomings of the Software Business Sector as a Customer for KISA-sector The interviewees were asked to evaluate the shortcomings of software business sector as a client for KISA sector. The question was to rate the following statement: “The following are shortcomings of sw business companies to use external services”. The scale was 1 to 5 (1=I totally disagree, 5=I totally agree). The results have been reordered in reference to their significance. The results are displayed in Table 8.


58

Table 8. The Shortcomings of the Software Business Sector in Using KISAs, (n=7).

1. No culture of using external services 2. No experience of using external services 3. Business processes of sw companies are undefined 4. Businesses are too unstable 5. Projects/processes are hard to break down to parts to outsource6. Real needs of sw companies are unclear

The major shortcomings in the software business sector seem to be the lack of culture to use external services and the lack of experience in using external services. Third shortcoming seems to be the lack of defined and implemented business processes. All these three relate to business development and seem to be quite fundamental operative issues within the whole of software business sector.

In addition, the following shortcomings were identified:

- software companies don’t seem to realize the investment like nature of acquiring external services [Interview 5]

- software companies are finding it difficult to give monetary value to service companies’ work performed [Interview 5]

- culture of buying and using external services resides by default only in larger organizations [Interview 5]

- acquiring external services in not based on any long-term planning [Interview 6].

KISA-company – software business company relationship are currently project co-operations. However, they are developing towards long-term relationships and partnerships. The software business companies should still develop their knowledge in acquiring KISAs to remain cost-effective [Interview 2]. Currently, the best practices in using KISAs are only common knowledge of other companies. It would be best to find this out before proceeding [Interview 3]. Industry associations are good places to start from [Interview 2].

6.6 Influencers of the KISA – Software Business Sector Relationship

The interviewees were asked to value the influencers of the KISA – software business sector relationships. The question was to rate the different stakeholders by judging the following statement: “The following parties actively support the use of external services”. The scale was 1 to 5 (1=I totally disagree, 5=I totally agree). The results have been reordered in reference to their significance. The results are displayed in


59

Table 9. Parties Supporting the Use of KISAs, (n=7).

1. Venture Capital Organizations2. Private Investors3. Public Financing Organizations 4. Private Financing Organizations 5. Sw Consortiums 6. Government 7. Sw Company Board of Directors 8. Media 9. Sw Company Top Management

Results indicate that venture capital organizations are the key drivers supporting the business of KISA sector. Software company top management, media and government seem to be the parties least supporting the use of external services. This makes us to further investigate the reasons for this. The results in the interview support this statement, but it is still to be noted that the sample was only seven interviewees.

The media seems to have a role in the development of service – software business sector relationship. They are able to shape the decision making across clienteles. One should be aware that media is a way to make things change. [Interview 1]

Economic development would contribute to the trend of using external services. It would result in better demand for software business products and further to increased confidence towards the economic growth and higher margins. The development of a culture of networking and acquiring external services would also be a positive development. One should also see that confidentiality can be maintained while operating with external parties [Interview 6].

6.7 Actions to Support the Business of the KISA-sector

Actions for the Whole Service Sector in General Industry associations in the service sector should practice professional lobbing. They

have an essential role in changing and enhancing the culture of outsourcing and using external services. [Interview 1] Companies should find alternative ways to network more efficiently [Interview 7]. The familiar and systematic way of working with clients is essential [Interview 3]. Another important aspect in the way of working is productization of service offering and finding approved pricing strategies [Interview 4]. Service providers should focus more on their marketing efforts and organize conferences and specialist events. There has to be additional way to make demand grow. Another way of supporting the growth of demand is to organize the supply to a more understandable form. There is a demand for more knowledge on internalization and conducting international business. [Interview 5] Start-up companies should make a HRD assessment of their management and key personnel [Interview 1].

How Current KISAs Should be Developed Service providers should understand software business better [Interview 2]. They should also communicate more efficiently with potential buyers. One way to support the co-operation would be to develop process models that describe the interaction of the two co-operating parties [Interview 7]. The problem seems to be that the current service models are quite narrow but the demand would be to acquire complete solutions


60

[Interview 2]. One solution to this challenge is to productize the offering better [Interview 6]. For example, the best practices could be productized and replicated [Interview 2]. This would beneficial to the both sectors.

