ICT Evidence Base RS2010
Regional Intelligence Unit NWDA Renaissance House Centre Park Warrington WA1 1XB Tel: 01925 400 291
This report is published by the Regional Intelligence Unit as part of its continuing commitment to inform the sustainable economic development of the Northwest of England. It has been produced by the Regional Intelligence Unit, and whilst ever effort has been made to ensure the accuracy of the material in this report the NWDA or the RIU cannot accept any responsibility for decisions based on the material that follows The RIU would like to take this opportunity to thank all those involved in the production of the evidence base for RS2010. Further Information If you require further information on this report, please contact: Adam Crockett Senior Economic Analyst Adam.Crockett@nwda.co.uk 01925 400308
Sourcing Notes: Maps produced by the Regional Intelligence Unit have been created using Ordnance Survey data and comply with copyright and licensing restrictions. Š Crown Copyright and database right 2009. Ordnance Survey Licence OS number GD 021102. Please note that all data provided by Office for National Statistics is Crown copyright material is reproduced with the permission of the Controller of HMSO. All analysis is prepared by NWDA Research Team or the referenced consultants/supplier.
ICT Contents Introduction/Summary ....................................................................................................................................5 SQW Research ..............................................................................................................................................7 Key findings ...............................................................................................................................................7 ICT adoption ..............................................................................................................................................9 Internet connection ..................................................................................................................................11 Websites ..................................................................................................................................................12 Financials.................................................................................................................................................15 Perceptions of ICTs .................................................................................................................................16 Impact of ICT ...........................................................................................................................................17 Barriers and influences ............................................................................................................................18 Reasons for low ICT use .........................................................................................................................19 Skills of staff and new recruits .................................................................................................................20 Perceptions on the role of Government Agencies ...................................................................................21 Supplier survey ........................................................................................................................................22 Comparisons with previous ICT survey ...................................................................................................23 Recommendations from the report ..........................................................................................................25 Point Topic Business Broadband usage.......................................................................................................26 The impact of ICT to GVA ............................................................................................................................27 Office for National Statistics, ICT & Productivity...........................................................................................29 Next Generation Access (NGA)....................................................................................................................30 Technical Appendix ......................................................................................................................................32
Index of Figures Figure 1: Proportion of firms with a computer by sub-region..........................................................................7 Figure 2: Proportion of firms with internet by sub-region................................................................................8 Figure 3: Average level of ICT adoption by sector .........................................................................................9 Figure 4: Proportion of firms with a computer by size of firms......................................................................12 Figure 5: Proportion of firms with a website by sector..................................................................................13 Figure 6: Proportion of firms with a website who allow online purchasing, by sector...................................14 Figure 7: IT expenditure in 2006, by firm size ..............................................................................................15 Figure 8: List of barriers to ICT investment ..................................................................................................18 Figure 9: Comparison of KPIs between 2004 and 2007 surveys .................................................................23 Figure 10: Absolute increase in GVA: ..........................................................................................................27 Figure 11: Percentage increase in GVA: ......................................................................................................27 Figure 12: Value Added per worker by ICT uptake ......................................................................................29
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ICT NB: Please note that all data provided by Office for National Statistics is Crown copyright material and is reproduced with the permission of the Controller of HMSO. Please Note: The evidence in this paper is deemed to be the most statistically reliable and regionally consistent which generally means it is quantitative in nature and can be applied across the region; The data used in this paper is the most up to date at the time of writing; Aside from the brief section below the purpose of this paper is to collect statistical evidence for a range of factors concerning quality of life – its purpose is not to list policy, strategy or projects in this area; This paper is not an exhaustive evidence base – there will be areas that have not been touched upon in significant detail. It includes evidence from internal expertise in the NWDA, through consultations with regional stakeholders and finally through a steering group comprised of a number of regional stakeholders
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ICT 1.
Introduction/Summary
1.1
Information Communication Technology (ICT) has an important role to play for households and businesses in this era of information sharing. The advancement of ICT is linked to the advancement of their economic performance and competitiveness. Information and Communication Technologies have far reaching effects: Apart from the effects they achieve in the classical IT sectors, they have become the driving force for innovations in numerous other areas. On the European level they are an important motor for growth as well: The OECD estimates that ICTs are responsible for 25% of GDP growth and for 50% of productivity growth.
1.2
The potential economic impact, if ICTs are optimised, is considerable. A recent report by Adroit suggests that between 3-4% productivity savings that could equal between £1-5 billion per region 1 .
1.3
Going forward, the scale of impact could be even greater as new technologies and capacities open up unforeseen opportunities. There are, however, a number of obstacles and barriers likely to frustrate optimisation of ICTs in each region, and if these are not addressed, the full potential of GVA uplift will not be realised.
1.4
A significant chunk of GVA derives from firms, and not enough firms, especially those most likely to benefit from ICTs, have adopted and optimised state-of-the-art ICTs to the fullest extent.
1.5
Although the first generation broadband issues have been resolved and the second generation of higher speed access is underway, research suggests that only 40-60% 2 will be close enough to the exchange to get the quicker speeds. Some business and locations may lose their competitive edge and important functionality if they fall outside these high-speed areas.
1.6
This evidence paper reports the findings of the ICT adoption, usage and impact survey, performed by SQW and GfK NOP. This survey quantified some key variables on adoption and also sought to gain perspective on issues and constraints in ICT. Please note that all data provided by Office for National Statistics is Crown copyright material is reproduced with the permission of the Controller of HMSO. All analysis is prepared by NWDA Research Team.
