Pulling The IT Industry Together

Pulling The IT Industry Together

Svetlana Ragimova, Kommersant

Last December the Information & Computer Technologies Industry Association (APKIT) presented its strategy for the development of the Russia’s IT industry to the country’s Ministry of Communications. The report was developed in cooperation with McKinsey & Company, a global management-consulting firm. According to experts, if the proposed measures were implemented, the share of the IT industry in Russia’s GDP could grow from 1 percent to 2.5 percent, or more.
A Third Attempt

The document that APKIT created with McKinsey’s help is titled “On the development of the IT industry in the Russian Federation: Approach of the business community,” and turned out to be an ambitious plan. Running to 57 pages, it describes how the country’s productivity could be improved through IT, thus achieving an increase in GDP increase, promoting the country’s modernization and as a first step on the path to innovative development.

According to the authors, this would require the active participation of the state — not just using individual measures but by working with the industry in a systematic way. Eventually this should lead to the creation of an ecosystem conducive to the development of the IT industry, which is divided by the authors of the projects into three main segments – IT services, software and hardware.

Nikolai Komlev, executive director of APKIT, says that in 2003 the association developed a plan for the development of the IT market between 2005 and 2010. The team at the Ministry of Communications under the guidance of Leonid Reiman took this concept as the basis for its strategy, which was then endorsed by the government. However, at the time consultants like McKinsey weren’t asked to participate, as there was no funding to pay their fees. There was then a second, intermediate strategy brief whose whereabouts is still unknown. So the current document is the third of its kind.

Most of the budget for the new document came from contributions by the system integrators who were its chief sponsors. In addition, Microsoft contributed some money. IBM and HP also wanted to participate, but did not have time: Their marketing budgets for the current year had been allocated, and to find extra resources would take time.

Nikolai Pryanishnikov, president of Microsoft in Russia, discussed the company’s participation in the project.

“We, as a world leader in the IT industry, are interested in the development of the IT industry in Russia,” said Pryanishnikov. “We are open to cooperation with all relevant industry associations and community organizations whose purpose is the development of the Russian IT market and the innovative economy in general.

“The company supported the APKIT initiative to promote dialogue between the industry and the government, as Microsoft believes that the collective views of the industry on the development of the sector should be integrated into any decisions, including the determination of the directions for the focus efforts of the state,” he said.

Tahir Yapparov, head of the company IT, said that the emergence of such a strategic document is natural.

“The presence of a long-term strategy is indicative of a company’s – or an entire industry’s — level of maturity The IT market is one of the few sectors of the Russian economy that has been created from the ground up through the efforts of enthusiasts in the post-Soviet era, said Yapparov.

“Until recently representatives of the other sectors of the economy and the country’s leadership displayed a certain skepticism about the value of our industry, its visibility in comparison with other industries and about the general importance of the issues solved by the IT industry for the Russian economy,” he said.

“So for many years the industry got on with its work and implemented its strategies at a level that was not considered to be worthy of discussion at the higher levels of power.

“Today we can say that the industry has generally succeeded. For example, it has become one of Russia’s leading export industries. The export of software and services in the past year amounted to about $4 billion, only a few times less than the export of arms, which is the basis of our presence on foreign markets aside from natural resources.”

In addition, according to Yapparov, almost all market players realize that it is impossible to solve the problems the IT industry faces only from within the industry. The most pressing issue is the training of the personnel for the IT industry.

“It’s not enough to simply help the higher education institutions with the creation of courses and laboratories, said Yapparov. “Systemic changes at all levels of personnel training in high schools and colleges are required.”

Another issue the industry faces is how to enter new foreign markets.

“I often visit international exhibitions and conferences and see the systematic work done by Indian, Brazilian, Israeli and Chinese governments in promoting their IT industry on both their stand and through organizing special days at such events dedicated to their respective countries. Of course, tax benefits for Russian software developers are also needed,” he says.
Measure Twice and Cut Once

Komlev says that a consulting company for the APKIT project was selected from among both Russian and international companies.

“Knowing from my own experience participating in state IT projects, how shortsighted choices based only getting the lowest price can be, we were guided by a wider set of criteria. Among them were experience in developing similar documents, competence and the company’s reputation,” he said.

The initiators of the document see not the Ministry of Communications as the recipient of the document but the Russian government.

“Among the goals of this white-paper are to show the country’s leadership the role the IT sector plays in the development the Russian economy; to describe the possible scenarios for the IT industry in Russia; to demonstrate the possible consequences of the development of this industry in Russia; and to show examples from other countries,” said Komlev.

“And, of course, to propose a set of measures required from the state to support the development of the sector. We specifically prepared this document at the time of the elections in 2012. It seemed to us that the new government wanted to correct its course, and not just in words but in deeds; to move from an economy based on the sale ofraw material to a high-tech economy.”

Alex Ananyin, head of Borlas, which is also was a member of the working group, added: “We wanted to bring our vision of how the state agencies, instead of just speaking on the importance of innovation, can proceed to practical support of the industry and its development as an authentic sector of economy.”

Mikhail Krasnov, founder of Verysell, led the working group involved in the project. In total these activities took nine months. In the first two months the consultants were selected and then some time was devoted to negotiating the contracts.

The work on the document itself, in cooperation with experts from McKinsey, took six months. The members of the working group met at least once a month, with the rest of the communication occurring by email.