Pricing models of services are under developed and somewhat unrealistic [Interview 2]. Service companies should participate in risk sharing so that in the beginning the price margins are lower and after the mutual business has developed and the client is able to pay more, the premium is added and earned [Interview 3]. Another pricing model would be success fee based pricing [Interview 3].

The lack of knowledge in acquiring services should be tackled with more clearly outlined training and course offering [Interview 7]. Data security and confidentiality has to be also considered [Interview 6].

Actions for the KIBS Sector Strategic Consulting

• Ensure replication when making consulting products • Provide best practices as solutions to business problems and replicate them • Make tools for networking • Make tools for the stage of founding a company [Interview 7]

“Software companies should fix the root causes of their problems instead of symptoms.” [Interview 5]

Marketing & Communication Services • Be advised that you hold the ball in changing the culture of using external

services [Interview 1] • Acquire better knowledge on processes and organized way of working

[Interview 4] Software Development Services

• Unify the processes of subcontracting and using external resources [Interview 5]

• Develop better way of managing the resource pool [Interview 5] Human Resource Development Services

• Recognize the essential areas of training: management, leadership, product development and sales [Interview 7]

Financing services • Demand human resources due diligence [Interview 1] • Co-operate with HRD companies and recognize the HR as a success factor in

financial decisions [Interview 1] • Make new ways to succeed in seed financing [Interview 7] • Move away from “passive money” towards more active role in developing the

companies [Interview 7] • Find your role as a communication hub in networking, an adviser and a mentor

[Interviews 3, 7]


61

Actions for the P-KISA Sector Research Services

• Universities should recognize their role as influencers of the whole cluster [Interview 4]

• Research deliverables and results should be distributed efficiently and taken into practice [Interview 7]

• Research activities’ connection with common welfare should be recognized by the universities and research institutions [Interview 5]

Financing services • Demand human resources due diligence [Interview 1] • Be advised that every business relies on people [Interview 1] • Support the interaction of different clienteles [Interview 4] • Increase the amount and efforts supporting seed financing [Interview 7] • Validate the current service offering and do integration work as part of your

service offering [Interview 3] • Develop your way of working towards a mentor like model [Interview 3]

Actions for Other Parties Media

• Make success stories of successful software company managers [Interviews 1, 5]

• Make general success and horror stories of software and service sector companies [Interview 5]

• Make benchmarks between different countries [Interview 5] • Provide more coverage for software and service sectors [Interview 5] • Acquire more knowledge about software cluster [Interview 5]

Government • Increase the amount of funds for public financing organizations [Interview 1] • Support seed financing [Interview 7] • Develop the organization of public financing organizations [Interview 7] • Direct the funding more according to results [Interview 7] • Clarify the principles of public guidance [Interview 2] • Strengthen the coordination against misuse of funding [Interview 2] • Make embassies available for software business companies as an option to

begin networking abroad [Interview 3] • Make service companies part of the software cluster and communicate it

[Interview 5] EU

• Make sure that the deliverables of individual projects are distributed and utilized [Interview 7]


62

• Communicate the sources of information [Interview 7] • Take commercial parties along in the projects [Interview 7]

Software industry associations • Add more drive to the actions [Interview 1] • Search for influencers and involve them [Interview 1] • Standardize the ways of working [Interview 4] • Make replicable models and processes for software business companies

[Interview 7] • Communicate information and opinions among entrepreneurs [Interview 5]

Service sector industry associations • Add more drive to the actions [Interview 1] • Search for influencers and involve them [Interview 1] • Make services more available [Interview 4] • Unify the ways of working [Interview 4] • Communicate across clienteles [Interview 4] • Organize events for networking and promotion [Interview 4] • Communicate information and opinions among entrepreneurs [Interview 5]

T&E Center • Make sure that all the actions advance the whole to one direction [Interview 7]

