The UK Tech Industry- State of Play 2014.A Technically Compatible Whitepaper. 20 May 2014

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INTRODUCTION

Britain is one of the most technologically advanced nations in the world, alongside the United States, the obvious Asian tech hubs and a few other hotspots. We embrace the latest tech trends in our personal lives and professional lives, shaping the way we do business with each other, learn new skills and enjoy our free time.

With such a strong affiliation with technology, it’s no surprise that contemporary Britain has a strong industrial presence in the IT arena. According to the Department for Business, Innovation & Skills (BIS), the UK tech sector contributed 8% to UK Gross Value Added (GVA), or the value of goods created by the economy’s various industries, in 2012. It’s a sector that employs 1.2 million people, with well-known UK hubs including ‘Software City’ in Sunderland and the Thames Valley corridor – oft described as Britain’s answer to Silicon Valley.

British Tech.

It’s worth here defining exactly what we refer to as the ‘Tech’ industry. A popular acronym to describe some of the most integral subjects to UK industry is STEM; ‘Science, Technology, Engineering and Mathematics’, often used in relation to educational policy and school curriculum choices. For the purpose of this Whitepaper however, we borrow from KPMG, who define 5 sub-industry groups that make up the UK tech industry:

1

of UK Gross ValueAdded was contributedby the UK Technology

industry in 2012.

8%.... creating employment for over

1.2 million people.

• Software Publishing. • Computer programming and related activities.

• Data Processing and related activities.

• Manufacture of computer, electronic and optical products.

• Manufacture of electical equipment.

England’s capital city, one of the financial and business capitals of the world, is another hive of activity. According to the BIS, the tech sector here grew 16.6% between 2009 and 2012; impressive growth that reflects a wider tech trend and London’s ability to prosper regardless of the external economic context.

London.

In this whitepaper, we discuss the state of the UK Tech industry, as it stands midway through 2014. The wider British economy is experiencing a resurgence, approaching the peak levels not seen since the economic crisis of 2008. Positivity is in abundance and many industries are enjoying strong upturns, which is certainly the case for technology.

Once we’ve addressed they key facts and figures, the whitepaper steers towards jobs. What’s the market like for UK technology employees and what is the level of demand? Finally, the whitepaper focuses a couple of the key trends in the industry, to shed some light on the topics at the forefront in the mind of employers and emploeers throughout the industry.

KEY FACTS & FIGURES

Like so many industries, UK technology businesses suffered significantly during the global economic downturn of 2008, and the resulting years of economic uncertainty. Many companies chose to delay potentially capital intensive IT projects, needing instead to focus on damage control and riding out the storm. Such strategic decisions are not uncommon; according to research by McKinsey, during recessionary periods, the spending on goods and services generated by the high-tech sector drops four to seven times more than GDP.

Positive Growth.

Source: Adapted from ‘‘KPMG Tech Monitor UK - April 2014’

2

After the dot-com bubble burst in 2000, US IT

spending fell 27%, while

GDP fell only 3.7%

“”

Jump to May 2014, and we find a UK economy in resurgence. 2014 first quarter growth hit 0.8%, marking a fifth consecutive period of GDP growth. It would be foolish to warrant the end of economic troubles, but the much promised green-shoots of recovery are certainly now flourishing.

The graph below shows the Purchasing Managers’ Index (PMI) for the UK Tech industry, a statistic that gauges the purchasing intention of managers at any one particular time. We can clearly see the impact of the economic downturn on the tech industry. With a fall that begins in the middle of 2007, the market reached to its lowest point in 2009, where PMI reached 40 (50 = no change).

2013 however, was a year of very strong growth. We can see that PMI reaches almost 65, the strongest performance for a decade. As of Q1 2014, PMI stands at 60.0, down slightly on the end of 2013. However, this does demonstrate that the sector is continuing to experience strong levels of growth.

Industry Drivers.So, it’s fair to say that growth is a major trend in the industry, but what’s driving it? We can find clues by looking closely at technology sector demand patterns. With an improving wider domestic economy, increased IT spending and investment has resulted in a greater backlog of work becoming evident.

Again, we can use purchasing manager indexes here, in particular the ‘PMI Backlog of Work’ Index. Since mid-2010, the index has provided a negative result, below the 50 no change level. This demonstrated that tech companies were experiencing less backlogs of work, with more available capacity. However, in mid-2013 the index rose over 50 for the first time in three years, and continued to rise, almost hitting 55 in 2014. Although less dramatic than the PMI figures quoted above, this provides clear evidence that tech companies are experiencing greater capacity pressures, causing backlogs of unfinished work - a clear sign of more buoyant client ordering activity.

Tech SectorProfitability

With the combination of a growing number of jobs and a shrinking number of talented individuals to fill them, candidates have seen salaries for IT roles grow considerably; April 2014 saw the most marked increase since July 2007. ITJobWatch monitors UK IT positions, providing some useful insight into the kind of specific wage increases the market is experiencing, shown here.

As a consequence of a recovering economy, the UK has enjoyed an unemployment rate gradually falling in recent months. The latest figures produced by the Office of National Statistics (ONS), suggest that UK unemployment now sits at 6.8%, a five-year low.

