Panel on Trade and Industry(Papers) 13 Apr 99

CB(1) 1103/98-99(01)

Legislative Council Panel on Trade and Industry

CONSULTANCY STUDY ON FORMULATION OF STRATEGIES FOR PROMOTING THE USE OF INFORMATION TECHNOLOGY IN HONG KONG INTRODUCTION

This paper reports the findings and recommendations arising from the Consultancy Study on Formulation of Strategies for Promoting the Use of Information Technology (IT) in Hong Kong and the follow up.

BACKGROUND

2. The Industry Department in October 1997 commissioned KPMG Management Consulting (the consultant) to carry out the above study. The terms of reference of the study are set out at Annex A. The study aims to take stock of the present status of IT application in Hong Kong and recommend a practical and definitive strategy for promoting its use. The IT Committee of the Industry & Technology Development Council (ITDC) has been tasked to oversee the study. The Secretary for Information Technology and Broadcasting, who is responsible for information technology policy, is a member of the ITDC, and his representative and an Information Technology Services Department representative also sit on the IT Committee. The consultant has recently submitted the final report of the study. A copy of the executive summary of the report is at Annex B.

STUDY FINDINGS

3. The study finds that, despite its high household computer penetration which is comparable to that of Singapore, Hong Kong is still lagging behind US and Singapore in terms of IT application in the service sectors. The building services has been identified as the least performing in this respect (at about 25% as compared to the best practice which is set at 100%), followed by professional services, travel services, hotels, advertising, bank, insurances, import/export, transport, media and retail. Nonetheless, 7 of the 12 sectors studied are above the 80% mark, with communication sector even slightly leading US and Singapore.

4. On general cross-sectoral comparison, the study has the following findings: -

Favourable findings

Hong Kong companies are more likely to have a separate IT department than those in the US and Singapore;
Hong Kong firms are more likely to outsource parts of their IT functions than the US and Singapore;
Hong Kong appears to employ more IT professionals than the US and Singapore, although a smaller proportion of them are highly qualified; and
Hong Kong's utilisation of office automation is higher than the US and is similar to the situation in Singapore.

Unfavourable findings

Small firms in Hong Kong are less likely to have an IT plan;
Hong Kong firms are less likely to utilise external training or to conduct internal training courses. This is particularly true for the smaller firms as they generally provide less IT training for their employees than their counterparts in the US;
Hong Kong firms have on average a much lower IT budget than the US, but the figure is similar to that of Singapore;
Local small firms are less likely to have networked computers than those in the US, but the opposite applies for large firms. Singapore's case is similar to that of Hong Kong;
Hong Kong firms spend a smaller proportion of their IT budget on software than Singaporean firms, although the level is higher than that in the US; and
Hong Kong firms are less likely to utilise Internet technologies, such as email, access to business information, electronic commerce and setting up of web pages.

5. The study has identified the following constraints in IT adoption for companies in the local service sectors:

insufficient IT professionals in the market and the associated high cost and high turnover rate;
insufficient IT investment due to low awareness of IT, low priority for IT and the missing link between IT strategy and business strategy development;
the general misconception that IT is an expenditure rather than a strategic tool for success; and
inadequate local software support and vendor support, including availability of Chinese software.

STUDY RECOMMENDATIONS

6. On the basis of the above findings, the study has drawn up four programmes containing 15 recommendations, the details of which can be found in the last chapter of the executive summary at Annex B. A summary of the recommendations and the follow up.

Programme 1 - Government Leadership

Recommendation 1A : Outsourcing

7. The consultant has observed that the local industry has been facing an acute shortage of IT manpower supply. The problem is believed to be highly linked to the crowding out effect of government's demand for IT staff. In order to ease this problem and to turn this demand for IT staff into a supply of work in the market, the consultant recommends that the government should try to outsource its IT services. This will not only effectively reduce the government's demand for IT professionals but also create mobility and opportunities for skills transfer within the IT labour market and benefit the local IT industry in general.

