There is much talk and opinion on how New Zealand can increase its economic productivity and global competitiveness, but some are left asking “why?”. The bottom line is, if New Zealanders want to increase their incomes and standard of living, we need to increase our national productivity. Higher productivity means more money to spend on social and economic development. ICT plays an important, but largely invisible role in productivity. Invisible, that is, because many people in the outside world don’t think about it. Simply put, however, ICT is the major driver of economic growth with the strong potential to continue driving growth for the foreseeable future. It’s a fact of life that without ICT, we are not connected to the global village, and our ability to live and work in today’s world would be seriously compromised. The evidence suggests that ICT has a strong impact on productivity improvements, which is one of the main drivers of economic growth: ICT contributes to an economic growth as an industry per se, as a sector which is a new source of the knowledge economy in its own right, and is also a pivotal enabler for transforming all other sectors of the economy. Two areas which have been shown by the OECD to increase aggregate economic productivity in an economy are the existence of an ICT producing sector, and the widespread use of ICT by other industries and the ICT-using sectors themselves. This is driven by the evidence (both empirical and anecdotal) that increased ‘production’ of technologies contributes to output, employment and export earnings, while ICT ‘use’ increases productivity, competitiveness and growth. According to the EU’s policy framework for the Information Society and Media Directorate General i2010’s Annual Report, ICT industries currently generate 8% of Europe’s GDP, and employ some 6% of its workforce. ICT industries are the most productive sectors of the European economy, contributing over 25% of productivity growth. For example:
- For communications: World Bank research in 2009 identified that “for every 10-percentage-point increase in the penetration of broadband services, there is an increase in economic growth of 1.3 percentage points”.
- For software: The European Commission’s Directorate-General for Information Society and Media shows that 40% of all productivity gains expected among European businesses in the next year will derive from the application of software technologies to their own businesses.
It should also be noted that, according to the OECD 2007 figures, the software segment is the fastest growing sector in the ICT industry; where the overall growth in the ICT sector in Europe was 2.4%, for the software segment it was just over 6%. As such, continued innovation in ICT, and in particular software innovation, has been identified as an important factor in achieving economic sustainability, because software plays a key role in the structural adjustments that continually take place across many industries and sectors of industry within the economy. So, if a vibrant software sector is important to economic growth in New Zealand, how do we measure growth and maturity in the New Zealand software industry? More importantly, how do we benchmark New Zealand’s progress in this area against other countries? As a not-for-profit research and development institute, The International Institute for Software Economic, Innovation and Entrepreneurship (IISEIE) has developed the Local Software Economy Maturity Index, with 2010 results planned for release this month, showing that New Zealand is maintaining its position in the middle of the pack, compared with approximately 50 other software economies around the world. For the last two years, IISEIE researchers and industry partners have participated in the ‘Local Software Economy Maturity Model’ (LSE Maturity Model), which comprises various country-based metrics, as they pertain to the local software economy, which can be used to determine the current stage of economic, innovative and technological development of a local software economy. The model’s results were based on the wider ‘body of knowledge’ in economic development and the ICT industry from respected industry, public research and economic development organisations such the World Economic Forum, IDC, the World Bank and the OECD, etc. The use of these data sources achieves two goals. Firstly, by using external data from these respected sources, it facilitates the mapping of software industry development programmes, to the broader universe of economic development programmes already underway across governments, non-government organisations and ICT industry development organisations. Secondly, and more importantly, it provides a robust approach to measuring New Zealand’s progress in developing economic growth via software, compared with other nations on an annual basis. The Local Software Economy Maturity Index approach The Local Software Economy Maturity Index consists of four key indicators (variables) sourced from both OECD and IDC, that were found to best represent the concept of software sector maturity within a country. The variables are:
- IT spending as a percentage of GDP
- Software employees percentage to total IT employees
- Software companies percentage to total IT companies
- Software sales percentage to total IT sales.
Creating this Index across 52 countries resulted in a ranking of 21 out of 52 for New Zealand in 2009. Further to this, the Local Software Economy Maturity Index can be combined with the Network Readiness Index, a long-standing model (launched in 2003) from the World Economic Forum. This results in a model that has significant benefits in terms of alignment to economic development agencies and implementation of programmes that support the development of local software economies. More importantly, when the Local Software Economy Index was compared with the World Economic Forum’s Network Readiness Index, and the economic productivity (measured as GDP per capita), significant correlations of .72 and .77 respectively were found (perfect positive correlation is represented by a score of 1). The 52 participating countries were then grouped into similar clusters (using K-Means) and the mean of the Local Software Economy Index, Network Readiness Index and GDP per capita were calculated. The results for 2009, where New Zealand is in the ‘maturing’ cluster, are as illustrated in the table below. Using this information, government, nongovernment and industry stakeholders are better able to align ICT industry growth programmes to suit their country’s environment and stage of economic development, and to better position their software sector for its next phase of development. So, now that we know where we stand on the world stage in terms of software industry maturity, and we can measure this each year, what do we do about it? The results of this research show that we are not at the top of the local software economy stack, and that maturing the components that make up New Zealand’s ‘network readiness’ will mature our software industry. This in turn will increase our economic productivity.
