The role of Knowledge Intensive Service Activities (KISAs) in building the innovative capacity of the Irish software sector Majella Giblin Edel Walshe Laura Martinez

Research Questions Are Irish software firms willing to cross company boundaries to access core activities externally? Do Irish software firms outsource innovative activities? What is the geographical scope of external linkages within the Irish software sector? Are public sector linkages with firms active in the Irish software sector?

Innovation Systems An innovation system: “Set of institutions whose interactions determine the innovative performance of… national firms” Nelson 1993 pp. 4 –Key institutions include private enterprises, universities, research centers, publicly funded research laboratories –A network of individuals and organisations made up of complex business and social interactions

KIBS vs. KISAs KIBS: private companies “performing, mainly for other firms, services encompassing a high intellectual value added” (Muller 2001 pp. 2) –Two main categories of KIBS: traditional-based services and new technology-based services –Role in innovation systems: producer, facilitator, carrier and source of innovation (Miles et al 1994, Muller and Zenker 2001, Den Hertog 2000) KISA: –Inclusion of internal capabilities and public institutes –Services aimed at innovation in product, process or organisation

Research Methodology Quantitative: –Postal questionnaire survey –Sample: 683 firms –Response rate: 40.1% Qualitative: –Semi-structured interviews –16 companies (9 MNCs and 7 indigenous)

Irish Software Sector Overview

Firm activities: knowledge intensive & competitive positioning

Innovation Processes

IPR Challenges to innovation

Role of KISAs in Innovation: Internal and External Sources Internal (within Ireland) Internal (Abroad) External (Private sources) New Technology-Based R&D Development advice Management consultancy Engineering consultancy Technical Consultancy Traditional-Based Legal & accounting Training services Marketing Job agency 50927

Internal KISAs: Core Technologies “As the company will grow I expect that yes we will use more and more professional services, but you see, anything which is really vital for us, which is R&D, we want to keep that internally because that is really the core of the company.” (Company M, Indigenous) “As regards our core skills and our understanding of the business and our understanding of the technology, that’s all in-house. There is no going out to buy it, people come to us to buy it.” (Company A, Foreign Minority Holding)

External KISAs: Public vs. Private sources Universities & PRIsGovernment agencies Private sector New Technology-Based R&D 9412 Development advice Management consultancy 1423 Engineering consultancy 5018 Technical Consultancy Traditional-Based Legal & accounting 1245 Training services 4530 Marketing 1427 Job agency 2127

External KISAs: Geographical Scope Overall: KISAs mainly sourced at national level Reliance of foreign-owned firms on international sources for new technology based KISAs –R&D services: 43% –Development advice: 43% –Technical consultancy: 40%

Integration of internal & external KISAs: Foreign-owned units Self sufficient corporations in terms of required KISAs –Proximity: to US & Europe When accessing external KISAs, the integration of these skills is generally not expected “We don’t try to learn their [externally KISA suppliers] service because typically they are skilled in an area that we are not in. We are careful not to be contaminated so we don’t want to work with a company and then decide that’s an area that we would like to be in. So we have to be careful that we don’t learn things that we shouldn’t learn” (Company L, MNC)

Integration of internal & external KISAs: Indigenous-owned units Access external KISAs as not available in-house –Traditional-based KISAs accessed from other indigenous firms –New-technology based KISAs accessed from firms abroad –Involved in long-term relationships with suppliers based on quality, reliability and trust –Only small number of companies reported learning from KISA provider but benefits of sharing knowledge is acknowledged

Importance of KISAs at different stages of software development 3 phases: innovation, maturing, standardised. Innovation phase:  product conception – use of customers  strategy & business development – use of internal units  product development – use of internal units  market testing – use of customers  market release – use of internal units Maturing phase:  Interaction with customers leading to incremental innovations Standardised phase:  Use of internal units for reducing costs

Discussion & conclusions Profile of innovative capacity of Irish software sector Addressing research questions: –Firms willing to cross company boundaries as long as core technology is retained internally –Firms don’t necessarily ‘outsource’ innovative activities but rather ‘coordinate’ with other firms, particularly customers –Geographical scope of external linkages are international as well as national –Public sector and private sector linkages are underdeveloped