National Technology Agency of Finland • Make a program for process development within software business sector

[Interview 7] • Take a responsibility of gathering dispersed information and best practices

together and distribute them [Interview 7] • Make tools for networking [Interview 7] • Make tools for founding a software business company [Interview 7] • Support actions that support networking across clienteles [Interview 5]

6.8 Additional Comments

• In internalization one has to be able to work as one unified frontier [Interview 5] • The most important issue in capital investments is the team [Interview 1] • In small organizations the mix-up between competence management and

management systems is common [Interview 1] • The competence inside companies can be broken down to three parts:

1) competence according to strategy, 2) functional competence and 3) extra competence [Interview 1]

• Software companies should genuinely develop their skills in subcontracting software projects [Interview 5]

• Key success factors in outsourcing are: o Evaluation of quality, o Own experience and knowledge about the service, o Ability to measure the applicability of service,


63

o The size of a company and the speed of change. [Interviews 5, 6]

Networking An average distance between two contacts in the whole world is just 6 hops. This means that one can reach another through six intermediaries. If this is defined regionally, the number of contacts narrows to 2-3 hops. It is essential in software business to build an extensive contact network. It is not enough anymore to just sit down in the office and take care of customer relations. [Interview 3]

Value high the competence of networking when choosing your board of directors and advisory board members.” [Interview 3]


64

7 Conclusions

This report contains four main contributions. First, we have summarized the main characteristics of the software business sector and highlighted the main issues that affect the knowledge-intensive service activities to be used to support the innovation processes in the sector. In addition, we have compared Finland with Israel and Ireland in terms of key success factors of the SW business. Thus, this report increases understanding of the SW business from innovation perspective (Chapter 5).

Second, we have synthesized the main streams of research in knowledge-intensive service activities research and propose set of key concepts that can be used to describe the different types of services available. Concepts of KISA, P-KISA and I-KISA were defined as well as their relationship to the more commonly used concept KIBS (Chapter 2).

Third, we have developed a conceptual framework that will be used to describe and analyze the innovation process and the services available at various stages of product, market, and company life cycles (Chapter 3).

Fourth, we have conducted an initial empirical study of the current situation of the knowledge-intensive service activities in the sector through a series of interviews (Chapter 6). The report produced information in the field of KISA, i.e.;

• Description of five knowledge-intensive services in detail (strategic consulting, legal services, private financial services, human resource development, and software development services),

• Problems and improvement ideas to improve the use of knowledge-intensive service activities.

In addition, the results of the interviews brought out the following main findings. However, the number of interviews was small (N=7) and these conclusions are considered as tentative findings.

Services related to marketing, communication and sales, legal services, as well as human resource development were considered most important for the companies in the sector. Meanwhile, the software development, support and consulting services were considered less important according to the interviews. We find this finding potentially controversial. It could be argued that specialization in the value chain could yield benefits also in software R&D. There are several possible explanations for it, for instance, interview bias, or the maturity of the companies (e.g., how well are the processes described, or does the company use a quality system).

Results propose that the main reasons for using the services are lack of in-house competencies, lack of resources, and lack of time. However, people in the companies have to have sufficient and needed competence to be able to buy and use services (Torrini, 1998). According to Torrini (1998), general-purpose capabilities, as firm’s innovative skills, provide companies with the ability to abstract from a specific context and an absorptive capacity, and effect in the companies tendency toward to set up links with external sources of innovation. Therefore, these skills increase the ability to absorb knowledge from outside the company.


65

Results suggest that companies in this sector are outsourcing more of the functions and activities in the innovation process than earlier and focusing more on the core processes of the company. In addition, the service sector has seemed to recognized this potential and has invested in learning to know the software business sector and technology better. However, results show also that software companies do not use knowledge-intensive services much. Lith (2003) came to the same conclusion in his report of KISAs in SW sector.