With technology businesses experiencing more frequent backlogs of work, accompanied by a general trend of industry growth, it’s good to report that the job market too is in healthy shape. The IT recruitment agency, Langley James, publishes a monthly report commenting on recent employment trends for the industry. Their recent key findings point towards a market that is increasingly skewing in favour of the skilled candidate. Firstly, the number of both permanent and contract IT positions available is rising. According to research published by the Recruitment & Employment Confederation (REC) and KPMG, the Permanent IT job market was ranked fourth for positive growth by industry sector in March, with contract IT jobs slightly behind in sixth.

Leading the way.

THE JOB MARKET

3

Source: Adapted from ‘‘KPMG Tech Monitor UK - April 2014’

This graph, using data from the ‘Markit Business Outlook Survey February 2014’, shows that hiring intentions of tech companies are persistently higher than the wider average. This is again evident in Feb 2014, where tech companies had a net balance of 38.6%, as opposed to 35.7% for the wider all company average.

Clearly then, there are more IT jobs available. The other side of the coin is that there has also been a relatively sharp reduction in candidate availability. Langley James report that the availability of IT staff to fill positions in April 2014 fell at the sharpest rate since October 2004 for permanent placements, and the sharpest since December 2000 for contract positions.

Super Salaries.

Keyword Average Salary 3 months to May 2014

Average Salary change from same period 2013

‘Developer’‘.NET’‘HTML’‘Java’‘Linux’‘Oracle’

£42,500£41,500£40,000£50,000£45,000£50,000

+6.25%+3.75%+6.66%+6.38%+5.88%+7.52%

Candidates know they can warrant greater remuneration for their time. Such impressive salary growth figures provide a further indication of the high demand of these skilled tech employees in the UK. Another reason often noted in reference to such figures is the apparent ‘skills shortage’ situation, which we’ll move on to address in the next section of our whitepaper.

Source: ‘IT Jobs UK’ - http://www.itjobswatch.co.uk/

Another key trend that has been particularly relevant in 2014 is the conversation around opportunities for women in the technology sector. A recent report by Gartner on Chief Information Officers (CIOs) found that only 14% of UK CIOs were women, a figure which has remained static for the past decade, when analysis by gender began.

It has long been agreed that the situation isn’t simply caused by gender preference, but an inherent cultural problem within the technology industry. One such cultural feature that Gartner identify is the ‘hero mentality’ of job promotion in tech. It is more often men who associate with such a mentality, where people work very hard to fix problems after they have occurred and are then positively rewarded for their ‘heroic’ work. Women however, are often more proficient and effective at identifying and rectifying problems before they happen, arguably as or more important, but in the current generalised structure, this can be overlooked.

Again, however, both the British government and leading technology organisationsare pro-actively trying to remedy the situation. The recently launched government campaign ‘Your Life’ (http://www.yourlife.org.uk/) aims to help make careers in the UK’s STEM industries a more attractive proposition to young professional women. Meanwhile, techUK, which represents the industry on a number of issues, plan to launch the ‘WalkTall’ campaign in summer 2014, aimed at helping women who have left the industry for a career break re-join the workforce. These are just two of a number of high profile campaigns that hope to address the obvious gender imbalance that is evident in the tech workforce.

One of the main reasons attributed to the lack of tech candidates is an apparent skills shortage within the wider British population. The problem is a serious one; according to research published by PWC in May 2014, just under two-thirds (64%) of UK businesses are concerned that they will be unable to find the people they need to fill particular positions.

The Skills Shortage.

While a skills shortage may appear to be favourable to those employees who are widely proficient, evidence does suggest that it can have a negative effect once in a position. As vacancies are left unfilled, it is often the rest of the staff who are required to pick up the slack. 2014 Research by TalentParty.com of 200 UK managers found that 66% thought unfilled vacancies left current staff feeling overworked, while 54% felt it caused staff to be more stressed and 42% attributed it to lowering morale.

Be careful what you wish for.

INDUSTRY TRENDS

Women in Technology.

4

Skills shortages are a common denominator across the sector.

Many companies report difficulties in filling

vacancies.

“”

Victor ChavezCo-Chair, Information Economy Council

There is some light at the end of the tunnel however. The Information Economy Council (IEC) are leading a partnership that aims to result in 100,000 more young people being likely to pursue technology careers by 2018, with funding provided by employers and the UK government. There is also hope that increased engagement with Massive Open Online Courses (MOOCs) will give people more of an opportunity to build their personal repertoire of skills in a relatively easy and cost-effective way.

of UK CIOs arewomen.

14%Only

ConnectTechnically Compatible

The Evolve BuildingRainton Bridge Business Park

Houghton-le-SpringCo Durham

DH45QY

Tel: 0800 488 0175Int Tel: +44 191 305 1042

@TechCompatible

www.technicallycompatible.com

SourcesKPMG - 'Tech Monitor UK - April 2014'

Mckinsey - 'High tech: Finding opportunity in the downturn'’The BIS -‘'Industrial Strategy Progress Report - April 2014 '

Langley James - ‘'IT Recruitment Market Summary - April 2014'’Rullion - 'IT Recruitment Market Update - March 2014'

Talent Party - 'Revamping recruitment in the UK'The Guardian - 'Women in Technology - no progress on inequality for 10 years'

techUK - 'Your Life’campaign to back Women in Tech'