What distinguishes packaged software developers in Rockville and Rotterdam? Who develops software better? These are critical questions in determining international competitiveness.
Today, an increasing percentage of the software dollar is spent on packaged software products rather than customized software and services. And the stakes are high--the U.S. runs an $18 billion trade surplus in software with Europe alone (1). Of the world's top 100 independent software companies, 86 are U.S.-based (2). The remaining companies are scattered in Britain (6), Germany (3), Netherlands (2), Israel (2), and France (1). (Interestingly, none is Japanese). Is there something unique that American software developers do to achieve this success?
After studying development in American packaged software firms for several years, I recently visited a dozen successful package software companies in Britain, Netherlands and Israel. These are established companies that export a significant portion of their products. Following are five differences that I observed between American and non-American firms. The first three observations address the important question of U.S. competitive advantage in software. The last two observations represent management and marketing issues that distinguish between American and non-American firms.
1. The Hacker Profile
Many American packaged software firms have a culture that is influenced, if not dominated, by the hacker ethos--the creative, experimental individuals who depend on their intuition and wizardry to solve problems, rather than disciplined methodology-based approaches. Hackers are often not schooled in computer disciplines--or sometimes, not schooled at all. In contrast, the hacker profile is less common outside America. There, developers are carefully selected from among the ranks of university graduates. The European profile makes for a more mature, well-trained software professional. This is superior for the ongoing release cycles as the software grows-though perhaps at the expense of innovation.
2. Risk and Ownership
America's packaged software culture is a highly entrepreneurial culture, fostered with risk (venture) capital. In contrast, the Europeans complain of the dearth of venture capital: "It's pretty tough here in the U.K. to raise money like you can in America," said one software VP. Data for 1992 indicate that venture capital in computer-related industries was only one-third as large in Europe as in the United States (3).
Related to risk is reward sharing. Most key American software developers have a stake in their firm through ownership or stock options. My data (albeit limited) indicate that far fewer European firms share ownership with their employees. As a result, there are fewer motivational rewards. I believe that this is a critical factor in creating an innovative, aggressive culture. Exceptions exist: At an Israeli software firm I visited, the offices were empty because every employee in the firm was squeezed into the conference room to hear about the latest change in the stock option plan.
3. The Work Week
American entrepreneurial technology firms have a strong tradition of extended, perhaps excessive, work hours. In American packaged software companies, according to my data, key developers work, on average, 45 hours per week during normal periods and 60 hours during crunch periods. The European software scene is more tranquil: The British and Dutch developers work, on average, just over 40 hours per week during normal times and just under 50 hours per week during crunch periods. European managers explain this difference by claiming that their people are more efficient and focused during normal weeks. However, there may be other explanations: One Dutch manager pointed out that it is difficult to fire an employee after that employee has passed the probation period.
4. Far from the Customer
The bulk of software customers--in numbers and in influence--are in the United States. …