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5. Development of the software industry

Having reviewed the growth and development of "hardware" - the electronics related manufacturing sector in Ireland - it is necessary to examine the way the software industry has developed. The term "software" refers to both the instructions that direct the operation of computer equipment and the information, or data, that the computer manipulates. It is generally classified into two general types:

1. systems software, including operating systems, which control input and output operations;

2. applications software, designed to apply computer power to the performance of specific tasks (e.g. invoicing, computer-aided design, materials requirement planning).²⁵

Early Software Use in Ireland

During the 1960s and early 1970s the major requirements for computer use in Ireland were in marketing (sales, distribution) and finance (costing, management accounting, etc.). Within the university sector, there was also a requirement for scientific and research information processing.

According to the survey conducted in 1969, few of the commercial in-house or bureau computer users made use of software applications packages. This was interpreted as reflecting the poorly developed state of applications software at the time. Available software packages had a technical rather than commercial orientation, lacked adaptation to Irish conditions, and required excessive storage capacity. It was recognized that the main factors holding back developments among in-house commercial users were the lack of computer capacity, the unsuitability of existing hardware, and the lack of trained computer personnel. Among bureau service users, the main drawbacks were the difficulty in using an outside computer for processing and the geographical remoteness of the bureau. The university sector was curbed by lack of funds and to a lesser extent by the unsuitability of hardware and the lack of applications software.⁷

The survey also identified the following areas in which packages were sought by potential users: payroll, shore registration, stock recording/order analysis, truck scheduling and routeing, critical path analysis, computerized typesetting, and economic modelling.

The initial difficulties experienced by the early computer users were essentially overcome by several developments:

(a) transfer from bureau to in-house computer use (since the early 1970s);

(b) miniaturization of hardware alongside increased capacity;

(c) a reduction in the cost of computer purchase;

(d) growth of data-processing staff and departments to develop and adapt applications software;

(e) development of systems software that allowed more extensive "prototyping" and involvement of computer users alongside computer specialists.

Current Software Industry

According to a survey undertaken by the Irish Computer Services Association (ICSA), employment in the information and computing services sector doubled between 1982 and 1987. Based on the results of a survey of 128 companies in the computing services business, it was estimated that over half of the output from the sector was exported. Indigenous companies accounted for 75 per cent of sales, two-thirds of employment, and half the exports (fig. 1.1). Most of the exports of foreign-owned companies were in the form of software products. One further trend was discerned - towards increasing size of companies, which indicates greater stability and maturity in the industry.²⁶

Fig. 1.1. Irish computing industry: turnover, local and export, 1986 (Source: ref. 26)

Fig. 1.2. Irish computing industry: growth of employment, 1982-1988 (Source: ref. 26)

In 1986, the total turnover of the Irish computing industry was IR£160 million (or US$225 million). The sector employed an estimated 2,800 staff, and achieved a growth rate in 1986 of 13 per cent (fig. 1.2). This was lower than the rate in the rest of Europe, and a number of companies experienced difficulties. The rapid decline in bureau services continued, but at a slower rate than in previous years, suggesting a transfer of information-processing functions to in-house computers. Other developments that were highlighted by the Seventh Annual Survey of Computing Services in Europe (1987) were that Irish computing service exports were increasing at an extremely fast rate of 70 per cent in 1986, compared with 20 per cent per annum worldwide. Employment in the industry was increasing at a rate of 12 per cent per annum. Demand for software and marketing specialists increased by 17 per cent and 16 per cent per annum respectively in 1986. However, a word of caution was included in the reference to growth "being impeded by the brain drain of some of Ireland's qualified and experienced computing services personnel."²⁶ The employment area will be covered further in section 10.

Within the computing services sector, software production was the major contributor to turnover in 1986, accounting for over IR£83 million, of which IR£32 million was generated by Irish companies (fig. 1.3). Computer bureau services accounted for a turnover of IR£23 million, much of which was in non-Irish companies. Approximately half of the computing services consultancy work, amounting to about IR£10 million, was done by Irish companies, which also contributed to the bulk of turnover in education/training and maintenance. The "other" category consists of activities that are value-added, relating to hardware. This was a significant category in terms of turnover.

Fig. 1.3. Irish computing industry: division of turnover, 1986 (Source: ref. 26)

Irish Software Companies

A total of 305 software companies are currently listed by the IDA. Of these, only 9 employ more than 50 employees, and none has more than 200 (table 1.6).