High-quality services for start-ups may have substantial potential in improving the business success rates. The Figure 13 (Chapter 6.3.1) illustrates four different kinds of group of start-ups. Two of the groups are interesting in terms of using KISAs. The first group of companies has high, qualified business concept, but low skill of entrepreneur, i.e., “survives through successful recruitments”. The second interesting group of companies has a business concept with low quality, but people are highly skilled in entrepreneurship, i.e. “likely to survive with lots of work”. Both groups of companies seem to be the most potential KISA users. The challenge is, first, to find and identify those SW companies, secondly, define the crucial knowledge-intensive services they need, and, finally, support them.

Although, the finance issues were not addressed in this research project, the results emphasized the role of financing organizations in terms of development and innovativeness. Result shows, that the financing role is moving towards "smart money" types of investments.

Results suggest that the role and impact of research institutions could be improved to support the development of the sector. The strong collaboration between universities and companies has proven to be one key success factor in successful SW business (e.g. Heeks and Nicholson, 2002).

In human resource development services (HRD), the supply and demand seems to be in balance in large, stable companies. However, the most potential growth area in the sector is in dynamic and small companies, yet they are not using these services much. This may be a potential gap. There may be a need for the different types of HRD services according to the size of the company. For example, small companies need support to team working, as teams were mentioned as one success factor in interviews, and development discussions. Again, larger companies need, in addition to these mentioned above, for instance recruitment services.

The potential standardization of platforms (such as Nokia's series 60) can improve the potential for R&D outsourcing. Therefore, we believe that these kinds of technical standardizations facilitate and enable also clustering.

The main bottlenecks in using services seemed to be the lack of replicable, best practices, and the lack of business knowledge. The difficulty of finding service providers and comparing them were mentioned as the bottlenecks in selecting KISAs as well. Also, the companies in the sector do not have experience and culture for using such services. What are the reasons for not finding the service providers, when SW companies and service providers are in most cases concentrated in particular areas and physically located next to each other in areas, such as Innopoli?

This report also serves as an initial platform on which the remainder of the KISA-SWC project research will be based on. The scope definitions, key terminology, frameworks, and the tentative conclusions will be used to guide the subsequent research activities in the project.


66

8 References

Anonymous, R & D: Securing the Future of ICT in Ireland. (Ireland, Research and technology Interest Group, 2002)

Anonymous. KISA OECD Paper 1. Revised work plan, dated 27th Mar 2002. 2002.

Anonymous. Statistic Finland: http://www.stat.fi/tk/yr/rake_palvelut2000.html. 2003.

Anonymous. Software houses (2001): Israeli Association of Software houses. http://www.iash.org.il/content/SoftwareInds/StatisticalInformation.asp . 2003.

Anonymous. Commonwealth of Pennsylvania, http://sites.state.pa.us/PA_Exec/DCED/tech21/bg-ireland.htm. 2003.

Anonymous. Enterprise Ireland (2003): http://www.nsd.ie/htm/ssii/back.htm. 2003.

Anonymous. OECD. OECD Economical Outlook No. 72. www.oecd.org. 2003.

Anonymous. USA commercial Service (2003): http://www.buyusa.gov/finland/en/software.html. 2003.

Alasoini, T., Työelämän kehittämistoiminnan rooli ja mahdollisuudet työllisyyden edistäjänä – edistävätkö uudet työn organisointimuodot työllisyyttä. (Helsinki, Ministry of Labour, 1998) Työpaperi 6, Kansallinen kehittämisohjelma,

Appelbaum, E., Albin, P., Shifts in employment, occupational structure and educational attainment, in: Skills, wages and productivity in the service sector, T.Noyelle, ed. Westview Press, 1990.

Autere, J., Lamberg, I., Tarjanne, A., Ohjelmistotuotteilla kansainväliseen menestykseen. (Helsinki, Tekes, 1998) Teknologiakatsaus 74/99,

Bilderbeek, R., den Hertog, P., Marklund, G., Miles, I., Services in Innovation: Knowledge Intensive Business Services (KIBS) as Co-produces of Innovation. (Oslo, Step Group, 1998) SI4S Synthesis paper,

Carlsson, B., Cetindamar Karaomerlioglu, D., Manufacturing in decline. A matter of definition, Economics of Innovation and New Technology, 8(?):178, 1999.