1.7
Progress on RES baseline indicators: Number of workplaces with a computer √ (2007) Number of workplaces with broadband √ (2007) Proportion of businesses using the internet √ (2007 OFCOM) Less than 100% availability of 512kbps broadband service x (2006 OFCOM) 3
1.8
Information and Communication Technology (ICT) is increasingly recognised as a major driver of productivity growth 4 . The extent to which Northwest businesses adopt and exploit ICT effectively is a fundamental determinant of the region’s economic performance. In response to this the NWDA commissioned SQW and GfK NOP to undertake a survey of ICT adoption usage and impact. This is in part used to update the previous ICT survey from 2004. The survey consisted of 2,002 business interviews and 201 ICT suppliers to gain insight into the levels of ICT adoption in the region.
1.9
Due to the different industrial structures of the sub-regions in the Northwest, the results have been normalised to remove the effects this would have on the results. Using Cumbria as an example, which has a disproportionately high number of businesses in the agriculture and hotels sector. These sectors by their very nature are not very ICT intensive and hence Cumbria would have a very low ICT adoption. This effect ensures that sub-regional analyses are examining meaningful differences between the sub-regions, rather than differences that are simply due to their different industrial
1
Adroit Economics (2009) Regional economic impact of ICTs and the role of RDAs/DAs, Adroit Economics (2009) Regional economic impact of ICTs and the role of RDAs/DAs 3 A √ is improvement on last year, = means stayed the same, x has got worse 4 http://europa.eu/rapid/pressReleasesAction.do?reference=MEMO/05/184&format=HTML&aged=0&language=EN&guiLanguage=en 2
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ICT structures. The results are broken down by business size, by sector, by sub-region and also by adoption levels.
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ICT SQW Research 2
Key findings
2.1
One of the principal findings of the report is there is no statistical difference in the ICT adoption of the sub-regions, when the results are normalised for the different industrial structures of the sub-regions. This is quite surprising but indicates that any problems with ICTs are Northwest issues, not just place specific issues. In total, 82% of business sites use a computer in the Northwest, a significant increase on the 2004 survey when 74% of sites used computers. Additionally, 76% of businesses use the internet, a significant increase on the 2004 figure of 58%. Broadband is the means of connectivity for 66% of Northwest businesses, compared to 23% in 2004. Of firms with internet, 87% use broadband, meaning only a small proportion of companies still use narrowband services.
2.2
It is increasingly important for companies to have these technologies in order to have a fully functional business, hence usage has increased. Additionally, due to the nature of these products, as technology advances, cost to the consumer often falls. This is technological progress in action and has given more companies the ability to buy these products as they are more affordable. This is likely to continue over the next 20 years as ICT becomes increasingly important for businesses and consumers. Figure 1: Proportion of firms with a computer by sub-region 90% 83%
84%
83%
79%
82%
Greater Manchester
Lancashire
80%
70%
60%
50%
40%
30%
20%
10%
0% Cheshire and Warrington
Cumbria
Merseyside
Source: SQW (2007) NWDA ICT adoption usage and impact project
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ICT Figure 2: Proportion of firms with internet by sub-region 90% 76%
78%
Cheshire and Warrington
Cumbria
80%
74%
77%
77%
Lancashire
Merseyside
70%
60%
50%
40%
30%
20%
10%
0% Greater Manchester
Source: SQW (2007) NWDA ICT adoption usage and impact project
2.3
The above diagrams are from the ICT adoption project with the horizontal line representing the Northwest average.
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ICT 3
ICT adoption
3.1
In the questionnaire, there were 22 key questions; if one of these questions was answered yes, it contributed to a company’s ICT adoption score. These were key questions all of which indicate ICT adoption; a greater number of positive responses indicate a higher ICT adoption. Therefore each company has an ICT adoption score, ranging from 0 to 22, with 0 indicating no ICT adoption and 22 the highest adoption on the scale. These questions where chosen by NWDA experts and external consultants with a history of work in this field. These questions can be found in the appendix at the end of the document.
3.2
Unsurprisingly, larger businesses are higher adopters of ICTs. This is to be expected, given the more complicated information flows that large businesses face as well as other contributing factors such as increased capital for investment from large companies. Using the ICT adoption index, the average ICT adoption for a sole trader is 4.42 out of 22. This compares to 17.3 for large companies, or companies with more than 250 employees.
3.3
There are also differences in the ICT adoption of companies in different sectors. Essentially the nature of the business often dictates the level of ICT adoption in a firm. The firms with the highest adoption tend to be in the information intensive industries such as financial intermediation and real estate, renting & business activities. The sectors with the lowest adoption levels are in agriculture and hotels, which have a lower business requirement of ICTs for the day to day running of their businesses operations. Figure 3 demonstrates the differences in ICT adoption for the different sectors in the Northwest. Figure 3: Average level of ICT adoption by sector 10.0 9.1 9.0 8.3
7.7
8.0
7.3 7.0 5.7
6.0 5.0
5.8
5.0
5.7 4.9
4.0 3.0 2.0 1.0 0.0 AB
CD
EF
G
H
I
J
K
O
Mean adoption index
Source: SQW (2007) NWDA ICT adoption usage and impact project
3.4
The horizontal line represents the average for all businesses in the Northwest. Businesses that are reliant on communication and technology have higher adoption than other industries. Manufacturing in the Northwest requires high technologies, hence the above average adoption in that sector.
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ICT 3.5
As business size increases, the differences in ICT adoption are removed with a convergence between the sectors. This indicates that ICT is essential as businesses grow and that in order to operate efficiently as a large business, ICT is a necessity. The data indicates that for companies with fewer employees, there is a wider variation in the adoption of ICTs.