Of the nine medium-sized companies, only five are foreign owned. This contrasts with the ownership of medium (and large) electronics-related manufacturing companies. Almost three-quarters of the IDA listed small software companies are Irish owned. Medium-sized companies are concentrated in the East Region, with seven companies, and Mid-West, with two firms (table 1.7). This represents an even greater concentration than with hardware companies, probably reflecting the need for medium-sized software companies to be located beside a large potential market. Just over 70 per cent of the small companies are also in the East Region. Foreign companies are located only in the East, Mid-West, South West, and West regions whereas Irish software companies are represented, albeit tokenly, in all regions.

Table 1.6. Irish software companies

Source: Unpublished IDA data, July 1988.

Table 1.7. Location of Irish software companies

Source: Unpublished IDA data, July 1988

Promotion of the Computer Services industry in Ireland

As with the need to attract overseas investment for the creation of a hardware industry, the IDA actively promotes Ireland as an "ideal location" for international services. The switch to non-manufacturing production investment represents a significant change in emphasis from the traditional industrial policy followed by the IDA in the 1960s l970)s, and early 1980s. Prior to the mid-1980s, investment incentives concentrated on grants towards plant, machinery, and equipment, along with training grants and tax concessions. This tended to attract capital-intensive rather than labor-intensive industries.

The International Services Programme currently operated by the IDA seeks to attract investment in computer services, R&D services, healthcare, training services, and international financial services. To be eligible for aid, companies must provide an internationally traded service and be able to export. Whilst grants towards capital costs (e.g. computers, furniture, buildings) are still available, the emphasis is on feasibility grants (up to 50 per cent of research costs up to a maximum of IR£15,000), employment grants (in two instalments), training grants, as well as tax and other concessions.

As a result of this new policy, and a realization of the growing market for computer services, there has been a rapid increase in the number of startups among software companies. Of the 305 companies listed by the IDA, 158 (52 per cent) were established since the beginning of 1980. Of these, 100 (approximately one-third of existing companies) came into existence only since the beginning of 1985. This suggests a considerable achievement, particularly in the small company category.

The financial systems area has been well represented in the new inter national services sector and includes companies such as:

• Insight (Irish owned), with financial packages sold in 30 companies for IBM and ICL users,
• Kindle Group (Irish owned), with specialized banking systems for main frames,
• GC McKeown (Irish owned), which specializes in financial, accounting, and personnel packages,
• IBM (US owned), which develops applications software for export to Europe, Africa, and the Middle East,
• ICL (UK owned), which has a UNIX-based R&D centre for applications software.

The IDA also claims that hardware manufacturers based in Ireland (DEC, Nixdorf, Westinghouse, Wang, Measurex, and Philips) have been taking advantage of the abundant supply of computer science graduates to develop software in Ireland.

Another specific segment of the computer services market that has been targeted for growth potential is that of "courseware." It encompasses a whole range of computer-based educational or training material that enables a student or trainee to acquire knowledge or skills. Conscious of its potential, a committee was set up to report to the Minister for Industry and Commerce in February 1986.²⁷ The committee recommended that the state and its agencies should encourage the sector through:

(a) industrial promotion for both indigenous and overseas projects to assist courseware firms,
(b) venture capital funding to assist start-ups,
(c) marketing assistance from CTT in liaison with the National Software Centre,
(d) skills training by FAS to meet market demand for "conventional" and interactive video-based skills,
(e) demand stimulation through public sector "priming" in the educational field and other areas of activity,
(f) awareness stimulation to be created in the Irish Management Institute and the Confederation of Irish Industry and, with the public service, to publicize the advantages of computer-assisted training and to encourage identification of applications,
(g) video production/editing using Radio Telefis Eireann's pool of skills on commercial production,
(h) coordination by the Department of Industry and Commerce of various state agencies' activities.

The total value of Irish software exports is estimated to be around IR£100 million and this is expected to double within five years. The prevailing mood in the Irish software industry is one of optimism, despite some closures of software houses. It is predicted that a greater emphasis will have to be placed on marketing, rather than solely on product development.²⁸

6. The telecommunications infrastructure for it

As emphasized in section 1 of this report, information technology adoption has been enhanced and promoted by developments not only in the electronic semiconductor industry but also in telecommunications.

The Need for a Digital-Based Telecommunications System

Within Ireland it was recognized that the demand for data transmission facilities was directly bound up with future developments in the computer area.⁷ Telecommunications developments have been important (1) in providing links between sites within Ireland, and between Irish and overseas locations, for data transmission, and (2) in supporting demand for telecommunication products. These include products now developed in Ireland by companies such as Ericsson and Alcatel, which have helped to generate employment and economic growth in Ireland. Exports alone of telecommunications and sound recordings or reproduction equipment amounted to over IR£152 million in 1987, an increase of 7 per cent over exports of these products in 1986. However, emphasis in this section is placed on how telecommunications have and are being used to support computer applications and data transmission.