Cusumano, M.A., Forthcoming book: The Software Business: Strategies for Managers, Programmers, and Entrepreneurs in Good Times and Bad, Free Press/Simon & Schuster, 2003.

Dahles, H., Producer services and urban restructuring. Western theoretical perspectives. (1999) Paper presented at "Brokers of capital and knowledge. Producer services and social mobility in provincial Asia",

Damanpour, F., Gopalakrishnen, S., The Dynamic of the Adoption of Product and Process Innovation in Organizations, Journal of Management Studies, 38(1):45-66, 2001.

Dathe, D., Schmid, G., Determinants of business and personal services. Evidence from west-german regions. (Berlin, Wissenschaftszentrum berlin fur socialforschung, 2000) FS I 00-202,


67

den Hertog, P., Co-producers of Innovation: on the role of knowledge-intensive business services in innovation. (2000)

European Commission. The contribution of business services to Industrial performance. A common policy framework. http://europa.eu.int/comm/dg03/comms.htm . 1998.

Forssén, M., The Life Cycle of Bottom-up Ideas, Case studies of the companies where the simulation game method was applied. (Vantaa, Helsinki University of Technology, 2002) HUT Industrial Management and Work and Organizational Psychology, Report No 19,

Hales, M., Dynamics of Knowledge Intensive Business Services - Mapping Innovation Service Products, Procedures and Production. (Lille-Roubaix, CENTRIM, 2000) Paper presented at The Economics and Socioeconomics of Services, 22nd-23rd June 2000,

Hales, M., Service deliveries in an economy of competence supply. (CENTRIM, University of Brighton, 2000) Final Report, RISE workpackage 5, November 2000,

Hales, M., RISE final report Summary. (Brighton, Centrim, 2001)

Hauknes, J., Services in innovation - innovation in services. (Oslo, STEP, 1998) SI4S synthesis paper S1,

Hauknes, J., Knowledge Intensive Services - What is their role? (Paris, OECD, 1999) Business and Industry Policy Forum on Realising the Potential of the Service Economy: Facilitating Growth, Innovation and Competition,

Hauknes, J., Economic rationales of government involvement in innovation and in the supply of innovation-relates services. (Stockholm, Oslo, Technology Policy Studies, STEP, 2003) Final report, RISE workpackage 3,

Heeks, R., Nicholson, B., Software Export Success Factors and Strategies in Developing and Transitional Economies. (Manchester, Institute for Development Policy and Management, 2002) Paper No 12, Working paper series,

Hermelin, B., Professional business services. Conceptual framework and a Swedish case study. (Uppsala, Uppsala university, 1997) Doctoral dissertation Geografiska regionstudier 30,

Hietala, J., Maula, M., Autere, J., et al, Finnish Sotfware Product Business: Results from the National Software Industry Survey 2002. (Espoo, Software Business and Engineering Institute / Helsinki University of Technology, 2002)

Hoch, D., Reoding, C., Purkert, G., Lindner, S., Müller, R., Secrets of Software Success, HBS Press, 1999.

Illeris, S., Plougmann, P., Arbejde og kvalifikationer i service. (Roskilde, RUC, 2001) Serviceudvikling, internationalisering og kompetenceutvikling report 8,

Kanter, R., The Change Masters, University of Chicago Press, 1983.

Kautonen, M., Knowledge-Intensive Business Services as Constituents of Regional Innovation Systems: Case Tampere Central Region, in: Growth and Significance of Knowledge Intensive Business Services KIBS, Publication 3/2001, M.Toivonen, ed. Employment and Economic Development Centre for Uusimaa, 2001.

Kuusisto, J., Meyer, M., Insights into services and innovation in the knowledge intensive economy. (Helsinki, Tekes, 2003) Technology Review 134/2003,


68

Lith, P., Profile and trends of the Software Industry from a KISA / Innovation perspective. (Helsinki, Tekes, 2003) Studies and Reports 3/2003,

Marceau, J., Martinez, C.. KISA discussion paper 2, research methods and procedures, dated 23th Sep, 2002. 2002.