8. The IT Committee considers that the government is already moving in this direction. In its blueprint for Hong Kong's IT development in the next century "Digital 21", the Information Technology & Broadcasting Bureau (ITBB) has committed that outsourcing of application maintenance activities in the Information Technology Services Department (ITSD) will commence in 1999 and that by 2001, over two-third of new IT projects in the government will be outsourced. Accordingly, this recommendation is being implemented.

9. On outsourcing arrangements, the IT Committee has also commented that, whilst maintaining a level playing field for all bidders, the ITSD should try to facilitate the participation of small software firms by simplifying the application procedures and reducing unnecessary financial requirements.

Recommendation 1B : Standardisation of Electronic Interchanges

10. The consultant considers that the government has a role to play in setting a common standard in the local community through its interface with the public. However, it cautions that some of the government departments are lagging behind in this respect and are still requiring paper copies for submissions. Also, some departments are requiring users to submit engineering drawings of different platforms, causing the users to acquire extra packages.

11. To tackle this problem, the consultant recommends that the government should review its interface with the private sector and how it can maximise the use of electronic interchange. Electronic tendering and computerised documentation in professional services are two areas that need to be improved.

12. The IT Committee has noted that the ITBB is preparing an Electronic Service Delivery (ESD) infrastructure to provide round-the-clock access of government services. In this scheme, the public will be able to obtain services through personal computers, interactive payphones or televisions. The system will be built on an open platform and will be made available in bilingual format. It will adopt internationally recognised and common standards and it will be delivered in an inter-operable, secured and reliable manner. The initial batch of services will be introduced by the year 2000, when filing of salaries tax returns, renewal of driving licences and payment of government bills will be included.

13. As regards the requirements for paper submission and the problems arising from different engineering platforms in various government departments, the IT Committee agrees that they are very much operation related and should therefore be dealt with by the departments concerned. Nonetheless, ITSD has agreed to coordinate with the relevant departments on this issue and report on the outcome of the discussion.

Programme 2 - Increasing awareness of IT

Recommendation 2A : Good practice dissemination

14. The consultant has observed that there is a lack of awareness on how IT can help to deliver effective solutions for businesses and what the best practice standards should be. This has impeded the willingness to invest in IT. In this connection, the consultant recommends that a dissemination programme comprising roadshows, seminars, publication flyers and visits should be carried out. The IT outreach counsellors referred to in Recommendation 2B and the IT service providers in the market should be asked to take forward this initiative.

15. The IT Committee agrees that there is a need for raising the awareness of IT in the public and that the dissemination programmes as proposed should be useful in this regard. The IT Committee has also observed that the ESD programme to be implemented by ITBB will also help since the programme will have to be developed with close participation of the private sector. The programme would entail, inter alia, major publicity events on the services available. These publicity events will certainly help to achieve the objectives of the recommendation. In addition, ITSD is planning to collaborate with various industry support bodies and professional associations to stage publicity programmes to increase public awareness of the importance of IT application.

Recommendation 2B : IT Outreach Counsellors

16. The consultant has recommended that IT outreach counsellors should be established within trade associations or industry support bodies to assist small and medium enterprises (SMEs) in their computerisation process and to help resolve implementation problems specific to individual sectors. Initially, three counsellors (1 for import/export, 1 for tourism and 1 for professional services) should be established. If the system is successful, other sectors, including import/export, retailers, hotels, travel agencies and professional services could also be covered.

17. The IT Committee agrees that the recommendation is worth considering since there is currently insufficient support for SMEs in the service sectors to tackle IT issues and to secure relevant solutions. The 13 counsellors in the Hong Kong Productivity Council (HKPC) are mostly dealing with manufacturing-related IT matters and only one is allocated for the service sectors. It is agreed that the HKPC should work with the industry associations concerned to see how best similar counselling services could be provided in a self-sufficient manner. The ITSD and the Industry Department will discuss this issue with HKPC accordingly.