3.6
An example to illustrate this could be the differences between real estate, renting & business activities and hotels. For a small company in business activities sector, say a consultant, there is a certain level of necessity for ICTs to produce work. As the company grows, they can invest in more sophisticated ICTs and adoption increases. They do have a certain level of ICTs as a minimum requirement to operate the business. A small hotel may have no requirement for ICTs to maintain current size of customer base. Any capital to improve the business will often be invested directly into the building and infrastructure. As the business grows, the technology required to operate the business becomes more developed. ICT usage may include Wi-fi to clients in their rooms, a computer with room booking facility, a website to attract customers and conferencing facilities. It may become a multi site business the internal information flows become more complicated all increasing the need for ICTs. Hence the ICTs of different sectors converge. There are sectors that perhaps need support in exploiting ICTs.
3.7
Two groups that appear to have the potential to improve ICT adoption are medium enterprises for the majority of sectors and small businesses (where there is a necessity for ICT). The data indicate that large businesses by their very nature will have high take up and don’t need the support that SMEs require. Additionally sectors that are reliant on ICT for their business to function correctly are likely to adopt ICT as a matter of course. They are likely to need support in infrastructure rather than tackling information asymmetries around the benefits of ICTs. Tackling information market failures for sectors and firms that don’t fully appreciate the benefits will increase adoption and as a result firm performance.
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ICT 4
Internet connection
4.1
In total, 66% of Northwest businesses have broadband. There are now a very high proportion of internet users with broadband connectivity, 87% of those with internet use broadband. Broadband is a rather general term to describe high speed internet; there is a large variation in this speed. The vast majority of users did not know their speed (52% of respondents). Of those that did know, 71% put speed between 2 mbps and 10 mbps. Of the sub-regions it appears that Lancashire and Cumbria had the biggest issue with high speed connectivity, with almost 50% of respondents having a connection speed of less than 2 mbps.
4.2
Businesses in the Northwest generally disagree with the statement that they will need a faster broadband connection in the next 18 months. Only 24% of business in the region responded that they would need a faster connection in the next 18 months. 73% of users said they were either unlikely or very unlikely to need next generation broadband in the short term. The companies that were generally more inclined to agree with the statement are the highest adopters (that is to say companies with an adoption index of 16 or greater). From this point forward any reference to a high adopter indicates a score of 16 or greater on the adoption index. This insinuates that the companies that are at the edge of the technology frontier are the companies that require fast broadband and will require next generation broadband.
4.3
Section 19 explores next generation broadband further. The implications may include availability of next generation broadband to these high technology businesses and raising awareness of the uses of the improved services. If high tech businesses are not allowed access to the improved broadband, in a global market, these firms may lose their competitive edge over international rivals.
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ICT 5
Websites
5.1
Websites are often cited as a crucial area to market businesses in the Northwest and more importantly an area to increase exports from the region. Within the region, 54% of companies have a website, with no statistical difference between the sub-regions. There is a degree of variability between companies when split by business size. As business size increases, the percentage of firms with a website also increases. For example, 42% of sole traders have a website compared to 98% of businesses with 250+ employees have a website. Figure 4 illustrates as business size increases, so do the proportion of companies with a website. The biggest jump occurs once a company has between 6 and 10 employees. There is also a jump once a business becomes medium sized, that is to say it has between 50 and 250 employees. Figure 4: Proportion of firms with a computer by size of firms 98%
100% 93% 90%
84%
80% 73%
Have a website
70%
66%
60% 48%
50% 42% 40% 30% 20% 10% 0% 1
2 to 5
6 to 10
11 to 25
26 to 50
51 to 250
over 250
Source: SQW (2007) NWDA ICT adoption usage and impact project
5.2
There are also different levels of website availability when businesses are split by sector. For instance, companies in agriculture are the lowest users of a website, with just 31% of businesses in this sector having a website. Transport & communications (64%), manufacturing (63%) financial intermediation (60%) and real estate renting & business activities (75%) all have a high share of companies with websites. These sectors are the only ones above the regional average. Figure 5 highlights the differences in companies with a website, when split by sector.
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ICT Figure 5: Proportion of firms with a website by sector 80% 75% 70% 64%
Have a website
63%
60%
60%
54% 50% 45%
47%
38%
40% 31% 30%
20%
10%
0% AB
CD
EF
G
H
I
J
K
O
Source: SQW (2007) NWDA ICT adoption usage and impact project
5.3
Having a website is seen as a means of advertising a company and the products/services that it offers. Actually allowing consumers to buy on the website offers even more opportunities to companies and is becoming an increasingly important source of firm’s revenue. Consumers like the information opportunities of internet shopping. Additionally it can help firms reduce overheads with less importance on stores and labour costs. Within the Northwest, 14% of all companies allow customers to buy online. This equates to 23% of companies who have a website. Again there is a significant difference when companies are split by sector. The nature of business dictates whether companies are likely to have the ability to take online payments for goods/services. For companies who have a website, it is retail which then has the highest proportion of companies who allow online trading, 41% for retail compared to 23% for all industries. The next highest sector in allowing online purchases is hotels with 31%.
5.4
These two sectors are two of the least ICT intensive sectors, but in many respects this is expected as the nature of their business is conducive to online trade. Real estate, renting & business activities, which is the most ICT intensive sector, has the second lowest proportion of firms that allow online purchases. This is also understandable given the nature of their business; accountants, lawyers and consultants are unlikely to sell goods online. This information indicates the sectors that could be targeted; even though the real estate renting & business activities sector is the largest sector, it doesn’t really have the necessity to encourage online purchasing.