Maskell, P., Törnqvist, G., Building a cross-border region. (Copenhagen, Copenhagen business school press, 1999)

Miles, I., Knowledge Intensive Business Services, Users, Carriers and Sources of Innovation. (European Innovation Monitoring System (EIMS), 1995) EIMS Publication No 15,

Miles, I., Services and Foresight. (1999) Service Industries Journal Vol 19 no 2,

Miles, I., Taking the Pulse of The Knowledge-Driven economy: the role of KIBS, in: Growth and Significance of Knowledge Intensive Business Services KIBS, M.Toivonen, ed. Employment and Economic Development Centre for Uusimaa, 2001.

Miles, I., Knowledge Intensive Services' Suppliers and Clients: a review (2003)., unpublis

Miles, I., Tomlinson, M., The career trajectories of knowledge workers. (Paris, OECD, 2003) Presented at the OECD workshop on S&T Labour Markets Paris, Published in Workshop proceedings,

Miles, I., Kastrinos, N., Flanagan, K., et al, Knowledge-Intensive Business services: Users, Carriers and Sources of Innovation. (Luxembourg, Directorate General for Telecommunications, Information Market and Exploitation of Research, Commission of the European Communities, 1995) EIMS Publication No. 15, Innovation Programme,

Moore, Geoffrey A., Crossing the Chasm: Marketing and Selling High-Tech Products to Mainstream Customers, New York: HarperBusiness, 1999.

Mowery, D., The International Computer Software Industry, Oxford University Press, 1989.

Muller, E., Innovation Interactions between Knowledge-Intensive Business Services and Small and Medium-Sized Enterprises. An Analysis in Terms of Evolution, Knowledge and Territories, Physica, 2001.

Nachum, L., Danish professional service firms. Why are they not competitive internationally? A comparative analysis between Danish and U.K management consulting firms, Scandinavian journal of management, 14(1):37-51, 2003.

Nonaka, I., Takeuchi, H., The Knowledge-Creating Company, Oxford University Press, 1995.

Norvig Larsen, J., Supplier-User Interaction in Knowledge-Intensive Business Services. Types of Expertise and Modes of Organization, in: Services and the knowledge based economy , M.Boden and I.Miles, eds. Continuum, 2003.

Nukari, J., Forsell, M., Suomen ohjelmistoteollisuuden kasvun strategia ja haasteet. (Helsinki, Tekes, 1999) Teknologiakatsaus 67/99,

Nählinder, J., Innovation in KIBS. State of the Art and Conceptualizations. (2002) SIRP Seminar Report,

OECD, A Classification of ICT services. (2001) DSTI/ICCO/IIS,

OECD, Strategic business services. (Paris, OECD, 2003)


69

Palmgren, C., Leppälahti, A., Lemola, T., Toivanen, H., Towards a better understanding of innovation and industrial renewal in Finland – a new perspective. (Espoo, VTT, 1999) Working paper 41/1999, VTT Group for Technology Studies,

Pedersen, M.K., Professional business service innovation. A distributed knowledge approach. (Roskilde, RUC, 1999) Workingpaper 11, Serviceudvikling, internationalisering og kompetenceutvikling,

Porter, M.E., The Competitive Advantage of Nations, Harvard Business Review, (March-April):73-93, 1990.

Preissl, B., Research and Technology institutes and the service economy – A functional perspective on innovation related services. (Berlin, RISE, 2000) Final report, RISE workpackage 2. DIW, November 2000,

Skogli, E., Knowledge intensive business services. A second national knowledge infrastructure. (Oslo, STEP, 1998) Step working paper A-03,

Smeds, R., Managing Change Towards Lean Enterprises, International Journal of Operations and Production Management, 14(3):66-82, 1994.

Strombach, S., Innovation Processes and the Role of Knowledge-Intensive Business Services (KIBS), Physica, 14:53-68, 2001.

Tidd, J., Bessant, J., Pavitt, K., Managing Innovation- Integrating technological, market and organizational change, John Wiley & Sons, 2001.