The importance attached to good telecommunications to support industry and the development of the economy was recognized in an NESC report in 1981: "the IDA is increasingly trying to attract firms which are more sophisticated technologically and which are more likely to engage in marketing and other headquarters activities here which require high standards of communications. They are more likely to be put off, particularly by the shortcomings of the [existing] infrastructure in the more remote regions." The report referred to the lower level of telephone exchange lines in Ireland, and lengthy waiting lists for new subscribers. By 1977, 11 per cent of phones were still not connected to automatic exchanges. This adverse situation was particularly acute in the Donegal and Western regions of Ireland.²⁹

Reporting in 1981, the NBST recommended that plans for developing the telecommunications services be carried out and new advanced services be introduced. Recognizing that, without such developments, the software sector would be retarded in Ireland, the NBST called for liberal policies and practices in relation to connecting terminal equipment to the telecommunications network. ¹⁹

Following these recommendations, a decision was made to invest IR£800 million in the telecommunications system in order to bring it up to the standard achieved in the European Community by 1984. This development was based on digital switching and transmission to permit the integration of voice, data, text, and pictures for transmission through the system. The government also decided to build a satellite earth station in the south of the country.³⁰

The expansion of many informatics and telematics services and "integrated services digital networks" depends on the installation of digital switching.³¹

Telecommunications Services Currently Available

In the early stages of computer use in Ireland, only a small number of companies availed themselves of data transmission services (approximately eight in 1969). Some used the facility for off-line (delayed) processing. Aer Lingus was one of the first companies to use on-line (interactive) transmission for airline seat reservations. The Irish Sugar Company, gathering data from decentralized locations, used off-line transmission. Two state-sponsored institutions, An Foras Taluntais and FAS (formerly AnCO), were linked to terminals in London.⁷

Use of telecommunications facilities grew considerably in the 1980s. In 1984, Telecom Eireann was established as a state-owned monopoly with responsibility for the Irish telecommunications system. It operates the three key communications networks: telephone, telex, and the more recent data network, EIRPAC, first introduced in 1985. These in effect represent the network options available to computer users.

Public Switched Telephone Network

The public switched telephone network (PSTN) is primarily designed for speech transmission. For data it entails relatively long call set-up times and limited data transmission speeds. However it is available to all telephone subscribers who have the necessary modem and computer terminal equipment. The modem changes the computer output into signals for transmission, instead of carrying a conversation.

Leased Lines

Some companies want a higher degree of security or the ability to speed up the rate of transfer of information. They can opt for leased lines, which are fully private, for use by the individual subscribers. The leased line lacks flexibility since it links only two fixed points (e.g. two plants, one in Cork and the head office in Dublin). It is also costly for low traffic users. Sometimes the volume to be sent cannot be accommodated. Hence, frequent or more specialized users have opted for the third network, EIRPAC.³²

EIRPAC

EIRPAC is a public packet switching data network, designed as a dedicated network for data users in Ireland, for both national and international traffic. The network is based on packet switching exchanges (PSEs), which facilitate high speed transmission. Access may be by direct connection or by dial-up over the PSTN. The network has many advantages, for example: terminals operating at different speeds and using different protocols can communicate together; it has an inbuilt error-checking system to ensure the accuracy of the data; it has fast call set-up times; and it is considered cost effective for many data applications.

The following represent typical uses of EIRPAC:

• information retrieval,
• bureau services,
• intra-company data transfer,
• inter-company data transfer,
• electronic funds transfer,
• reservations,
• videotext.

The telex network can also be linked to computers through a device known as a data telex interface (DTI). This means that companies can save the expense of having a dedicated telex terminal. EIRPAC also links with the telex network and offers an electronic mail serviced via EIRMAIL.

Use of Telecommunications (TC) Facilities

According to the National Software Centre's report on Irish computer usage in 1986/87, "although more respondents communicate through the public network, potential communications over EIRPAC-like data networks exhibits a proportionately larger 'plan to install' response."⁸ Telecom Eireann estimates that, since its inception in 1985, there are now 1,300 subscribers and demand is rapidly growing (table 1.8).