In addition, four extended meetings with the APKIT Committee were organized. During these meetings the current versions of the document were discussed and, according to Krasnov, the final version is very different from the first drafts.

“We started the work on this document when Igor Shegolev was the Minister of Communications. So first we emphasized the educational part, trying to explain the issues which, as it seemed to us, the ministry didn’t know very well,” said Krasnov.

“When the Ministry team changed, it became clear that the emphasis needed to be be shifted. Although we decided to leave the explanatory part intact because our audience is not only the Ministry of Communication but also the Ministry of Industry, the Ministry of Economic Development and others,” he said.

“We, by the way, sent the document to all government agencies involved in the life of the industry. Some of them responded, some didn’t.”

Mark Shmulevich who came to the Ministry of Communications as its Deputy Minister had time to participate in the development of strategy and expressed his opinion on the document several times. Three people from McKinsey worked directly on the text of the document. But other leading specialists from the company worked on the strategy.

The basis of the document are those analytic studies which McKinsey had already carried out. These studies also apply to other technology sectors, not just IT, and the experience of other countries. In addition, the consultants conducted about 50 interviews with industry representatives, including members of APKIT, whose opinions were taken into account when drawing up strategies. During the collaborative work of the managing committee and the working group, changes, additions, and suggestions on the text were made.

“Of course, there were many disagreements, it was difficult to develop a consensus on the various issues,” said Krasnov. “The industry is not uniform, and the market participants have different types of businesses [within the industry]. Which is why both the outlook and the interests of these companies are different. We tried not to focus on those aspects that cause disagreement. The goal was to reflect the issues in which the point of view is fully supported by the majority.”

Controversial issues were either not included in the document at all, or included with the comments that there exist different views on this issue. For example, considerable debate was raised by questions of insourcing and the support of domestic producers.

The appearance of the APKIT strategy was received positively by the Ministry of Communications. Minister Shmulevich says that it is not the only proposal on the development of the IT industry received by his office. But the strategy prepared by the APKIT, in his opinion, is the most ambitious and the only one that was developed in conjunction with consultants of such a high caliber.

And yet, according to Shmulevich, such recommendations are usually developed by a group of companies which are just a small part of the industry, while the Ministry of Communications should take into account other segments of the industry. For example, those that focus on start-ups and their support, or more knowledge-intensive fields of IT. The interests of companies from these sectors may very well differ from those voiced by other market players.

“You have to understand that the resulting document is the opinion of the whole industry,” explains Krasnov.

“Among the sponsors of the project there are a lot of system integrators, but this is just by chance. McKinsey is a world-class consultant and they reflect their established opinion in this strategy. The sponsors weren’t given any privileges or rights to influence the content of the document. There were moments in which the opinion of system integrators was very different from the opinion of McKinsey, but the last word always belonged to the consultants whose task it was to prepare an objective document in the interest of the entire industry, not of just one segment,” he said.

Boris Bobrovnikov, CEO of CROC, adds that the inclusion of all market players, not just representatives of certain segments, was a condition of McKinsey’s participation.

According to Yapparov, the fact that market’s largest players took the most active part in developing a strategy is natural.

“By tradition the big players are still called ‘system integrators’ though we and other market leaders have long been represented by groups of companies, which, along with the integration business include software development, IT services, exports, educational business and so on.”
A Comprehensive Approach

According to Shmulevich, the Ministry of Communications has already implemented many of the measures proposed by APKIT and McKinsey. And at the end of April there will be a meeting of the Council on IT Industry Development at the ministry’s offices, which will make recommendations on the future actions of officials.

“Now the ministry is taking a number of measures which are including those recommended by us, but there are some differences in approach. In this strategy we emphasize the need to implement various measures as a single program — comprehensive and precisely calculated,” Krasnov adds.

Otherwise, according to Krasnov, even if some positive changes are made, they can be not effective, as some uncorrected “failures” in other parts of the ecosystem will remain. For example, if when investing in the development of industrial parks, industry tax breaks that make it competitive in the world markets are not put in place and issues of staffing are not addressed; these industrial parks will simply remain deserted despite the development of the infrastructure.

“We want the government to promote the creation of an ecosystem that will help perform the tasks that are currently stated by the country’s leadership – an increase in GDP by a certain year and in a certain number,” said Alex Ananyin.

“It’s obvious that labor efficiency is the only factor that can really be controlled, and achieving these goals will be a determining factor. We want to take the innovative route: To abandon dependency on raw materials, to enter the high-tech products market, to export scientific solutions and new technologies, etc. And we still have a chance. We have solutions that can really create demand on the global market. Modern information technology is certainly one of the main instruments that can help the country reach this goal,” he said.

According to Komlev, if all of the proposed measures were implemented, the share of the IT industry in the country’s GDP would grow levels comparable to that in developed countries – from 1 percent to 2.5 percent, or more. In developed markets the figure is currently 3-5 percent.

More important, however, is the possible increase in productivity in IT intensive sectors of the economy; the effectiveness of the manufacturing sector, the quality of governance and the delivery of public services. And as a result, Russia could finally join in the worldwide development of high technology.

Of course, Komlev does not claim that the proposed measures are enough.

“This is just a document. There should be someone to start using it. For most of the economy, the IT industry is not an engine but rather a catalyst; it is an often-necessary element of the infrastructure. Take, for example, pharmaceuticals or aeronautics. It is impossible to create anything modern without using IT in these industries.”

CATEGORY: Interview

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