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ICT Figure 6: Proportion of firms with a website who allow online purchasing, by sector 45% 41% 40%
35% 31% 30%
25%
23%
22%
22%
22%
20%
15% 12%
11%
10%
5% 2% 0% AB
CD
EF
G
H
I
J
K
Source: SQW (2007) NWDA ICT adoption usage and impact project
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O
ICT 6
Financials
6.1
IT capital investment is low in the region, with a median average of £500 spent per company in the Northwest over the last year. There was a considerable variance in the average spend per company, ranging from £180 for sole traders, to £150,000 for companies with 250+ employees. Below is a diagram illustrating exponential increases in spending as business size increases.
6.2
There is a variation between sectors with average spend over £2,000 in financial intermediation and real estate renting & business activities.
6.3
ICT adoption rates show a mixed picture. High ICT adopters either spent high amounts in the last year as they seek to further increase the benefits derived from lCT, or view any investment as a long term outlay. Low adopters by definition don’t spend significantly on ICT, so average spend will always be low. Figure 7: IT expenditure in 2006, by firm size 160000
140000
£134,722
120000
100000
80000
60000 £42,978
40000
20000 £456
£999
£1,629
£2,459
£9,541
0 1
2 to 5
6 to 10
11 to 25
26 to 50
51 to 250
over 250
Source: SQW (2007) NWDA ICT adoption usage and impact project
6.4
Turnover per employee is higher for high adopters; £25k per employee for non adopters, up to £88k for the highest adopters. Clearly you can only invest if you have sufficient capital, but nevertheless, there may be a degree of correlation. If a company invests sufficiently in capital (in this respect an ICT), there is often likely to be an increase in productivity because of this capital investment.
6.5
Encouraging forms to invest in ICT highlighting the benefits of investment would be one way to increase economic growth in the Northwest.
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ICT 7
Perceptions of ICTs
7.1
Respondents were asked to give thoughts on a number of key areas using a mean impact score is in a range of -2 to +2: -2 for ‘strongly disagree’, -1 for ‘disagree’, 0 for ‘neither agree nor disagree’, +1 for ‘agree’, and +2 for ‘strongly agree’ responses results could be quantified.
7.2
Some of the answers from businesses to the perceptions of benefits from ICTs are as follows: Improved customer interaction was perceived as a benefit with a mean average score of 0.52; Improved customer perception was also largely positive, scoring 0.54; Improved supplier interaction was a positive of ICT scoring 0.39; Access to foreign markets was generally negative, with many not believing ICTs improve access to foreign markets, the score was -0.26; Another statement which raised disagreement was ICT allows staff reductions, with a score of -0.37
7.3
Due to the contentious nature of the question, it is perhaps unsurprising that this question raised net disagreement. No employer likes to admit to job cuts so perhaps this answer is not a true representation. Assuming the answers are honest, it appears that companies are using ICTs to grow the business rather than make cutbacks and streamline. The most surprising figure is the lack of agreement that ICTs offer chances in foreign markets. A possible explanation of this may be language barriers. If potential customers speak a foreign language and the website does not translate to this language then online trade may be difficult. This may also be evidence of an information failure.
7.4
In response to the foreign market question, the only companies to agree with the statement were medium to large companies, high adopters and companies in the hotels sector. These are the companies who operate in foreign markets and from first hand experience have felt the benefits of the technology.
7.5
High adopters and companies from the financial intermediation and real estate renting and business activities sector are the companies who are most positive about ICTs in general, with little variance between the sub regions. High adopters by their nature use lots of ICTs and are more aware of some of the potential benefits that can be derived.
7.6
As business size increases so does the extent to which a company is positive about ICT. Although small businesses are less positive about ICTs, the younger a business is, the greater the perception of the benefits of ICTs. Additionally, the younger the age of the ICT investment decision, the more positive the company is towards ICT. This may also be evidence of information failures.
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ICT 8
Impact of ICT
8.1
Oulton and Srinivasan (2005) 5 found that ICT capital accounted for 28% of the growth in output per hour in the UK market sector in 1990-2000 (with the proportion rising to 46% in the second half of that decade).
8.2
Bloom et al (2005)6 estimate that a doubling of IT stock is associated with an increase in productivity of between 2% and 4%. They also report that US Multinational Enterprises (MNEs) in the UK have 8% higher productivity than domestic UK firms, while other MNEs in the UK are only 5% more productive: over 80% of this productivity advantage for US-owned plants is attributed to better use of ICT.
8.3
ICT clearly has a large role to play in economic growth and productivity increases.
5 6
http://cep.lse.ac.uk/pubs/download/dp0681.pdf http://www.statistics.gov.uk/articles/nojournal/sadun_bvr25.pdf
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ICT 9
Barriers and influences
9.1
When businesses were asked what they thought were the biggest constraints on ICT investment the following reasons were given: 57% of all respondents stated cost as a barrier; 46% stated a lack of time to assess where to invest, i.e. which ICTs would be most effective; 43% were concerned over security; 42% of businesses stated they were unsure over the benefits from ICT
9.2
Respondents could list more than one barrier; hence the total is greater than 100%. There was no priority given to the barriers, so it is unfair to make the statement cost is the biggest constraint, it is just a constraint to the greatest number of firms. It is not unexpected that cost is the most popular response for constraints; many firms have limited budget and expensive ICTs may be beyond the budget of a number of firms, especially micro businesses and SMEs. Of the other constraints, there is a role for the public sector in promoting the benefits of ICT and increasing knowledge to Northwest businesses of ICTs, to tackle issues like security and where to make investments. Figure 8 lists the responses to this question Figure 8: List of barriers to ICT investment 60%
57%
50%
46% 43%
42% 39%
40%
39%
37% 34% 29%
30%
29%
28% 24%
24%
24% 18%
20%
10%
10%
La ck
C os tc
on ce rn s Se of cu tim rit e y co U nc nc er er ns ta in Lo be w ne U IT fit nc s aw er ta ar in e ne ty La ss ov ck er op of tio in fo ns on In te op gr tio at D io ns iff n ic co ul n t y ce Im ge rn pl tti s em ng en ad t at v C ic io on e n ce co rn nc ov er ns er st af Tr fs ai ni ki Te lls ng ch co su nc pp er ns or tc on IC c T er no ns ti Ag m re p em or ta en nt tc H on ig ce h rn st af s ft ur no ve r
0%
Source: SQW (2007) NWDA ICT adoption usage and impact project
9.3
Skills are often cited as a barrier for ICTs, but generally the main skills problems appear to be associated with management rather than general staff. Low managerial understanding and low managerial awareness of ICT were listed as the two biggest skills problems. Of interviewed firms, 39% said that low levels of ICT awareness/understanding of managers was a barrier, compared with just 28% citing concerns over staff skills, 24% citing concerns over the need for training current staff, and 10% citing a high turnover of staff with concerns over training new staff.