Toivanen, H., Software Innovation in Finland. (Espoo, VTT, 2000) Working Paper No 52/00,

Toivonen, M., Osaamisintensiivisten liike-elämän palvelujen tulevaisuudennäkymät. (Helsinki, Edita, 2001) ESR-julkaisu 83/01, Työministeriö,

Toivonen, M., Growth and Significance of Knowledge Intensive Business Services KIBS. (Helsinki, Employment and Economic Development Centre for Uusimaa, 2001) Publication 3/2001,

Toivonen, M., Ohjelmistoala, toimialaraportti. (Helsinki, KTM, TE-Keskus, 2002)

Tordoir, P., Transaction of professional business services and spatial systems, Tijdschrift voor Economische en Sociale Geographie, 85(4), 1994.

Torrisi, S., Industrial Organisation and Innovation – An International Study of Software Industry, Edward Elgar Publ., 1998.

Urabe, K., Innovation and the Japanese Management System, in: Innovation and Management: International Comparisons, K.Urabe, J.Child and T.Kagono, eds. Walter de Gruyter, 2003.

Werner, R., Knowledge intensive business services in the Oulu region. Business development and geographical linkage, in: Growth and significance of knowledge intensive business services (KIBS), M.Toivonen, ed. Employment and economic development centre of Uusimaa, 2001.

Whalley, J., den Hertog, P., Clusters, innovation and RTOs – Asynthesis of the findings from the RISE cluster studies. (Department of management Science, University of Strathclyde, 2000) Final Report, RISE workpackage 1, November 2000, Glasgow, Scotland.


70

Windrum, P., Tomlinson, M., The Impact of KIBS on International Competitiveness - a U.K.-Netherland. (Oslo, STEP Group, 1998) Step Group SI4S Topical Parer,

Windrum, P., Knowledge pools and innovation networks in e-commerce. The integrating role of knowledge intensive services. (2000) Paper presented at the SEIN workshop: innovation workshops, Theory and policy, January 14 2000,

Zaltman, G., Duncan, R., Holbeck, J., Innovations and Organizations, Robert E. Krieger Publ., 1984. Interview 1, a human resource development service company Interview 2, a software business company Interview 3, a software business industry association Interview 4, a legal service company Interview 5, a software business expert Interview 6, a public financing service provider Interview 7, a consultancy


71

Appendix 1, Themes of the Interview

1 KISA-services for IT-sector 1.1 What KISAs are used 1.2 Why KISAs are used 1.3 In which stage are the KISAs used in reference to:

1.3.1 Product release life-cycle 1.3.2 Company life-cycle

1.4 How would you qualify the currently available KISAs 1.5 What are the most essential KISAs available 1.6 How should the current KISAs be developed 1.7 What KISAs are missing in the current service offering

2 KISA-sector

2.1 What bottlenecks are there in using KISAs 2.1.1 Lack of Information about KISAs 2.1.2 Difficult comparability of KISA-providers 2.1.3 Lack of best practices

2.2 How to resolve the bottlenecks 2.3 What kind of actions would support the business of the KISA-sector 2.4 How has the KISA-sector evolved 2.5 How is the KISA-sector developing 2.6 How should KISA-sector promote itself to gain more markets 2.6.1 Who are the key players

3 IT-sector

3.1 What are the shortcomings in IT-sector as customer for KISA-sector 3.1.1 Unclear needs of IT-sector 3.1.2 Unidentified processes of IT-sector

3.2 How would you describe the KISA-company - IT-company relationships 3.2.1 Project based 3.2.2 Long-time customers 3.2.3 Partnerships

3.3 What kind of knowledge IT-companies need to use KISAs 3.4 What are the best practices in using KISAs

4 Other parties

4.1 What is the role of ... in respect to IT - KISA -sector relationship: 4.1.1 Media 4.1.2 Venture capital, financing 4.1.3 Owners, board of directors 4.1.4 Government 4.1.5 Industry consortiums and associations

report of the current state of the software and service ... · helsinki university of technology ...

Documents