What is the shortcoming of the Japanese software industry?
Editor’s note: This article is from WeChat public account “Knowledge Automation” (ID :zhishipai), authors Cole and Professor Nakata.
Compiler: Zhao Tangbiao, Lin Xueping, Nanshan Industrial College
Editor’s note: This is an analysis of the two professors in 2014, “The software innovation of Japanese IT departments is increasingly behind the US counterparts”, pointing out the weakening of the competitiveness of the Japanese software industry and the development track of the software industry. This reflection is of great benefit to the current development of industrial software in China. Nanshan Industrial College is compiled here and published in Knowledge Automation on three occasions for domestic software decision makers and practitioners to think about. This article is a middle article. Thanks to the American cost simulation software company Apriori Chai Simin for the great help.
It’s hard to imagine that twenty years ago, someone would warn the United States that after the success of manufacturing, Japan is becoming an important pole in the world’s software industry. It is believed that the small Silicon Valley companies that are well-known in the financial resources are difficult to match the large Japanese high-tech integrated manufacturers. In addition, it is believed that the “factory approach” software development method favored by Japanese companies is superior to the US-led “craft approach” software development method. However, in the past 20 years, nothing has happened. Japan has not produced a world-class third-party independent brand software predator.
Why? This paper analyzes the shortcomings of the Japanese software industry.
Labor resources are not in shortage
In 2000, there were some labor shortages in Japan. However, from the overall perspective of Japanese software, it is not a problem of labor, but there are not enough products, and there are not enough professionals who pay attention to software products. These have led to a lack of demand for good software architects and designers, which has led to a lack of adequate software innovation.
This is a view of the human resource supply constraints on professional skills. Managers in the US and Japan may complain that they lack access to truly top-level human resources. At the same time, however, it seems that the lag in software innovation by Japanese IT departments is mainly due to the lack of incentives or incentives for companies to create new software products.
However, in the academic articles, popular articles, and practitioners’ articles of the Japanese IT industry over the past decade, there has been no widespread discussion about the signs of severe human resource constraints in the Japanese software industry. In the industry, government, and academia, software leaders, in the interviews, no one mentioned the growth of the software industry orIT innovation is limited by labor shortages. Every year, the Japan Information Technology Promotion Agency (IPA) investigates the IT company’s executives and listens to their views on the abundance of IT labor. Respondents who chose “large shortages” fell from 28% in 2007 to 5% in 2009, and then gradually rose to 19% in 2013, at this point for the supply of highly skilled employees and low-skilled employees. The supply is the same. How do you explain this phenomenon? The initial decline is likely to be due to the economic downturn, as well as the massive increase in outsourcing of enterprise software and embedded software development in China and India over the past decade, which has significantly reduced the demand for low- and medium-skilled software developers. Since the data of Japan’s IPA covers the long-term stage of patent research evaluation of Arora, Branstetter and Drev, it does not show that there is a serious problem of labor shortage in the IT management group, so there is reason to believe that the Japanese IT industry continues to lag, not a shortage of labor.
In fact, the main reason for the lag in the development of the Japanese IT industry is the lack of motivation for software/IT product innovation.
Exploring the contribution of software to total factor productivity across the country. Kazuyuki Motohashi analyzed the contribution of software to national total factor productivity at three selected stages. In the United States, the contribution of software to total factor productivity growth rose from 3% in 1960-1995 to 6% in 1995-2000 to 8% in 2000-2006. The contribution of Japanese software to total factor productivity is almost non-existent, -3%, -1% and 1%. The difference between the two economies is consistent with the interpretation of this article. Compared with the United States, there are huge problems in the deployment direction of Japanese IT technology.
So, why does the IT industry lack innovation power?
The proportion of IT investment in Japan is very low
Gartner’s data confirms this view. They surveyed the proportion of private enterprise IT investment in the company’s annual income between 2007 and 2008. In 2007, Japanese private enterprise IT investment was equivalent to 1.03% of the company’s annual income, while the corresponding figure in the United States was 4.3%; if US companies’ IT spending was four times that of Japanese companies, assuming US companies can distribute their IT well. Expenditure, then it is clear that US companies are more likely to achieve more software innovation than Japanese companies.
Gartner’s data can be further broken down into 8 industries. The biggest gap comes from manufacturing. The US process manufacturing industry and the discrete manufacturing industry have invested 3.5% and 4.6% of their annual revenues in IT construction, respectively, while Japan’s corresponding data are 0.69% and 0.75%, respectively.