9.4
The greatest range of issues is faced by high ICT adopters, explained by their more complex systems. It is more difficult for a high ICT adopter to integrate a new technology into an existing system than it is to create a new system from scratch.
9.5
Web research was noted as the greatest source for influences on decisions made. Additionally, customer interactions and supplier interactions were noted as major influences. This hints at where information should be provided to support better ICT adoption and use. The internet is a crucial tool in information sharing and one that can be used to ensure Northwest businesses better exploit ICTs.
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ICT 10
Reasons for low ICT use
10.1 The predominant reason given for being unlikely to start using ICT is “not needed by business�. It is likely that a number of businesses have no need for ICTs, but there will also be a large proportion of these respondents who are unaware that there are benefits that can be derived from ICTs. 82% of computer non adopters cited not needed for the businesses as their reason. Tackling information failures again is clearly an issue.
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ICT 11
Skills of staff and new recruits
11.1 For the suitability of new recruit’s IT skills, high adopters generally believe that they don’t have trouble recruiting workers with suitable ICT skills. 11.2 Overall, 56% of firms agreed or strongly agreed that “Our staff have sufficient training in the IT applications they need to use”, compared with only 18% that disagreed or strongly disagreed. The mean score (on a scale of -2 to +2) was positive at +0.45 and the level of agreement increased with ICT adoption – rising to +0.87 for the highest adopters. 11.3 Most training is done internally by internal specialists or by management. The highest adopters in general are in greater agreement that training is required, perhaps they realise the importance and benefits of training. Additionally, as they have more complicated ICTs training is a more important part of day to day operations and to be a fully functioning member of staff it is important to have adequate training.
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ICT 12
Perceptions on the role of Government Agencies
12.1 When asked unprompted, “What sort of support do you think government agencies could provide that would help firms like yours get the most out of ICT?�, direct financial aid in the form of grants for equipment or software was the form of support that came to mind most readily (cited by 19% of firms). There were no significant sub-regional variations from the regional average. 12.2 Other services sector (O), was particularly keen on support in training staff (19% of firms in this sector versus 13% across the region). This sector considered skills related issues to be a particularly important barrier to ICT adoption. These two findings suggest that ICT skills support is particularly important in this sector.
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ICT 13
Supplier survey
13.1 For the supplier survey, the report focused on SIC code 72 (Computer and related activities), as the sector most readily identifiable as the ‘ICT advisers/suppliers’ in whom the NWDA was interested. A target sample size of 200 was set and for this smaller survey a target was set for minimum quotas on sub-region (in order to provide a reasonable spread across the region), but without setting quotas on company size. 13.2 From this part of the survey, some interesting points emerge. For suppliers in this sector, approximately two thirds of turnover comes from Northwest companies. However, older companies serve customers from a much wider geographical base. Similarly, larger companies serve a much wider geographical customer base. Greater Manchester is the sub-region that serves the widest base, although this is explained by good transport links to other parts of the country and the close proximity to the Midlands and Yorkshire. 13.3 When asked whether it is difficult to recruit appropriate staff, there was a broadly neutral response to this question, +0.13 (on a scale of -2 to 2). This is an industry where high IT skills are essential. 13.4 When asked what kind of support should be given from Government agencies, the most popular
answer was grants or tax breaks. The biggest constraint on growth was lack of management vision (from clients) or lack of budget (from clients), all of which are similar to the user survey.
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ICT 14
Comparisons with previous ICT survey
14.1 In 2004 a similar study was commissioned, which basically has the same goal as the 2007 survey, to understand levels of ICT adoption amongst Northwest businesses. Although the questions were not identical (technological change and ICT issues have moved on in 3 years), there is still an opportunity to measure progress against a series of key performance indicators (KPI). The table below summarises the results of the two surveys on the KPIs: Figure 9: Comparison of KPIs between 2004 and 2007 surveys
Source: SQW (2007) NWDA ICT adoption usage and impact project 2007& NWDA (2004) ICT survey
In 2004, the number of companies with a computer was 74%; this has now increased to 82%, as a computer becomes a necessity for a larger proportion of companies; The proportion of firms using the internet has also considerably increased from 58% to 76% as firms maximise the information that the web provides; There has been a significant rise in the number of firms using broadband, as firms seek faster download speeds. In 2004 there were only 23% of firms using broadband, but this is now up to 66%; The number of firms with a website has increased from 43% to 54% as some firms realise the opportunities to advertise are increased through a website and that it opens new market opportunities, through online shoppers. Online ordering has also increased from 12% to 14%, which is progress although this could still be higher. 14.2 The rate of technological progress in IT means that computers are becoming increasingly more powerful tools, whilst simultaneously becoming cheaper to the consumer. This will have been one contributing factor to increased computer usage and hence the other increases in the KPIs. Unfortunately, there is no data on the processing power of computers, but it is highly likely that the specifications have also increased since 2004. 14.3 The wider availability of broadband and a significant fall in the price are likely to have driven much of the progress on these KPIs. By making the internet more freely available, broadband connectivity has made the internet a more attractive tool for Northwest businesses, and this will have in turn stimulated more businesses to invest in computer systems. 14.4 By way of comparison regarding website usage, the ONS’s e-commerce survey 2006 reported that 70% of UK businesses have a website and 13.9% of businesses sell online. It should be noted, however, that this ONS survey only considered businesses of 10 or more employees 7 and will therefore over-state the website ownership. It should also be noted that the ONS’s e-commerce survey found relatively flat growth in website usage between 2005 and 2006:
7
The 2007 survey found that 79% of Northwest businesses with over 11+ employees had a website
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ICT 14.5 Across all sizes of business, the picture is one of considerable slow down in the growth of businesses reporting that they had a website, leaving the position largely unchanged year on year 8 .