Recommendation 2C: IT Awareness in Hotel and Travel Sectors

18. The consultant has observed that there is a lack of software support in the hotel and travel sectors. In addition, these sectors are reluctant to invest in new software systems. The consultant thus recommends that congresses and conferences on IT and software development in tourism-related sectors should be organised. These events should help local travel companies and hotels to understand more of the benefits of various sector-specific softwares.

19. The IT Committee agrees that such congresses and conferences should be useful and considers that the recommendation should be referred to the relevant industry associations and the Hong Kong Tourist Association. These organisations should be requested to work closely with the Hong Kong IT Federation and relevant software vendors.

Recommendation 2D: Executives/Owners' Awareness of IT

20. This is relevant to Recommendation 2A above. The consultant has pointed out that the important task is to get business executives and owners to recognise the long-term benefits of IT investment. In this connection, the consultant recommends that a package of promotional roadshows and talks should be included whenever appropriate into the event that the target groups would normally attend so as to raise their awareness of IT.

21. The IT Committee is generally supportive of this recommendation and considers that a number of promotional activities, such as the IT Excellence Awards and the "IT File" TV series, have been supported by the Industrial Support Fund in the past year. As for individual sectors, the IT Committee is of the view that a more focussed approach should be adopted. This means that individual trade associations should consider some tailor-made packages for their own sectors. In addition, local IT organisations can also join force with major industry organisations, such as the Hong Kong General Chamber of Commerce, to organise such activities.

Recommendation 2E: IT Best Practice Award

22. The consultant recommends that a specific best practice award for the service sectors should be added to the IT Excellence Awards organised by the Hong Kong Computer Society.

23. The IT Committee considers that this recommendation should be examined in the context of the forthcoming review of the IT Excellence Awards.

Recommendation 2F: Financial Services Innovation Lecture

24. The consultant finds that there is a poor understanding of the benefits of IT on the part of bank managers, particularly the smaller ones, and it recommends the organisation of an annual lecture on IT innovation for the financial sector to promote IT awareness.

25. The IT Committee agrees that the financial sector is an important sector and that adequate IT application would further enhance its competitiveness. Accordingly, the recommendation would be conveyed to the Financial Services Bureau and the Hong Kong Monetary Authority for their consideration.

Recommendation 2G: Attitude Tracking Survey

26. In order to measure the usefulness of the aforesaid awareness programmes and to understand the trend of IT application in the community, the consultant recommends that the government should conduct annual surveys on the attitude of business executives towards IT application.

27. The IT Committee agrees that such surveys would be useful to understand the level of IT awareness in the local community and the level and trend of IT application in the service sectors. It should therefore be done periodically in a structured and coordinated manner so that the results would be sufficiently authoritative and could be compared on a continuous basis. However, the format and frequency of such surveys would need to be further examined. In addition, ITSD is currently exploring the feasibility of conducting IT penetration and benchmarking surveys to gauge information on the level of IT application. The Committee has therefore requested the ITSD to examine if the recommended surveys could be integrated with the surveys being planned.

Programme 3 - Increasing IT Skills

Recommendation 3A: IT Graduate Skills

28. The consultant has stated in the report that many sector representatives are concerned about the lack of business education and sector specific awareness modules in the syllabuses of IT courses in higher education institutions. This is critical as companies require IT managers that understand the needs of the sector concerned. Therefore, the consultant recommends that the higher education institutions and the industry associations should take stock of industry needs and discuss issues related to curriculum development.

29. Whilst agreeing that such meetings between industry and academia would be useful to improving the syllabuses, the IT Committee has however cautioned that a balance should be maintained between the immediate practical needs of the business sector and the longer term mission of IT education for future needs of the community.

30. In this context, the IT Committee has requested the Industry Departemnt and ITSD to discuss the matter with the Education & Manpower Bureau, University Grants Committee and various higher education institutions.

