Software has an obvious home in the world of IT, and US tech firms are the most visible.

Yet it’s increasingly critical to production and manufacturing—which gives Europe the opportunity to be a global software contender.

Say the word “software” and tech giants like Google, Microsoft, and Facebook come to mind.

Software powers the millions of mobile apps that enable everything from car sharing to dating. Software is behind the portfolio of services that IT companies offer businesses to help them manage data, optimize security, and facilitate communication.

The US still dominates in “dot com,” but China is making serious moves with three companies in the global list of the 10 biggest companies by revenue.It is becoming clearer, however, that software plays a growing role in areas that, on the surface, seem far removed from the “dot com” world.

Software is now fundamental to automotive, durables, and utilities, and many of the titans of these industries are in Europe.

In machinery and plant engineering, 67 percent of companies offer digital services to complement their hardware products. Apple is a software icon, but there are more lines of code in today’s car than in a MacBook. Software’s increasing importance in other industries makes its development a growing field in Europe, but unlike in the US, these developers are working largely in non-IT industries.

Software’s challenges in Europe

Europe is poised to becoming a bigger software contender, but there are challenges. Two deficits, in particular, stand between the region and its full software potential.

Talent shortage.

Throughout Europe, the spaces for innovation exist, but there is a shortage of talent. Looking at Germany alone, over half of the companies that apply software solutions report challenges in finding qualified employees for the 41,000 open positions that require a computer science background. These jobs cut across IT and other industries. Even with the number of computer science specialists that come to Europe from other parts of the world, the region still doesn’t develop enough talent to fill its companies’ open software positions. Developing talent is not Europe’s only human resources challenge; retention is another. A 2015 survey of engineering and computer science students in Europe, conducted by the German business magazine Wirtschaftswoche, indicated a preference to apply their skills to US over European companies. The demand for software talent in Europe is expected to grow significantly over the next five years, and the current trajectory will only lead to a bigger gap

Weak strategy.

As the importance of software in traditional hardware industries grows, businesses must adopt a robust strategy. Many companies in Europe, however, have yet to define an appropriate enterprise-wide software strategy. Companies can find software success by exploring new business models to leverage their positions as successful hardware-focused businesses. This could mean monetizing the software offering that complements their core offerings instead of giving it away. But, many resist the types of changes to their business models that would facilitate these gains.

Talent strategy

The challenges that software faces in Europe are real, but companies can address them and position themselves to succeed. On the matter of the talent shortage, companies can take action to attract and retain the limited number of computer science specialists on the European market.The first step here is developing an understanding of exactly why top software talent is drawn to a company and why they stay or leave.

McKinsey’s work in the area of recruiting and retaining top tech talent has identified four broad elements driving satisfaction and retention:

Employees want to know that the job itself offers some degree of security and the possibility of professional development; compensation needs to be competitive; the organization needs to be respected in its industry; and employees want evidence they will have positive and productive relationships with their superiors Europe’s manufacturing success stories have obvious solid track records.

Yet our observations suggest revisiting some of these areas and adjusting them to the new world of software supports talent recruitment and retention. Specifically, many companies are discovering that a dynamic, nontraditional workplace is what draws software talent to companies. This includes a focus on leading-edge content, work spaces that facilitate collaboration and creativity, and a culture that encourages flexibility and self-direction.

 

Source: Sleeping giant: Europe as a global software competitor | McKinsey & Company

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