Figure 1: US and Japanese investment in IT as a percentage of annual revenue
The only industry in Japan that accounted for more than US spending in the US was the banking/insurance/security industry. Japan’s data was 5.89%, while the US data was 5.1%. One possible explanation is that the Japanese banking industry still relies heavily on mainframes, and software upgrades are costly, and their American counterparts have long since moved to the server-client architecture.
Maybe more important than the size of IT investments is the industry distribution, type of investment, and investment use of IT investments. Gartner’s data reflects the industry distribution of IT investments. In terms of the type of IT investment, Japanese companies have invested heavily in customized products and have demonstrated a stronger strategic focus on hardware. In terms of the use of IT investments, Japanese companies are more inclined to customize software to support their current business practices, rather than using IT technology innovation to create new opportunities.
Japanese custom software actually accounts for 90%
It is more instructive to examine the composition of IT investments and compare the distribution of IT investments in the US and Japan. Japan’s heavy dependence on outsourcing after 2000 seems to be contrary to the low level of dependence on cross-border outsourcing by Japanese companies highlighted in the literature. However, the focus on customized outsourcing is mainly to the domestic companies, in accordance with the software development process.
The company’s internal self-use software development accounts for 20% of the total, plus outsourcing, these two types of custom development accounted for 90% of Japanese IT investment, commercial package software only accounted for 10%. This data is also consistent with the income distribution of the Japanese software industry. Nobuyuki Yajima, a veteran Japanese software analyst, believes that Japan’s data has not changed much since 2000. Although he believes that the share of Japanese package software accounts for about 15%, the figure in the United States is 29%.
Table 1: US and Japanese software investment types
The distribution of comparable data in the United States in 2010 is different from that in Japan. US IT investment in business suite software, outsourcing and enterprise-owned softwareThe cloth is relatively balanced. The investment in US-owned software is nearly double that of Japan (37% vs 20%). This difference is consistent with the gradual decline in IT capabilities of large manufacturing and service companies in Japan in the 1990s, which have divested IT into subsidiaries and increasingly rely on system integrators. In some cases, the motivation is to take advantage of new technologies and market opportunities; however, some companies also use these derivatives to cut costs. At the time, Japanese high-tech companies were quite competitive globally, and they believed that success did not depend on IT. Therefore, they will reduce the IT department as a shortcut to cut expenses.
Obviously, the IT spending structure will profoundly affect the composition of IT human resources. According to IPA’s report, about 75% of IT technology employees in Japan work in IT services companies, including large systems integration companies and their subcontractors, often referred to as software factories. In these companies, the opportunities to develop innovative software products are very limited. The top priority for these software vendors is to deliver to specific customers within cost constraints and under quality compliance. In this environment, vendors have little incentive to use the latest system architecture to provide solutions, and product innovation is generally a low priority. The top-level integrators took the project, and the subcontracting was done by various small companies, and the integrators did not participate in the project at all. Such an example is not uncommon.
IPA’s report shows that the distribution of IT employees in the United States is almost the opposite of that of Japan, with only about 29% of IT technology employees working in IT services companies. The report shows the gap between the employment departments of software talents in Japan and the United States, and also suggests that software professionals in the United States work in positions that are more conducive to software innovation. The type of job is critical to software innovation!
Japan competition mode: hardware priority
Yasuhide Hosokawa, former executive director of the Japan Information Systems Users Association (JUAS), gave another, more modest explanation for Japan’s lagging IT investments and related outputs. For four reasons, he is not very concerned about the low investment of Japanese IT. First, he cited data that the unit cost of Japanese software developers is about half that of American counterparts. Second, according to METI data, the life span of Japanese commercial systems is very long, about 17 years, and he acknowledges the longevity of commercial applications in the United States. It’s much shorter, but it also shows that the newly appointed CIOs of US companies may adopt unnecessary new systems to achieve their goals; again, he noticed that Japanese companies have achieved cost reductions in the past decade, half of which will The function of the information system was transferred to a subsidiary with lower staff costs; finally, the data he showed showed that Japanese IT companies benefited from providing high-quality and high-productivity services at a lower cost than the US and other competitors. Shallow.
Mr. Hosokawa’s explanation shows that Japanese companies choose to adopt cost and productivity in the IT field.Competing with the operational efficiency of quality, rather than pursuing new revenue growth through innovation. This is a typical Japanese hardware competition model that has been successfully applied by many Japanese manufacturing companies in the past. Before the competitors caught up, it was a competitive model that matched the slow-moving technology update. In the field of rapid technological development, the limitations of this competitive model are obvious. In these areas, customers are often keen to pay for high value-added innovations, and companies often compete for strategic competition. Consistent with previous discussions, when creating a business application system, if you use a competition model centered on operational efficiency, you will rely heavily on well-trained IT professionals and will not produce well-trained software professionals. A lot of demand.