8
Source: ONS e-commerce survey 2006
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ICT 15
Recommendations from the report
15.1 The report contained a number of recommendations which tried to address some of the issues. In the light of this survey, the recommendations are as follows: 15.2 The region should intervene to influence increased adoption and exploitation across the SME business base, recognising that different levels and mixes of ICT are appropriate for different business segments (in terms of size as well as sector). 15.3 The region should investigate further the factors preventing SMEs from accessing overseas markets via their websites, and consider intervention to address any market failure. 15.4 The region should liaise with other RDAs to explore the potential for using the data generated by major business ICT surveys to provide businesses with a means of benchmarking their own ICT exploitation with that of their peers of a similar size and sector. 15.5 The report also highlights more specific issues: There are sector differences in ICT adoption; Large firms require high levels of ICTs to operate. The low adoption of small and medium businesses are where work needs to be done to highlight the benefits of ICTs; The lack of agreement about ICTs opening foreign markets is possibly a reflection of language barriers with multi language sites required to fully exploit foreign markets; Older companies and older decision makers are less likely to invest in ICTs.
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ICT 16
Point Topic Business Broadband usage
16.1 Point topic is an information resource that collects data from various sources, including BT, in order to estimate business and consumer broadband uptake. The Broadband Neighbourhood outputs use Point Topic’s Broadband Layer market model to provide spatial estimates and forecasts of broadband take-up and other measures for multiple geographies. This is modelled data so the data should be used with caution. However, this is a valuable source of data as it provides estimates of district level uptake in order to gain some spatial perspective on issues. 16.2 The data derived from point topic has a business broadband up take level of 75% in June 2007, for the Northwest. This is below the England rate of 76.5% and places the Northwest 4th in England by broadband up take of all GORs. Only the Greater South East Government Office Region’s have a higher business uptake than the Northwest. 16.3 Within the region, Blackpool (83.7%) has the highest proportion of businesses with a business broadband connection, followed by St Helens (83.5%) and Burnley (83.2%). This is slightly contradictory to the findings of the ICT usage survey, mentioned previously. Blackpool has a high proportion of businesses in hotels & restaurants, which has low broadband uptake. The rural districts of Allerdale (63.3%), Ribble Valley (62.2%) and Eden (61.7%) have the lowest up takes. The major districts of Preston (77.9%), Manchester (78.4%) and Liverpool (80.5%) are above the England average, although only Liverpool makes the Northwest top ten. 16.4 The Northwest has improved uptake from December 2006, when uptake was 65%, 1 percentage point behind the England figure of 66%.
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ICT 17
The impact of ICT to GVA
17.1 ICT has a wider impact on the economy with many benefits to firms and individuals. Firms that adopt ICT tend to be more productive and this helps facilitate growth and generally economic growth. ICT investment is increasingly being seen as a key enabler for continued economic growth in the developed World 9 . 17.2 Adroit Economics produced a report which estimates the possible contribution to GVA of ICT 10 . The following section is a summary of their work. Evidence suggests that ICTs have improved productivity by up to 10% in some sectors and overall by between 3-4% for regional UK economies. The impact of ICTs on regional productivity has been calculated by applying savings reflecting for existing patterns of output, current industrial structure and forecast change in sectoral composition. 17.3 A 3-4% GVA uplift would equate to between £1 billion and £5 billion depending on the region. Within the Northwest, this would be equal to £3.6 billion, which would value the regional economy at over £114 billion in 2006 11 . The following tables show the results of the calculations. Figure 10: Absolute increase in GVA: Region North East Northwest Yorkshire & Humberside East Midlands West Midlands East London South East South West
GVA uplift (£m) 1,225 3,607 2,696 2,410 2,902 3,418 5,386 5,342 2,677
Source: Adroit Economics (2009) Regional economic impact of ICTs and the role of RDAs/DAs 17.4 If productivity savings in businesses were directly translated into increased profits (or manifested themselves as increases in output of a similar proportion), then the impact on regional GVA would be as follows: Figure 11: Percentage increase in GVA: Region North East Northwest Yorkshire & Humberside East Midlands West Midlands East London South East South West
GVA uplift (%) 3.77% 3.72% 3.77% 3.79% 3.74% 3.58% 3.39% 3.51% 3.57%
Source: Adroit Economics (2009) Regional economic impact of ICTs and the role of RDAs/DAs
17.5 In many cases, the impacts are very substantial and in some cases transformational. 17.6 The evidence so far suggests that ICTs can result in: 9
http://europa.eu/rapid/pressReleasesAction.do?reference=MEMO/05/184&format=HTML&aged=0&language=EN&guiLanguage=en Adroit Economics (2009) Regional economic impact of ICTs and the role of RDAs/DAs Office for National Statistics, December 2007
10 11
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ICT Improved internal administration and management systems, more effective and accurate analysis of intelligence to improve business planning and management. Lower cost, more efficient and more responsive production of goods/ services offering greater variety, precision and quality. In some cases, creation of wholly new products and services. Increased staff training, awareness, enterprise and innovation. Transformed staff training, awareness, enterprise and innovation. More efficient, flexible and just-in-time supply chain management and procurement, plus greater collaboration with suppliers. 17.7 The transformational impacts of ICTs can best be understood by segmenting the business base into different groups, reflecting both the need for, and potential impact of, ICTs. Some businesses will only ever marginally benefit, others will be transformed. The groups that were suggested to be targets are: 1. ICT Sector & Supply Chain: These are businesses in the core ICT sector involved in the manufacture of ICTs and services to support their operation. Businesses in this segment are producers as much as they are users. The ICT sector is one of most RDAs/DAs target growth sectors. It can be assumed that these businesses have already more or less fully optimised ICTs and will continue to do so, otherwise they would not be in business. 