The results of a survey of TC facilities users in Ireland are shown in table 1.9. Among the 534 computer user or intended user respondents, the most used facility was that of telex messaging, used by 63 per cent of respondents. Facsimile (fax) services were also commonly used (43 per cent). For data transmission, the ordinary telephone line was preferred to either leased lines or the EIRPAC service. Electronic mailing was not extensively used (although it would be more common for communications within some larger organizations), accounting for only 5 per cent of respondents. Of EIRPAC users, 30 per cent were from the banking and financial industrial sector, and 20 per cent respectively were in the business of metal manufacture and other

Table 1.8. Use of Telecom Eireann telecommunications services, 1988

Source: Unpublished data from Telecom Eireann, September 1988. a. These figures are estimates of how we would see the trend for PSTN usage going. They also exclude the EIRPAC customers. and others manufacturing items. This suggests that certain types of business activity may be more inclined to use such facilities than others.

Table 1.9. Use of telecommunications facilities, 1986/87

Source: Ref. 8.

Ireland's experience of late, but eventually decisive, government intervention to restructure the telecommunications sector has important implications for industrial, service, and general economic growth. According to the OECD, one factor stands out in reviewing changes in TC structures. This is "the reluctance of many countries to take decisive action to enhance the efficiency of their economic structure and open new opportunities to industries by adjusting telecommunications structures."³³ With the advent of further developments in satellite and optic fibres TC technology, positive government policies to make the necessary adjustments are an essential stage on the path towards taking fuller advantage of the IT revolution.³⁴

7. Manufacturing applications of information technology

The general assumption in discussions relating to the tapping of IT in the manufacturing process is that the technology is sought as a massive labour-saving device. In reality, this is rarely the prime motivation. Other factors are among the reasons cited for using information technology. such as:

(1) to increase the volume of output;
(2) to increase the quality or consistency of output;
(3) to improve safety by the elimination of hazardous or physically strenuous operations;
(4) to improve the working environment;
(5) to economize on stocks of intermediate products by improving the flow of production;
(6) to save on materials;
(7) to improve control;
(8) to increase information flow.³⁵

IT Use In Manufacturing

As the industrialization process has progressed, three distinct spheres of production have emerged, requiring different forms of specialization. These spheres are design (usually within research and development facilities), manufacture (the shop-floor production), and coordination (in the office). Each has been subject to some degree of gradual automation, but it is the manufacturing sphere that has been most fully mechanized.³⁶

Internationally, the diffusion of computer-based technology has occurred in all three spheres, often independently and at quite different rates and creating different impacts. The first impact of micro-electronics was made in the coordination sphere. In the United Kingdom the first mainframe was used by the British baking firm J. Lyons and Company in the early 1950s to assist in providing an information base for coordinating activities. In 1958, the Irish Sugar Company introduced Ireland's first computer for the sugar beet accounting stores and to perform a variety of trial field analyses. Such applications did not immediately create a huge demand amongst other companies in the United Kingdom or Ireland. It was not until the 1970s, and the advent of falling computer prices, reduced size, and increased reliability and backup support, that adoption of computers became commercially viable.

Initially, computers began to diffuse through each sphere in an isolated manner. In manufacture, numerically controlled (NC) machine tools became widespread in the 1970s, despite a slow rate of development over the previous two decades. These were followed by other types of NC equipment, including automatic testing equipment, robots, machining centres, and transfer lines. Within the design sphere, the early mainframe batch-processing computers rapidly gave way to more flexible computers with interactive graphics systems, used in design and drafting. A similar pattern emerged in the coordination sphere as remote mainframe-based batch-processing procedures were replaced by flexible interactive mini and micro-based systems. The rate of innovative diffusion of computers was rapid in the 1970s, particularly in manufacture with a shift towards computer integrated manufacturing (CIM). This involved a linking of individual machines, which were each controlled by micro-electronic devices, to form a common digital logic. From this emerged flexible manufacturing systems, in which NC machine tools, NC tool changers, NC testing equipment, and NC transfer lines were combined.³⁶

Also in the 1970s, computers began to take on a more important role in the design and coordination spheres. Computer-aided design (CAD) and drafting technologies (CADD) became widespread. A similar trend is emerging in the office arena with attempts to integrate office procedures and link together multi-purpose workstations with personal computers for input, storage, processing, presentation, and transmission of information. The aim now in manufacturing is to integrate production across each of the three spheres - towards computer-aided design/manufacturing and computer integrated manufacturing.