When Hosokawa acknowledged that the average life span of Japanese commercial applications is 17 years, it is a good indication of the limitations of this operational efficiency-centric competition model. This means that many companies have abandoned a lot of innovations that could effectively reduce the cost of IT investment for 17 years. Because it introduces new business systems through extreme customization, it is very expensive and the system replacement cost is high. In making such decisions, Japanese IT decision makers often deny that companies have the opportunity to improve business performance by introducing new IT technologies. Of course, American companies can’t quickly adopt new technologies, and the new CIOs will make unnecessary investments in pursuit of political achievements. In short, Japan’s current adoption of the information industry development model is natural, but it will further delay Japan’s software innovation.
Venture investment Japan only accounts for 12% of the US
In this case, it is important to study the different impacts of software startups in both economies. For truly innovative software, large US companies rely heavily on start-ups that have the ability to absorb the most creative top talent. Large public companies in the United States are often reluctant to tolerate the huge losses that can result from the failure to develop disruptive software technologies. Instead, venture capital funds fund these new technologies that are accompanied by risks. Software companies account for a large share of US venture capital.
In 1989, approximately 0.4% of Japanese venture capital was invested in software companies, compared with 11% in the US. By 2011, the total amount of venture capital in the United States has reached $29 billion, while the sum of Japan is equivalent to 12% in the United States. During this period, US software startups received 24% of total venture capital, while broad-based IT investments accounted for 57% of total venture capital. For Japan, software companies account for only 9% of venture capital investment in startups. Therefore, Japan’s venture capital investment in software development is not only low, but also small.
To examine this possibility, we use the yearbook data for all start-ups in the Teikoku database. Software companies accounted for only 7% of the 5,292 startups that met the statistical criteria from 2005 to 2011.The effort is far from enough, and the CIO work itself is considered to be a non-strategic position. This situation reflects the long-term view of senior management as a cost center rather than a supportive strategic activity that promotes company growth. This is the potential reason why Japanese software innovation is very inadequate compared to the United States. The reason for the shortage of IT human resources is that the distribution of (institutionalized) software professionals caused by the nature of the organization is uneven. In other words, the essence of the work of most Japanese software professionals is customization, rather than creating products and services that can be sold to multiple users in the horizontal market.
Insufficient agile development capability
Another basis for judging the lack of a product-oriented IT strategy for Japanese companies is that the agile (iterative) development methods used extensively by US companies are slow to promote in Japan. Agile development methods are valuable in that they continue to collaborate with customers and receive feedback to meet their dynamic needs. As mentioned above, the weak IT capabilities of large companies prevent them from adopting agile methods. Similarly, while large companies have always urged integrators to adopt agile methods, integrators have also reacted indifferently because large companies as their customers lack IT capabilities.
Japanese companies are also slow to develop and adopt state-of-the-art enterprise software, which has made them unable to become flexible companies that can quickly seize strategic opportunities. This can be seen from the process of adopting the ERP software, which is slow and difficult. Even with the ERP system, they only use a few typical modules such as personnel and accounting. They also tend to optimize the department rather than the entire enterprise. As a result, they eventually harvested the optimal subsystem and suboptimal overall system.
Because enterprise software integrates the functions of internal information management and external information management, in theory, enterprise software can not only support management to make it more efficient, but also has important strategic significance. Previous surveys have shown that US companies are more inclined to use IT investments to pursue strategic value, such as winning new customers, increasing sales, and supporting market intelligence. Japanese companies are paying more attention to using IT investments to expand their operational performance. A joint survey conducted by the Japan Electronics and Information Technology Association and the Japanese subsidiary of the US IDC Corporation in 2013 further confirmed this view. They conducted an online survey of 216 US multinationals and 196 Japanese multinational executives (excluding IT managers) involved in all aspects of the public and private sectors. When asked about the expectations of IT investments, about 48% of people in Japan will use “used to improve operational efficiency and reduce costs” as their first choice, while 22% choose “to strengthen products and services”. Development”. In the United States, 41% of people choose to “enhance the development of products and services”, and then 29% choose “to innovate business models”. Business model innovation ranked seventh among Japanese companies in terms of choice, accounting for only 13%. Consistent with these results, 75% of US companies consider IT to be important, and 20% of US companies consider it importantAnd 2% of US companies think “not good to say.” In contrast, Japanese companies have data of 16%, 53%, and 24%, respectively.
From the survey, it is almost impossible for Japanese companies to regard IT investment as strategic. This also reduces their demand for high-level software talent.