2. Essential Adopters: These are businesses, which today, need to deploy substantial ICT investments in order to enter and compete in their chosen markets. This group is made up of businesses in sectors whose computer-related purchases exceed 3% of their GVA and includes advanced manufacturing, financial intermediation, insurance businesses and companies involved in R&D. 3. Competitive Edgers: This segment includes businesses that could improve their competitive position through increased adoption of ICT and are defined as businesses in sectors that have experienced productivity growth in excess of 20% over the six-year period to 2004 12 . This group includes all other manufacturing businesses, construction, publishing and business services. 4. Marginals: This final segment includes the remainder of the business base which, although capable of implementing ICT driven improvements, does not have its competitive position dictated to the same extent by investment in ICT and does offer the same sort of potential returns. This includes agriculture, tourism, real estate and recreational businesses. It is the extent to which the middle two groups (Essential Adopters and Competitive Edgers) adopt and optimise state-of-the-art ICTs that will have most impact on regional GVA.
12 Adroit Economics (2009) Regional economic impact of ICTs and the role of RDAs/DAs
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ICT 18
Office for National Statistics, ICT & Productivity
18.1 ONS produced a report analysing investment in computers and software by firms, ICT and internet use by employees, as well as e-commerce activity. The report suggests that greater the use of ICT is associated with higher value added per worker. 18.2 Hardware and software capital in UK firms increases productivity right across manufacturing and service industries, after taking account of other factors. In addition to the effect of investment, the use of computers, communications and e-commerce also has a positive association with productivity across UK industry. 18.3 Extra productivity gains are identifiable, associated with more widespread use of computers by employees within firms. Manufacturing companies in the UK achieve an extra 2.2% in productivity for each additional 10% of employees using computers. In newer firms, this extra productivity effect rises to 4.4%. 18.4 Manufacturing companies in the UK achieve an extra 2.9% in productivity for each additional 10% of employees using the Internet. Again, for newer firms the effect is larger. 18.5 US owned firms in the UK are more successful in exploiting Information Technology (IT) compared to all other firms, and IT accounts for much of their productivity advantage. This is consistent with recent ONS data on international productivity comparisons, which show higher output per worker for the US compared to other G7 economies. 18.6 Some of this analysis was carried out with the Centre for Economic Performance at the London School of Economics and sponsored by the Department of Business Enterprise Regulatory Reform 13 . Figure 12: Value Added per worker by ICT uptake
Source: ONS (2007) Productivity and ICT
13
http://www.statistics.gov.uk/cci/nugget.asp?id=1240
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ICT 19
Next Generation Access (NGA)
19.1 Analysys Mason on behalf of the NWDA have produced a report assessing the options for high speed internet in the Northwest 14 . The following section is a summary of the findings of this work. The next generation of broadband is commonly referred to as next generation access (NGA). NGA provides homes and businesses with faster telecoms connectivity by replacing some or all of the legacy network of copper wiring with fibre-optic cable (fibre), which can carry greater bandwidths over longer distances. 19.2 The improved bandwidth delivered by NGA technologies will improve the connectivity between the North West’s businesses, as well as improving their ability to interact with other national and international organisations. The benefits of NGA will be felt particularly strongly in information intensive sectors such as digital and creative industries, which regularly transfer large media files. The NWDA’s Digital & Creative Industries Sector Strategy states that “access to advanced telecoms infrastructures is central both to the competitiveness of digital and creative firms and to their capacity to promote innovation in other priority sectors”. NorthernNET provides a starting foundation for this 15 , but further investment will be needed to provide all of the region’s companies with high-speed connectivity. 19.3 The science sector is another area where the impact of NGA is expected to be pronounced, as improved connectivity will enable more efficient collaboration between organisations and will stimulate innovation. The demand for higher-speed broadband is being felt by a growing number of sectors in the North West, including advanced manufacturing and elements of business & professional services. 19.4 Although not all industries will have this immediate demand for very high-speed connectivity, the introduction of NGA is expected to increase productivity for all companies that use the Internet in their day-to-day operations. Surveys also confirm that businesses view access to high-speed telecoms as a critical factor in determining the location for new investment 16 . This regional competitiveness is relevant not just on a national level, but also internationally as global companies seek to expand operations in the UK. 19.5 The improved connectivity provided by NGA will also serve to accelerate the wider adoption of other information and communications technologies as well as applications such as video conferencing and cloud computing. NGA will enable companies to explore new business models and to adopt new ways of working by enabling flexibility in aspects such as home working and entering horizontal supply chains on a global scale. 19.6 The benefits of NGA are not confined to businesses as it will improve the ability of citizens to connect to online networks to access a range of entertainment, social and educational content. NGA will give consumers the ability to use new ‘tools’ at work and home, and to access a range of high-bandwidth services such as high-definition video streaming. These developments, along with increased functionality of online services such as healthcare and education, will improve quality of life and promote social inclusion. The Digital Britain report also highlighted the potential for broadband (and NGA) in this area. 19.7 There are three distinct types of NGA: fibre to the premises (FTTP) where fibre is laid all the way from the telephone exchange to the customer premises, enabling symmetrical broadband services, typically of 100Mbit/s fibre to the cabinet (FTTC) where fibre is laid from the telephone exchange to street cabinets, enabling faster speeds over the short distance of copper wire that remains (this option is less expensive than FTTP, but performance is slower, particularly for upload speeds).