Applications in Irish Manufacturing Industry

The Design Sphere

Specialized manufacturing CAD equipment diffused most rapidly in the electronics industry during the 1960s and early 1970s, after which it became important in the engineering industries. In most OECD countries the market grew at a rate of 50 per cent per annum. In the mid-1980s, business graphics and architecture and civil engineering applications of CAD experienced most growth. In a plant-level study undertaken in the United Kingdom in 1984, it was estimated that 10 per cent of manufacturing establishments were using CAD. By the early 1980s it was expected that more than half of all electronics sector firms in the United States and Western Europe were using CAD systems.³⁶

In Ireland, a total of 45 companies or 8 per cent of respondents to the Survey of Computer Usage in Ireland 1986/87 had adopted CAD applications. A further 7 per cent expected to install them by the end of 1987. Of the CAD users, almost 50 per cent were in the banking and finance industrial category, which includes business services such as software houses, architectural firms, and engineering consultancies.⁸

Computer-aided engineering (CAE) applications were installed in just 4 per cent of respondent companies.

The Coordination Sphere in Office Automation

The need for coordination was created by the division of labour within industrial plants and has become more and more complex. At the onset of the Industrial Revolution, coordination involved coordinating tasks, often highly specialized, within one factory. As the division of labour has become more international, the scope for coordination has widened. It involves the manipulation of information, which has to be gathered, processed, presented, and transmitted. Prior to the micro-electronics age this was performed using more basic technology: typewriters, paper-based filing systems, adding machines, and dictaphones. Although slow to spread initially, the growing cost-effectiveness and extensive range of applications are causing a transformation of the coordination sphere.

In Ireland in 1986/87, among information technology users the most commonly installed applications were word processing (61 per cent) and spreadsheets (55 per cent). Market penetration was expected to rise to over 80 per cent in the next five years. The next most prevalent systems were database and graphics applications, each with 22 per cent market penetration, which was predicted to rise to 33 per cent over the next five years. Desktop publishing was used by 4 per cent, which was likely to double within five years, while local area networks reported a 9 per cent market penetration. For electronic mail, in-house use was confined to only 11 per cent of technology users, and public EIRPAC users were only 5 per cent of the total.⁸ The banking and finance sector and "other manufacturing," which includes the public sector, were more likely than other sectors to use electronic mail systems.

Business Management Applications

A parallel development in Ireland, as in other countries, has been the rapid growth in business management applications, particularly in the accounting, sales, inventory, payroll, and personnel areas. According to the 1986/87 survey, almost two-thirds of computer users had installed applications covering accounts receivable, accounts payable, and general ledger. An average annual projected growth rate of 15 per cent was anticipated over the next five years. Payroll and invoicing applications were used by over 50 per cent, with an average annual growth rate of 13 per cent expected. The highest projected growth rate, of 18 per cent, was expected for fixed asset accounting applications.⁸

Personnel management systems were used in only 13 per cent of the companies, although a further 13 per cent anticipated their use. Almost 44 per cent of respondent firms were using inventory control applications and 35 per cent had purchasing applications. Sales analysis/forecasting applications were installed by 46 per cent of companies.⁸

The Manufacturing Sphere

Within manufacturing, the data for computer applications indicate that the manufacturing sector in Ireland continues to be active in adopting computer applications.

The most commonly installed application was that for bill of material processing, used by 13 per cent of respondents and planned for adoption by a funkier 9 per cent. Like several other applications, it was most likely to be used and sought by manufacturing companies in the mechanical, electronic, and instrument engineering category and in other manufacturing (which in eludes food, drink, textiles, footwear and clothing, printing, rubber, and plastics).

Material requirements planning applications were in use by 8 per cent of firms, with anticipated use by an additional 12 per cent of companies. Other applications that were used by at least S per cent of respondents were: master production/scheduling applications (7 per cent), capacity planning (S per cent), works order processing (8 per cent), and process control (5 per cent). With the exception of bill of materials, process control, and numerical control, all applications were experiencing growth rates in excess of 100 per cent, but on a relatively low installed base.

Numerical control applications were installed in very few plants, representing less than 2 per cent of respondents. Only 1 per cent had computer integrated manufacturing systems. Less than 1 per cent of respondents had made use of robot control applications. In 1986, these were installed in only three companies, one in the "other manufacturing" category, one in the distribution trades, and one in banking and finance.

As yet, computer-based manufacturing applications are relatively underutilized in Irish companies compared with the higher adoption of automated office procedures and other coordination applications.

A summary of the use of computer-based applications in Ireland in 1986 is set out in figures 1.4 and 1.5. These emphasize the number of Irish employees, across all sectors of the economy, who have exposure to computer applications. These data confirm that the pattern of innovative IT applications in Ireland is occurring in three phases:

(1) early adoption of accounting-based and other coordination applications relating to payroll, ordering, stock control, and invoicing;
(2) later adoption of office procedure coordination applications, particularly for word-processing and spreadsheet applications;
(3) slower adoption of manufacture applications, particularly of design and engineering-related functions.

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