Recommendation 3B: Vocational Skill Enhancement

31. The consultant has observed that there is a general shortage of IT professionals in the local service sector and understands that some countries and overseas companies are tackling the problem through a mix of studentship and retraining programmes. The consultant therefore recommends that an IT studentship scheme should be established. This will facilitate the supply of more IT manpower and help to attract graduates of other disciplines to join the IT industry.

32. The IT Committee considers this recommendation interesting but is concerned about its cost effectiveness when compared with the normal channel in providing IT graduates. While such conversion courses may satisfy the needs of those who wish to change to IT-related careers, it does not follow that such an avenue should become a formal channel for producing IT personnel.

33. On the other hand, the IT Committee has noticed that the Education and Manpower Bureau (EMB) is currently commissioning a consultancy study on the manpower and training needs of the IT industry. The study will focus on the existing manpower supply and demand of the IT sector and the extent of the mismatch, and will then recommend a long-term strategy for IT manpower planning and training. The study will be completed by the middle of 1999. Accordingly, the above recommendation will be conveyed to EMB and the Vocational Training Council (VTC) so that it can be considered when the IT manpower plan is formulated.

Recommendation 3C : IT Skill 2000 Plus

34. The consultant recommends that IT courses should be offered to the employees of SMEs at a discount. The courses should be run at two levels - one for those who need to understand the basics, and one for those who need to further their understanding and skills.

35. The IT Committee considers that similar training courses are already available at the VTC. Therefore, the focus of work should be the publicity and coordination aspects so that SMEs can make better use of the training courses. In addition, the format of the courses should be made more flexible to meet the different needs of different sectors. As for sector-specific training courses, the IT Committee agrees that the VTC and relevant industry bodies, such as the Retail Management Association, should be requested to see if special tailor-made courses could be designed.

Programme 4 - Appropriate IT Adoption

Recommendation 4A: IT Starter Consultancy Support

36. The consultant considers that the SMEs are reluctant to computerise because of information failure, cost of capital equipment and uncertainty over appropriate software. It therefore recommends that a support package should be designed to encourage SMEs to adopt more use of IT. The package should include free diagnostic advice and subsidies for computerisation initiatives.

37. The IT Committee has reservations on this recommendation. It opines that the major constraint for SMEs to adopt IT in their operations is the lack of knowledge and manpower support. The effects of the proposed incentive scheme would therefore be very limited. The awareness and manpower support programmes mentioned in previous paragraphs should help tackle the issue.

38. In addition, the IT Committee considers that industry support bodies like the HKPC, Hong Kong Article Numbering Association, Hong Kong Information Technology Federation and Hong Kong Computer Society could be asked to strengthen their promotion efforts in this respect. The outreach counsellors mentioned in Recommendation 2B above could also be requested to focus more on those SMEs which have yet to adopt IT in their businesses.

Programme 5 - Developing the IT Sector

Recommendation 5A: Software Quality Assurance

39. The consultant has commended the three initiatives sponsored by the Industrial Support Fund to improve the quality level of software products in Hong Kong. They include the two programmes to assist local software developers to review their software development process and a third project to map out a local quality assurance model for small and medium-sized software companies. The consultant recommends that such efforts should continue.

40. The IT Committee endorses the recommendation, and agrees to continue to support similar initiatives in this regard.

Recommendation 5B: IT Professionals' Forum

41. The consultant considers that it is necessary for IT professionals to improve their general business know-how. It therefore recommends that IT professional fora for different sectors should be held.

42. The IT Committee agrees that such fora would be useful. The recommendation would be conveyed to relevant IT professional bodies and trade associations for their consideration.

NEXT COURSE OF ACTION

43. Taking into account the comments of the IT Committee, the ITBB, ITSD and Industry Department will take follow-up actions on the recommendations. As the report has been finalised, it will be printed and sold at the Government Publications Sales Centre at printing cost.

Industry Department
March 1999