14
Analysys Mason (2009) ‘Making NGA a reality in the Northwest’ We note that NorthernNet only provides NGA services to specific Media Access Bureau sites. However, this does allow some businesses at clusters for the digital and creative sector to access NGA services 16 Analysys Mason (2009) ‘Making NGA a reality in the Northwest’ 15
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ICT In addition there is cable broadband using DOCSIS3.0, which has the potential to provide download speeds of up to 200Mbit/s. This technology is used by Virgin Media to provide its 50Mbit/s service. However it is worth noting that this network is not open access (i.e. no competitors have access to it) and it would be difficult to implement open access on a cable network. 19.8 The NWDA’s long-term ambition should be to provide ubiquitous FTTP coverage in the region, but this would require a total investment of around GBP3 billion 17 , so FTTC will need to provide part of an interim solution. 19.9 Without any intervention from the NWDA, NGA availability is set to improve as market forces are expected to increase FTTC coverage to around 75% of the North West via private investment from companies such as Virgin Media and BT. However, it will be beyond 2012 when this is achieved. In addition, proposed plans from the Digital Britain report could extend FTTC coverage to over 90% of the region’s premises (by 2017). 18 The deployment of NGA is likely to be focussed upon the more densely populated urban areas first. 19.10 Clearly NGA is very important and will have many benefits to businesses and individuals in the Northwest. NGA will form a key part of any growth the region is to have over the next 20 years. Sources
17
SQW (2007) NWDA ICT adoption usage and impact project NWDA (2004) ICT survey Analysys Mason (2009) ‘Making NGA a reality in the Northwest ONS (2007) Productivity and ICT Adroit Economics (2009) Regional economic impact of ICTs and the role of RDAs/Das ONS (2006) E-commerce survey Point Topic (2007) Broadband uptake
Calculated by Analysys Mason using http://www.broadbanduk.org/fibrecosts 18 Digital Britain, Lord Carter, 17 June 2009
information
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ICT 20. Technical Appendix 20.1 There is an important technical issue surrounding the data that a reader needs to be aware of when considering the data presented in this evidence paper. Much of the data presented through these evidence papers is produced using survey data, which is only a sample of the population and is therefore an estimate to the actual value. When the data is presented a figure for confidence is generally quoted next to the figure. 20.2 Unfortunately, the data on R&D doesn’t include a figure for confidence. A common example of data with a confidence level would be for the employment rate in England which is 74.3% with a confidence level of 0.2. A confidence figure is a statistical representation of where the true value of a statistic may lie. This states that we are 95% confident that the true value of a figure is within the given range. So in the example of the employment survey, if it was performed 100 times, 95 times the employment rate for England would be between 74.1% and 74.5%. The confidence level was +/0.2 and the employment rate was 74.3% so if the survey was run 100 times, 95 times the value would be between 74.1% (74.3% - 0.2%) and 74.5% (74.3% + 0.2%). As a rule, the larger the sample, the smaller the confidence interval. In essence this describes how much of the differences in data are actually down to sampling errors. 20.3 As it is a survey, it is impossible to get the true value for a piece of data, but as it is a survey it is necessary to keep track of the confidence interval. Essentially, it is possible that any changes in a piece of data may just be due to sampling differences. The other side to the argument is the estimate is the figure representing the best guess and is the central estimate. So although we can’t be sure the figure a survey produces is correct, it is our best guess and should be treated as such. 20.4 Looking at the individual data quoted above, it is possible to see a complete change in the picture the data demonstrates as a result of sampling differences. A common example of data with a confidence level would be for the employment rates in England, the Northwest and Barrow-in-Furness. Using the latest data, from March 2007, England has an employment rate of 74.3%, the Northwest rate is 72.4% and the Barrow in Furness employment rate is 69%. There is also a quoted figure for confidence, 0.2 England, 0.6 Northwest and 8.1 for Barrow. As Barrow is a small local authority, the sample in that area is relatively small hence the confidence interval is a lot larger. Basically the data is telling us that they can not pin down as precisely the range that the true employment rate falls in. As a user, a smaller confidence interval is superior as it allows a more precise estimate of the estimate. 20.5 Looking at Barrow’s confidence level, we are 95% confident that the true employment rate is between 60.9% and 77.1%. This is a very large confidence interval but due to such a small sample size this is the range at which there is a 95% confidence. The implications of this are significant, such that Barrow could have an employment rate well above the Northwest and England. Additionally any changes in the employment rate in Barrow could in fact be due to sampling errors. It could be that the employment rate is continually increasing, but in fact the samples used may have been unknowingly biased towards employed people. As a result, the employment rate hasn’t actually changed. In summary, there may be no statistical significance about the increase in employment rate.
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ICT Figure 13: Questions from the user survey used to calculate the adoption index
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